Bad Moon Rising: Unfavorable Indicators Dog Broadcasters

Signs point to a lukewarm upfront marketplace

Although clients’ budgets won’t be registered for another two months or so, analysts and media buyers are already saying that the 2013-14 upfront marketplace won’t be particularly memorable.

In a note to investors, Credit Suisse research analyst Michael Senno predicted that a “stable, but tepid” scatter market is likely to presage a flat spring bazaar for broadcasters, while top-tier cable networks may see dollar volume improve by around 2 percent to 4 percent versus the year-ago period.

Senno said he believes that CPM inflation will continue to cool off in this year’s selling season. The general feeling of malaise can be chalked up to a sluggish macroeconomic economy, ratings declines and a perceived shift to digital from linear TV.

Having surveyed a sample of media buyers, Senno said the view from the agency side of the desk suggests that this year’s upfront could be a carbon copy of the 2012-13 sell-off. Last year, ABC, CBS and Fox were flat, while NBC increased volume by 3 percent. All told, the Big Four broadcasters booked $9.25 billion in advance prime time commitments, marking an infinitesimal 1 percent gain versus the previous year’s $9.15 billion.

Cable was in far better form, raking in a record $9.8 billion, per the Cabletelevision Advertising Bureau. That said, the total haul represented a 5 percent increase versus the 2011-12 bazaar, during which cable soared 16 percent to $9.29 billion. 

“Early indications are that [this year’s] TV upfront could follow last year’s trend of slowing growth,” Senno said, adding that any gains are likely to be chalked up by the cable nets. Still, even a slight improvement over last year’s tally will represent a record; after all, the negligible gains of last year’s bazaar put broadcast over the top.

With year-over-year scatter up just a few ticks, the nets aren’t exactly heading into the upfront with a brisk wind in their sails. Buyers predict CBS in 2013 will lead all comers with 5 percent CPM growth and a 3 percent increase in dollar volume, which would bring its overall upfront haul to $2.73 billion.

Both ABC and Fox are expected to inch forward by 2 percent, with the former projected to take in some $2.55 billion in advance commitments and the latter, around $2.25 billion. NBC is likely to bring up the rear, improving 1 percent to around $1.8 billion.

Overall, broadcast is expected to suffer further deceleration in pricing. Senno foresees the Big Four averaging CPM increases of 3.8 percent; a year ago, rates climbed around 7.3 percent.

On the cable front, a 4 percent hike in CPMs and volume would lead to a record take of $10.3 billion. Again, deceleration is the watchword, as this represents a significant shift compared to last year’s 16 percent increase. All told, the TV market could patch together 4 percent more business than it did a year ago, with overall upfront sales at the Big Four and cable adding up to around $19.8 billion.

Senno remains sold on the automotive category, noting car spend over the last three years has increased by 12.6 percent on broadcast and 13.6 percent on the cable dial. But some observers are concerned that a slowdown is in the offing. Auto sales this year are off to a somewhat pokey start, rising 3.7 percent a month ago, versus an improvement of 14.1 percent in February 2012.

According to Nomura Equity Research analyst Michael Nathanson, the auto boom appears to be petering out. And while the category should continue to put up modest gains in 2013, the torrid pace of the previous three years seems to have ended.

“Now that we have returned back to average SAAR [seasonally adjusted annual rates] levels, we believe the catch-up growth driven by the auto category is in the later innings,” Nathanson advised investors in a recently issued report.

Ad sales executives are rather dismissive of the early chatter, protesting that there’s no way to accurately draw a bead on the upfront until everyone knows where and on what the clients are going to spend their marketing dollars.

“There are so many new models coming out this fall that it’s hard for me to imagine that the auto category won’t be strong again this year,” said one sales boss, who added that tech, wireless and theatricals also look promising.

Still, broadcast’s biggest cheerleader this year has been uncharacteristically mum about how his sales team will fare in the upfront. CBS Corp. CEO Les Moonves twice has begged off when asked to make predictions about the spring bazaar, saying on the company’s fourth quarter earnings call that ad sales president Jo Ann Ross and company would “kill” him were he to toss out a percentage.

“Last year, I said [we’d do] double-digit [CPM growth], and we only had 9 percent,” Moonves said in February. “The year before, I said double digits, and we had 12 percent to 13 percent. So it’s a bit early to make the prediction. We’re going to be up. I’m not going to give you a number right now, but I’m feeling very confident.”

A few weeks later, Moonves repeated the performance at a Deutsche Bank media conference, saying the CBS sales team “made me swear I’m not going to give out any numbers until we get closer” to the upfront. Moonves added that CBS will lead the pack in both volume and CPM increases.

Speaking of Moonves, Credit Suisse’s Senno said that buyers are split on his proposed switch to a C7 ratings currency. “We believe it’s inevitable at some point, but the bigger question is how much impact it will have,” Senno said. “Our survey yielded a wide variance of opinions, but we continue to think it could boost ratings [by some] 2 percent to 3 percent, but that price deflation could offset some of the upside.”

Buyers who oppose adding four days of DVR playback to the sample cited general marketplace resistance, an unwieldy environment for time-sensitive advertisers and viewer distaste for watching captured ads in playback no matter how many days of storage are validated. Those in favor said that the industry simply must catch up with changing viewer habits, adding that advertisers will come on board so long as the networks are willing to make concessions on pricing.

While ratings declines generally herald pricing increases—with fewer GRPs to sell, the market is artificially tightened by under-deliveries—this broadcast season could drive a good deal of dollars that would normally be earmarked for network TV over to cable. Through the first 25 weeks of the 2012-13 campaign, each of the Big Four is suffering from ratings fatigue; CBS, which rules the roost with a 3.0 in the 18-49 demo, is down 3 percent versus last season. Fox (2.6) is down 21 percent, NBC (2.5), is off by 7 percent, and ABC (2.3) has tumbled 8 percent.