Changing TV Landscape Colors ‘Upfront’ Sales Outlook

Changing TV Landscape Colors ‘Upfront’ Sales Outlook

With U.S. consumer confidence up, an improving employment picture and low gas prices, television executives should have a little spring in their step as they head into the industry’s peak season of negotiations with advertisers.

Instead, network heads are gearing up for another bleak showing at the “upfronts,” when they will sell the majority of their inventory for the 2015-2016 season.

The economy may be in better shape than last year, but the industry is facing systemic challenges, including steep declines in viewership and the gradual movement of ad dollars to digital platforms.

The overall money that advertisers commit during this year’s upfront could sink 7% from last year, to about $20 billion, according to an estimate from Magna Global, a research and ad-buying arm of Interpublic Group of Cos. Total ad dollar commitments are expected to fall 10% for broadcast networks and 5% for cable networks, Magna said.

Meanwhile, John Janedis, an analyst at Jefferies & Co., said he expects TV upfront ad declines to be similar to last year’s numbers, when cable networks suffered a 6% drop in the volume of ad commitments—the first year-on-year drop since the recession—and commitments for broadcasters fell 5% or more, according to analysts.

Cable-TV upfront events began revving up in March and continue into May. The broadcast networks will host their upfront presentations the week of May 11.

The annual selling bazaar—when broadcast and cable networks try to fill as much as 80% of their fall season ad time—is an indicator of the health of TV business. Last year, spending balanced out somewhat as the year progressed, but it wasn’t enough to power significant growth. Total national TV ad revenue in 2014 was up 1% to $42.6 billion, including special events like the Olympics, Magna said.

To be sure, predicting a weak upfront is also a time-honored tradition by media buyers looking to gain leverage in the negotiations. And some TV executives are still holding out hope that the improved economy will play in their favor.

Bill Abbott, chief executive officer of Crown Media Holdings Inc., which owns the Hallmark Channel, said he expects the company to secure double-digit volume increases this year, as it did last year. Still, Mr. Abbott isn’t resting easy.

“We sleep with one eye open,” he said. “At one point we could be susceptible to the broader industry trend.”

Last year, many TV network executives blamed the weak upfront market on advertisers being cautious about the economy. But it is becoming clear to ad buyers and analysts that there are structural problems weighing on the industry.

Ratings for traditional television have been on the decline for years, but ad spending continued to grow because broadcast and cable TV represented the best bet to reach a mass audience. But now marketers are increasingly interested in targeting specific audiences—particularly hard-to-reach younger viewers—through digital channels.

The upfront is “capturing less and less” of marketers’ outlays because they “have a lot more weapons in their arsenals now,” said Todd Gordon, executive vice president of Magna Global.

For years, marketers raided their print and radio budgets to find money for digital advertising, but those budgets are now “too small to fuel the growth of digital media, so money from TV budgets is now being used,” said Vincent Letang, Magna Global’s director of global forecasting

Fast-food chain Wendy’s said it will be committing fewer dollars to the TV upfront this year because it is continuing to shift some of its TV dollars to online video outlets. While some of Wendy’s TV dollars will be spent buying online video products offered by TV networks, the company will also be using the funds to buy ads on Facebook and YouTube, said Brandon Solano, Wendy’s chief marketing officer.

“Digital video had helped us push out more emotional messages,” Mr. Solano added. “That was harder to do in old-school digital.”

Todd Juenger, a Bernstein Research analyst, said in a note earlier this month that the “U.S. television industry is entering a period of prolonged structural decline, caused by a migration of viewers from ad-supported platforms to non-ad-supported, or less-ad-supported platforms.”

Indeed, the Cabletelevision Advertising Bureau, an industry trade group, recently told media executives that it estimates 40% of the TV ratings declines suffered in the second half of last year were due to viewers migrating from traditional television to subscription streaming services like Netflix.

Media companies normally host elaborate upfront presentations for advertisers—replete with celebrity cameos, sushi bars and late-night parties with themed cocktails. This year, some are scaling back the razzmatazz to streamline their pitches. Discovery Communications Inc. isn’t having a formal presentation, for example, and will instead host more intimate meetings with agencies and advertisers. Time Warner Inc.’s Turner Broadcasting is consolidating its various cable networks into one presentation.

Ad buyers say that marketers this year are likely going to hold more money back for the “scatter market,” in which ad time is bought closer to air date. Usually, those ads sell at a premium to upfront ads, but in the past few years there hasn’t been a significant price increase.

“Advertisers are getting trained to think there is not that much risk for holding out for the scatter marketplace,” said a top TV ad buyer.

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