Analysis: Media Forecast 2010

It would be an interesting, albeit purely academic exercise to imagine how the advertising industry would look right now if we hadn’t been hit with the biggest economic downturn since the 1930s. Perhaps instead of hastening the migration of ads from traditional media to the Internet, the Great Recession actually slowed things down. Imagine if marketers, media firms and advertising agencies hadn’t been in such a cautious frame of mind over the past year or so and unleashed breakthrough ideas that moved us further along on the continuum than we are today. We’ll never know because the ad industry’s running narrative, like most other industries, got hijacked by the economy.

The story now is a continued migration to new media but complicated by what looks to be a fragile economic recovery. Thus, the bottom line looms large over the industry in 2010. In general, it is projected to be a better year than the previous one, but not by much, at least here in the U.S. Still, everyone’s up for some good news at this point. At least you can count on the Winter Olympics and the congressional races for a bit of relief.

As with previous years, we expect that the action will be on the margins. The bulk of media dollars still changes hands the old-fashioned way. The Internet may claim more ad dollars in Great Britain right now, but in the U.S. it’s still not even close. That will no doubt change but not over the next year.

A more likely scenario is that some concepts will undergo a stress test. For instance, in a media landscape with hundreds of channels, what is the value of a broadcast network? What role does salesmanship play in a business as data driven as marketing is today? Does it make sense for magazine and newspaper publishers to continue to give away their content if Web ad revenues still are a fraction of those derived from print? Do those publishers have any choice?

If history is any guide, things won’t play out the way you might guess. Disruptive technologies are, by definition, impossible to predict and immensely powerful for that reason. Nevertheless, here are our best guesses of where things are going, barring any unforeseen and inevitable new developments. —The Editors


FORECAST 2010: CABLE TV

By Anthony Crupi

With apologies to Thomas Friedman, the world may well be flat, but it’s also an inclined plane. Substitute the rigors of economics for physics and 2009 was a year in which the proverbial (and euphemistic) excrement ran downhill at an unnerving rate, so much so that anyone who happened to be camped out at the lower latitudes didn’t exactly come out smelling like a rose.

As it happens, ad-supported cable enjoys an enviable perch near the vertical; as such, the top-tier networks were able to get through the year relatively unsoiled. Along with record ratings and a resilient ad sales marketplace, signs that the tidal murk of recession is beginning to recede have many observers anticipating an even stronger 2010.

One ad sales chief, who spoke on condition of anonymity, says that the last dark cloud on the cable horizon has been dispelled by recent consumer behavior. “We’ve been holding our breath, but it looks like the holidays were a success,” the executive says. “Any momentum we had going into next year would have been wiped out if Christmas had been [lousy].” Holiday retail spending was up 2.3 percent during the week of the 25th, while year-over-year activity for the peak November-December period improved 3.6 percent, per SpendingPulse, a service from MasterCard Advisors.

The health of the scatter market is an area of concern for the cable nets, which were forced to hold onto a sizable chunk of inventory in the 2009-10 upfront. Per the Cabletelevision Advertising Bureau, dollar volume in the summer bazaar was down 13 percent to $6.6 billion, a decline that reflected the irresistible force-meets-immovable-object dynamic of the marketplace.

At the time, ad sales bosses characterized the upfront pullback as a calculated risk; at this juncture, some network execs say they should have held onto even more inventory, such has been the strength of scatter. In any event, leaving money on the table has been a boon to high-end cable nets, which saw fourth-quarter scatter pricing coming in at 20 percent over upfront levels.

Those premiums should continue to roll in throughout Q1, as channels such as USA Network, TNT and FX welcome back their popular original scripted series. First-quarter prime-time inventory is already tightening, as advertisers look to align themselves with some consistent reach vehicles.

“It’s an unprecedented situation in that Q1 cancellations were minimal,” says one ad sales boss. “Nobody took options, and while that made me breathe a little easier back in November, now I’m thinking it would have been nice to have some of that [inventory] to resell at an even higher CPM.”

Networks that specialize in unscripted fare may be less certain about what’s around the corner. “Cable’s higher inventory levels encourage buyers to wait for the best deals, resulting in less visibility,” says Oppenheimer analyst Jason Helfstein.

Cable’s ratings story continues to cast a spell, and 2009 marked the ninth straight victory over the broadcast nets. By year’s end, cable accounted for 60.4 percent of the overall TV household share, while its standing among viewers 18-49 was nearly twice that of the big four (50.5 to 27.1).

That said, aggregate ratings growth is expected to taper off, commensurate with penetration. Some 20 cable nets (including TBS, Discovery Channel, Nickelodeon and USA) have surpassed the 100-million sub mark, reaching 87 percent of the nation’s 114.9 million TV households.

If saturation has a dampening effect on dynamic ratings growth, that’s offset by the concomitant revenue gains. Per SNL Kagan data, ad-supported cable nets in 2010 will haul in $27.8 billion in sub fees, up 9.6 percent from the prior-year period.

Naturally, cable ad sales dollars are expected to rise in the new year, although analysts are divided on the rate of improvement. According to PricewaterhouseCoopers projections, spending on network cable in 2010 will grow 3.6 percent to $20.2 billion, while SNL Kagan projects greater year-on-year growth, calling for a 5.6 percent rise, to $18.2 billion.

Already there are indications that 2009 will be remembered as an aberration, says Derek Baine, senior analyst at SNL Kagan. “It’s likely to be just a blip in the long-term growth of an industry that has increased revenue at a CAGR of 12.6 percent over the past decade,” Baine says. “Going forward, we expect the margins won’t be crushed like they have in other media.”

While cable continues to steal share from broadcast, that pattern isn’t reflected in the cost of a spot. Per Kagan, the average cable CPM grew just 2.1 percent in 2008, down from a 2.7 percent increase in the two previous years. (On an average CPM basis, prime-time inventory on cable costs about one-third as much as broadcast.)

The two worlds are about to get much cozier, as Comcast awaits regulatory approval of its $30 billion merger with NBC Universal. The inquest is expected to carry on for the better part of a year. For many, a Comcast-owned NBC marks the zero hour for the broadcast model, which lies well south on the inclined plane from cable and its dual revenue stream.

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