MoffettNathanson Research

It looks like TV networks are on the defensive. After broadcast and cable nets recently staged their star-studded presentations and threw lavish parties to sway advertisers and media buyers to commit to ad time in the “upfront,” or advanced selling period, a new report says the national ad market is weakened.

The scenario suggests the market will favor buyers who want to wait and see how ratings and pricing play out. At the same time, however, ad spending on digital media continues to surge.

Citing a weak first quarter and conversations with agency executives, market research firm Moffett Nathanson says the national upfront market is “developing slowly as clients feel no urgency to get things done.”

Television networks are trying to counter recent ratings declines and overall shifts in media consumption that show consumers are watching less TV and spending more time with digital media, particularly younger Americans. In the upfront, these factors can hold down ad rates and give buyers an advantage. Compounding the TV networks’ woes, one media buyer told Moffett Nathanson that political concerns, such as delays in health care and tax reform, may be impacting marketing spend, with brands holding back on their ad budgets.

Moffett Nathanson analysts expect national ad declines to continue in the second quarter and throughout the year. In Q2 2017, the firm says both broadcast and cable networks will be flat, which “could prove to be too optimistic depending on the extent of deceleration of scatter pricing.”

For the full year 2017, Moffett Nathanson expects the total ad market to grow 3.4%, up slightly from its earlier prediction of 2.7% growth. Excluding online ad billings, which are expected to grow at 18.5%, the firm predicts traditional media spending will contract 6% this year. Citing weakness in both national and local ad categories, Moffett Nathanson estimates that total television is projected to drop 4.1%, while newspapers fall 8%, radio dips 1.5% and consumer magazines drop 1%.

“It certainly feels like traditional advertising is in a recession while digital advertising continues to grow at mesmerizing rates,” the report notes.

While television networks’ ad sales are faltering, digital media companies continue to increase their fortunes, particularly Facebook and Google, which control the majority of digital ad dollars. In Q1 2017, Facebook’s ad revenue surged 47%, while Google’s jumped 21%. On average, Moffett Nathanson estimates Q1 total ad revenue for all media was up 9%, however excluding digital, traditional advertising fell 2%, marking the worst non-Olympic quarter since 2009. Meanwhile, digital advertising increased 25% and represented 115% of the total ad market gains. Online represented 45% of total ad spend and its share continues to rise, having posted gains of 20% or more in the last eight straight quarters.

Among traditional ad categories, radio was up slightly at 0.4%, with spending rising from $1.572 million to $1.579 million. Newspapers ticked up 1.4%, but total TV ad spend was down 3%, including 8% losses for local stations and cable operators. Broadcast and cable networks were each off 1% for the quarter, while magazines dropped 7% and outdoor dipped 1%, compared to a year ago.

By its estimates, Moffett Nathanson says online displaced TV as the most-used media last year and online’s share is only expected to increase, reaching 56% by 2020. In contrast, by 2020, TV is expected to fall to a 29% share, while print hits 9% and other traditional media, which includes radio, falls to a 5% share. As broadcast and cable networks struggle to maintain their position in the ad market, the firm says networks with desirable programming will prevail, attracting both eyeballs and ad dollars in an increasingly competitive field.

“Owners of must-have live TV content and mass reach properties will take share relative to those networks that are constructed out of report, non-passionate programming,” the report details.