Broadcast TV Upfront Sees Gains

Friday, Jul 15, 2016

After several years of anemic results for the annual advanced TV ad selling season known as the “upfronts,” broadcast networks are poised to have a positive outcome this year.

Overall prime-time ad spending commitments for broadcast TV are expected to be up 4.7% to $8.75 billion this year, according to early estimates from Media Dynamics Inc., a media consulting firm based in New Jersey.

The outcome is welcome news for broadcasters, who have endured three consecutive years of upfront declines, in terms of total volume of commitments. Last year, overall prime-time upfront volume for broadcast TV fell 3.7% to $8.36 billion, according to Media Dynamics.

Most of the top broadcast TV networks including CBS Corp. , 21st Century Fox’s Fox and Walt Disney Co. ’s ABC have largely wrapped up their annual upfront negotiations, the time of year when advertisers commit to buying the bulk of ad inventory for the upcoming coming TV season.

Fox and CBS are each expected to take in about 3% to 5% more in overall ad commitments than they did last year, according to people familiar with the matter. A person familiar with ABC’s upfront process said the network has seen “strong” overall volume growth while Comcast Corp’s NBC is still in the process of finishing up its negotiations.

To be sure, the precise outcome of the upfront selling season is murky, at best, with buyers and network executives tossing out estimates anonymously. That makes it tough to separate hype from reality.

Nevertheless, many ad buyers, analysts and network executives are in agreement about the positive trends the broadcast networks have experienced during the annual selling bazaar.

Ad companies are seeing a “modest growth in TV budgets, which is fueling the stronger upfront U.S. TV market,” said Omnicom Group Chief Executive John Wren, during the ad giant’s second quarter earning call with analyst Thursday.

Why the sudden surge in popularity for the much-maligned TV ad business

The majority of the positive momentum is being fueled by advertisers who have decided to make ad commitments early this year and not hold back spending for the so called “scatter market,” when ad time is bough closer to air date, according to ad buyers and analysts.

“A lot of marketers didn’t anticipate the strength in the scatter market over the past nine months and ended up paying significantly higher rates than expected,” said John Janedis, an analyst at Jefferies LLC. “This year, some large categories are looking for more certainty in pricing by pulling some of that scatter budget forward into the upfront,” he added.

Another factor helping the TV marketplace is that some marketers have “tapped the brakes” in digital because of concerns about viewability and fraud, said Daryl Simm, CEO of Omnicom Media Group, during an earnings call on Thursday.

Mr. Simm added that digital budgets are “still growing” but “the pace of growth among some advertisers has slowed” and that is one of the factors helping “lift the television marketplace in the U.S.”

Despite the positive outcome, television executives shouldn’t uncork the champagne just yet. It is unclear if the TV networks can carry the positive ad spending momentum throughout the rest of the year.

Indeed, “while 2016 upfront have come as a welcome change in trend line for media companies, it is likely too premature to extrapolate these results to secular outcomes,” said a Barclays research note sent to investors earlier this month.

The analyst report noted that macroeconomic issues such as Brexit could also hamper the TV market. “If the U.K.’s decision to leave the EU results in a slowdown in growth globally as expected by our economists, the implication on television advertising could be more long lasting than previous cycles,” the report said.

Moreover, the TV business still is dealing with fundamental cracks in its business model from the rise of cord-cutting to the growing popularity of ad-free streaming services such as Netflix.

Digital ad spending is expected to surpass spending on television in the U.S. next year to reach $77 billion, according to eMarketer.


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