Bob Bakish, CEO, Viacom
Scott Mlyn | CNBC
As TV networks start to run out of content to air and big advertiser draws like live sports are tabled, those companies are warning about severe advertising declines ahead.
In recent days, companies including ABC and ESPN parent Disney, Fox Corp., AMC Networks, NBCUniversal parent Comcast, ViacomCBS and Discovery reported earnings that showed how TV is trending as advertisers are pulling spend or postponing campaigns until later in the year.
With many consumers stuck at home, TV viewership is up — traditional TV is expected to add 8.3 million U.S. viewers this year, the first time viewership has seen positive growth since 2011, eMarketer said in a new forecast this week.
But, just like with online advertising, increased engagement isn’t equaling dollar signs.
“At a time when lots and lots of companies are slashing their ad budgets, or at least pausing them, now the supply of viewing time or ad inventory exceeds the demand from advertisers to fill it,” eMarketer analyst Ross Benes told CNBC. “It’s great to get people to watch your show, but each viewer is being monetized much lower than they were months ago.”
Here are some of the big-picture trends the networks shared in their earnings:
Impact of missing live sports
With sports cancelled or delayed, associated ad revenue has evaporated in the near term.
Some networks are working with advertisers to delay rather than cancel that spend, while networks like ESPN are trying to serve up heavy hitting content for fans in the meantime. ESPN said its “The Last Dance” docu-series on Michael Jordan and the Chicago Bulls, which will air through May 17, is its most-viewed documentary ever, and its NFL Draft saw a record 55-million plus viewers.
But ESPN’s linear ad sales are still pacing “significantly” below this time last year, its parent Disney said when reporting earnings earlier this week — a result of the lack of live sports inventory and limited advertiser demand. Total ESPN ad revenue was down 8% in the second quarter as “higher rates were more than offset by lower average viewership.”
NBCUniversal said its advertising results at both cable and broadcast networks were impacted at the end of the first quarter because of the postponement of sports. It said it anticipates ad revenue will “materially weaken” even further as sports continue to be postponed. The company will also see delayed ad revenue due to the postponement of the Olympics.
Fox, which receives more than 40% of its annual ad revenue from sports, said little of that revenue has been impacted so far by shutdowns. The company said its revenue is concentrated in the fall for baseball’s postseason and college and NFL football seasons.
As content production cancellations endure, that means some networks are left with unfinished projects that aren’t ready for air.
For instance, AMC Networks CFO Sean Sullivan said results in the second quarter will be impacted by the delays of the season finale of “The Walking Dead” and the debut of the series “The Walking Dead: World Beyond.” He said the company anticipates ad revenue in the second quarter will be down in the range of about 30% year over year.
Discovery, which owns networks like HGTV and the Food Network, said it’s seeing success with at-home content creation, like an episode of “The Kitchen: Quarantine Episode” on Food Network, which the company said drew nearly 3 million viewers, the most highly rated episode of the show ever.
Though that sort of at-home content is novel for now, Benes said people might soon grow tired of it.
“I don’t know how long it can last before that seems gimmicky,” he said.
Political spend could pick up later this year
Some companies called out the expected bump of political advertising to help during an otherwise tricky time for advertiser demand. CBS said it continues to expect a benefit from political advertising later in 2020.
Fox, on its previous earnings call, had mentioned that it appeared it would be a robust political ad cycle for its local markets. But because of the contraction of the field of presidential candidates and the postponement of primaries, the company said it’s seeing a slowdown in the active political ad spend it saw last quarter. However, it expects to see the category “intensify” again as November approaches.
Tough on local
Fox said the most immediate impact has been on ad revenue at its local TV stations, “where inventory is sold essentially on a spot basis and many of our advertising partners operate in sectors most displaced by Covid-19.” It expects local advertising to be down in the quarter by 50% year-over-year.
CBS said as companies rebound to business, it overwhelmingly serves national advertisers, which should rebound first.
Forrester principal analyst Jim Nail told CNBC it makes sense that local advertisers, like car dealerships for instance, would be pulling back right now, since many of those businesses have been so disrupted. He said there is typically an instinct of marketers to think national-first rather than coordinating hundreds of buys locally.
But the recovery looks likely to be “extremely localized,” Nail said. That provides a strong argument for national advertisers to shift spend into local advertising. “Locally typically has shorter lead times and more generous cancellation policies, and things like that.”
Upfronts canceled, budgets uncertain
Typically, advertisers commit a large amount of their yearly TV spending in deals during the spring “Upfronts” season, when the networks throw glitzy presentations and parties to show media buyers their programming, audience data and ad tools.
Those in-person events were canceled this year, and the deals are likely to be more staggered than usual.
A new survey from Advertiser Perceptions released this week polling agencies and brands found that advertisers have cut their planning horizons significantly, and are on average committing to media less than three months out. Though it’s typically TV upfront commitment season, that’s taking on very different form as TV companies say they’re having much more flexible conversations with advertisers.
“When a brand doesn’t know quarter-to-quarter, month-to-month, even week-to-week what’s going on, there’s no way on earth a network can expect them to make a commitment for the next year,” Forrester’s Nail said. “Media like digital is much more flexible. [Over-the-top streaming] is much more flexible than traditional linear television. I think linear is going to have to develop those more flexible approaches. They can’t expect to lock in budgets for the next year,” when brands don’t know what that year is going to look like, he said.
Fox said though it’s not holding its traditional Upfront, it’s in “constant dialogue” with its advertisers to give them flexibility. That flexibility, the company said, will “certainly be reflected in reduced advertising revenues in the current quarter” but said it should help preserve long-term relationships and help those businesses and brands endure.
AMC Networks said it’s in conversations with partners “week-to-week” and “day-by-day,” which has helped ensure that money moving away from the second quarter has been able to stay on the network in the second half of the year.
Discovery said it’s seen higher cancellations and deferrals in the second quarter, and that based on preliminary results April is down 20% year-over-year, with May and June looking slightly better. But the company reminded this is a very “fluid marketplace” with lots of cancellations rolling month-to-month.
Moving to streaming
As advertisers pull back from traditional TV, players like Roku and The Trade Desk say they’re seeing benefits of some of that spend shift to connected television.
The Trade Desk’s CEO Jeff Green said in the first 20 days of April, it estimates connected TV spend increased 20% year-over-year in the first 20 days in April, then accelerated “even more” in the last 10 days.
“CTV is getting what linear is losing from the expectedly weak upfronts,” he said on the company’s earnings call Thursday. “It’s one main reason why CTV spend has been steadily increasing. We are winning incremental spend that would have historically been committed in the upfronts.”
He said that doesn’t mean traditional TV broadcasters aren’t adapting quickly with AVOD platforms, just that it’s partnering with many of those companies like Disney and Hulu or Comcast with Peacock.
Roku echoed those sentiments when it reported its first-quarter earnings on Thursday.
“While our advertising business has seen higher than normal cancellations as overall advertising budgets have declined, this has been partially offset by ad-spend that has moved to Roku from traditional TV budgets,” the company said in a statement. “Despite the likelihood that total U.S. advertising expenditures will decline in 2020, we believe Roku is relatively well positioned based on the effectiveness of our ad products and the trend towards streaming.”
Pivotal Research analyst Michael Levine said in a note he’s more bullish around connected TV’s breakthrough next year.
“To the extent there is a meaningful pullback by marketers in the TV upfront participation in favor of more activity in the scatter/spot market, we think programmatic TV will be poised to deliver on the value proposition,” he said. “We suspect the ability to deliver higher CPMs to media companies via better targeting will make TTD an even more welcomed partner to these companies who are already under pressure.”