To borrow a phrase from ViacomCBS CEO Bob Bakish during Thursday’s earnings call, advertising sales during the Covid-19 pandemic are “not pretty.” And media companies’ bottom lines are expected to get even uglier next quarter when the full effects of the crisis will be felt on their earnings.
From a $400 million hit at WarnerMedia to an expected 50% decline in local ad revenues at Fox Corp., the ongoing pandemic has had major negative effects on ad sales at nearly every major media company, according to the most recent round of quarterly earnings reports. But most execs warn that the worst is likely yet to come. Even those companies that reported strong revenue quarters buoyed from advertising bonanzas earlier in the year are warning of an even rockier advertising market going forward.
“Obviously this whole Covid-19 pandemic has had a significant impact on our ad sales. I think that’s fair to say for anyone in the advertising business on one side or another,” Disney chief financial officer Christine McCarthy told investors on Tuesday.
At Disney, the biggest bruises came from the closure of theme parks, cruise and retail footprints, which translated to about $1 billion in lost profit. But on the advertising side, it also meant a loss of ad revenues, particularly at sports network ESPN, where ad revenues were down 8% with no relief in sight, as live sports remain sidelined. All in all, the company reported $1.4 billion in lost profits in Q1 due to Covid-19.
“For us, it’s really due to the lack of live sporting events and pullback from advertisers in categories that are most impacted,” including travel, movie studios, restaurants, retail and domestic auto, McCarthy said of the ad sales declines.
The story was similar at AT&T, which saw advertising revenues fall 12.9%. Covid-19 had an estimated $900 million effect on revenues at WarnerMedia, “mostly due to lower advertising from the cancellation of March Madness,” the first sign of a bleak ad sales picture for media companies, outgoing AT&T CEO Randall Stephenson said on a call with investors two weeks ago. The losses were most pronounced on the WarnerMedia’s Turner division, which saw a 24.1% year-over-year quarterly decline in advertising revenue.
The company’s explanation was simple: “There is no sports content, one of the best yielding pieces of inventory that we have access to,” said incoming CEO John Stankey. “Secondly, economic activity is down. We have complete segments that have come out of the advertising space.”
As advertising from film studios, restaurants, travel, tourism, retail and domestic auto dry up, it’s meant that while networks are seeing ratings surge from captive at-home audiences, they aren’t able to fully monetize them.
“Despite viewership gains for our local news programming, fiscal fourth quarter advertising revenues are pacing down around 50% from year-ago levels,” Fox Corp CEO Lachlan Murdoch told investors Wednesday, pointing to local auto, retail, travel and entertainment categories leading the decline. It also means the scatter market is “not as robust” as its been, Stankey told investors.
The same could be said at ViacomCBS, which Thursday morning reported a 30% year-over-year decline in its television entertainment segment, a loss of $586 million, due to the loss of live sports and some advertiser departures, plus a depressed April scatter market.
“I can tell you it’s not as bad as what Fox is saying, that’s for sure, but it’s not pretty either,” Bakish said, declining to offer up specific domestic ad sales loss estimates for the second quarter.
Discovery, which is insulated from live sporting events in the U.S. and has seen renewed demand for home improvement and cooking programming, saw the effects, too: its international ad revenue saw a nearly 10% decline in March and about a 40% decline in April, Discovery CEO David Zaslav told investors.
Meanwhile, AMC Networks saw an 11% decrease in its first quarter ad revenue, but CFO Sean Sullivan told investors that second quarter numbers would fall 30% due to Covid-19, which resulted in post-production delays for two of the company’s Walking Dead series.
The news wasn’t entirely surprising. In mid-April, a survey of publishers from the Interactive Advertising Bureau found near-unanimous agreement that ad sales revenue would be down this year, with 77% reporting canceling some campaigns for clients and 82% reporting pausing advertising for buyers.
But the extent of the damage is profound. The most recent quarters only reflect a portion affected by Covid-19 in the U.S., with mid-March pointed to as the turning point for most.
“Covid impacted first quarter results, but we expect the full effect to be felt during the second quarter, assuming the U.S. economy and businesses begin to recover in the second half of 2020,” AT&T chief financial officer John Stephens said. Almost every major media company withdrew financial guidance due to the uncertainty and have signaled they expect a slow road to recovery.
“We know there will be a significant impact on ad sales in Q2,” Bakish said of the future, although he expressed optimism about an improvement in advertising in the third and fourth quarters as well as a stronger scatter market in May and June than the company saw in April.
Media companies are responding with adjusted upfront plans, expecting a drawn-out upfront season that hinges on advertiser needs. ViacomCBS and Disney have all unveiled different upfront strategies, while other companies like Fox and WarnerMedia have put the kibosh on a formal presentation entirely and will work with individual clients as required.
There’s some optimism, at least publicly, that the market will improve as advertisers right their ships. But the expectation that a turnaround will happen in the second half of the year is still optimistic.
Quietly, some ad sales execs fear many months of challenges, amid uncertainty over how consumer sentiment and spending habits will change after quarantine. As one TV ad sales executive recently told Adweek, “Potentially, next year could be tougher than this year.”