Commentary

National TV Advertising's Strong Current Health Might Weaken. Who Will Get Hurt?

Going into the second half of 2016, is the national TV market overheated?

Analyst Doug Mitchelson of UBS Media thinks so -- and that especially means tougher news for CBS, as well as some pain for Discovery, and AMC networks. All three stocks took a hit on Friday.

Though sharply higher retransmission fees look good for CBS, “we do not believe the macro backdrop supports continued TV advertising strength, and expect decelerating national TV advertising in 2016 ex-Olympics,” said Mitchelson

CBS’ exposure to advertising has fallen dramatically over the years, to around 45% of its business -- good news for many investors. Still, CBS will find it tough to show positive comparisons in the months ahead to the previous advertising gains of the Super Bowl and political advertising efforts.

Discovery Communications could also get hit from an advertising slowdown. But other issues are a concern, including the shifting of viewers to more on-demand platforms, and the coming of new “skinny” TV digital packages.  For example, Mitchelson says Discovery is not current on Dish Network’s Sling TV, and he doesn’t expect it to be on Hulu’s new digital base package of TV networks.            
                
He also says there is “uncertainty regarding the shift to and cost of sports investments in Europe.” Discovery is the owner of the big European sports satellite channel, Eurosport.
                            
For AMC, Mitchelson says double-digit rating declines for the likes of “Better Call Saul” and “Fear the Walking Dead” isn’t good news. He is also “increasingly wary” of AMC’s ability to diversify away from the aging “Walking Dead” series.

Other analysts believe the entire U.S. advertising market will continue to be healthy -- even for the second half of the year.

Brian Wieser of Pivotal Research Group’s most recent estimates are that --leaving out political and Olympic revenues -- the advertising industry is now expected to rise 4.5% for 2016, versus a previous 2.8% forecast.

Still, Wieser estimates while total national TV is expected to be up 10.6% for the third quarter, to $10.8 billion (mostly from the Olympics and political), it’s expected to drop slightly by 0.5% to $11.8 billion in the fourth quarter of this year.

Overall 2016 for national TV looks to be up 4.6% to $46.1 billion, sinking to about half that gain -- 2.5% -- in 2017, to $48.2 billion.  

Who benefits from those now-smaller ad gains?

1 comment about "National TV Advertising's Strong Current Health Might Weaken. Who Will Get Hurt?".
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  1. Ed Papazian from Media Dynamics Inc, July 18, 2016 at 4:51 p.m.

    Much of this rests with the health of the general economy and, hence, advertising budgets across media. The fact that TV is suffering from rating erosion, due to increased competition for viewers from many channels and "platforms", is nothing new. Moreover, it does not detract that much from an advertiser's ability to attain significant reach levels by using a combination of channels, programs etc, regardless of how high---or low--- its average commercial minute ratings happen to be. So where are those TV dollars headed? We've been told for the past three or four years that they are going to digital, however mainstream branding advertisers aren't exactly falling over themselves to convert from "linear" to digital. That's branding advertisers, folks---not direct response, search, sales promotion, classified, etc. advertisers. Indeed, the recent rebound in TV's upfront reflected, in part, the disappointment many branding advertisers feel with digital video and its many limitations. So, I ask again, where are those linear TV branding ad dollars headed? To radio, newspapers, magazines? At this point the answer seems to be not to any particular alternative platform, just to whatever fits a given marketer's immediate needs.

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