With digital viewing firmly digging its claws in, traditional TV ad sales appear to be in permanent decline—and there may be no coming back. A reading of the ad market tea leaves shows that the coming upfront season may see its most dismal numbers, ever.
That's the assessment of MoffettNathanson Research's Michael Nathanson, who noted in his 2015 TV ad sales estimates that slowing domestic ad growth numbers in last two quarters are not mere hiccups attributable to the vacillations of the car market or an uneven economic recovery. The fact is, ad buyers are beginning to make digital advertising a significant slice of budget every year—and it's a slice that shows no sign of swinging back to traditional TV investment.
National TV sales "decelerated sequentially and precipitously over the last year," Nathanson said. "The question turns to how quickly digital will take share from TV and, more immediately, how will the weak second half of 2014 impact the development of the 2015 upfront." He pointed out that scatter ad prices "remain weak for most companies."
Upfront sales represent inventory sold the spring or autumn before the following autumn or spring TV season kicks off, for a lower price than the last-minute 'scatter' spots, which tend to claim a higher price tag, being closer to the air date and therefore more of a known quantity in terms of ratings.
CBS reported "high single-digit" pricing increases for the upfront sales in its latest earnings call, while ABC said that it was seeing a 10% premium for upfront sales vs. last year. But these numbers aren't as positive as they would seem on the surface.
Last year's upfront underperformed and left networks with more inventory to sell on the scatter market than they expected—and they weren't able to unload it for the rates that they had hoped for. In fact, as of January, scatter pricing was down 15%. That puts a snowballing pressure on the coming upfront to make up the ongoing shortfall.
As Nathanson observed this week in a note to investors, "general scatter pricing remains weak. Modest gains in scatter pricing will not meaningfully improve growth."
Media giants have warned that the trend is real. In an earnings call last month, Discovery Communications CEO David Zaslav noted, "We don't have a lot of visibility to how it's going to be for the next three quarters ... but the current assumption is that the advertising market will be tepid this year."