Television-Ad Spending Shows Signs of Revival

Author: Joe Flint and Suzanne Vranica : Wall Street Journal

Commitments could increase 3% to 5% in this year’s ad-sales period known as the ‘upfronts’—reversing a recent trend

A&E’s ‘Born This Way,’ a new series about seven people with Down syndrome, is off to a promising start in the ratings, says Rob Sharenow, executive vice president of Lifetime and A&E. Photo: Adam Taylor/A&E

As television networks enter the frenzied ad-sales period known as the “upfronts,” they would seem to have a dismal story to tell. Cord-cutting is rising, ratings are sinking and ad-free streaming services such as Netflix are on the rise.

And yet, the networks are poised for a surprisingly strong showing.

Early estimates from media buyers and analysts suggest that ad-spending commitments could increase 3% to 5% in this year’s upfront market, when the bulk of inventory for the coming TV season is showcased.

That is a big reversal from the past few years. Broadcast TV has endured three consecutive years of upfront declines in terms of total ad spending while cable has dropped for the past two years.

One big reason: Last year many advertisers who pulled back on spending commitments at the upfronts ended up paying more—in some cases 20% premiums—for commercial time later in the year in what is known as the “scatter” market.

“Anybody who held money back last upfront got burned,” said Jeff Lucas, head of ad sales at Viacom Inc., the parent company of MTV and Nickelodeon.

They will want to lock in deals now so they don’t get burned again, the thinking goes. Cable networks already have started holding their annual upfront presentations for marketers, while broadcasters will follow next month.

Another potential boon to networks: Some advertisers who have made big bets on digital are coming back to TV because the return on their investment didn’t live up to expectations, according to several ad buyers. Marketers are concerned about digital advertising issues including fake Web traffic generated by computerized “bots” and the lack of consensus on how to judge when an ad is “viewable.”

Procter & Gamble, the nation’s biggest advertiser, is one of the marketers that has moved some money back into TV, according to people familiar with the matter. P&G spent $1.4 billion on U.S. TV ads in 2015, down 12% from 2014, estimated Kantar Media. The company’s TV ad spending, however, jumped 13% in January compared with the year-ago period, and preliminary data shows the trend continuing in February, said Jon Swallen, chief research officer of Kantar.

“For our everyday products, driving awareness is important, and while the mix may vary by brand, region and some other factors, we see TV and digital not as an ‘either or’ but an ‘and,’” said a spokeswoman for P&G. The company, she added, has been increasing its spending in both TV and digital to support brand campaigns. P&G declined to confirm the Kantar data.

Television-ad spending has increased in certain categories. “Pharmaceutical companies have been spending money like drunken sailors,” said Rino Scanzoni, chief investment officer of WPP PLC’s GroupM, the world’s largest ad-buying firm.

Last year, overall prime-time upfront volume for broadcast networks slid 3.7% $8.36 billion, estimates Media Dynamics Inc., while cable TV’s upfront haul declined 7.1% to $8.95 billion, according to the Video Advertising Bureau.

The fact that networks are expected to do much better this year isn’t on its own a reason for media executives to celebrate—unless they can carry that momentum to the rest of the year in the scatter market. Otherwise, marketers will have simply shifted their budgets from one period to another.

Research and ad-buying firm Magna Global predicts TV ad revenue for 2016 will grow 0.5% to $63 billion, excluding special events such as the Olympics and election spending.

A scene from A&E’s ‘Duck Dynasty.’ A&E is among the cable networks that have suffered a double-digit decline in prime-time viewership.] A scene from A&E’s ‘Duck Dynasty.’ A&E is among the cable networks that have suffered a double-digit decline in prime-time viewership. Photo: Gurney Production.

Meanwhile, the ratings picture is mixed, with haves and have-nots. Consider the cable TV industry. Prime-time viewership in cable overall is about flat compared with a year ago, according to Nielsen. The prime-time audience for Time Warner Inc. ’s TNT is down 11% from September to March, compared with the year-earlier period, and Viacom’s Comedy Central has endured a 21% drop. A&E and History are among others that have suffered double-digit decline.

Networks with something to crow about to advertisers include Discovery Communications Inc. ’s Investigation Discovery, which is up 17%, Crown Media Holdings Inc. ’s Hallmark Channel, which is up 13% and Scripps Networks Interactive Inc. ’s HGTV, which gained 9%.

‘Pharmaceutical companies have been spending money like drunken sailors.’ —Rino Scanzoni, chief investment officer of WPP Plc’s GroupM

Despite some recent gains, though, cable viewership generally has trended down during the past few years. Reruns, which were once popular on cable, have lost their luster and the glut of original content has further fragmented the audience among scores of networks.

In the 2012-13 season, USA Network, Disney Channel, Nickelodeon and TNT all averaged more than 2 million viewers in prime time. This season, all four are down more than 30% in viewers from then and no entertainment channel is close to the 2 million viewer mark.

Ironically, the higher prices in the so-called scatter ad market were themselves partly a result of drooping ratings. Many networks, unable to meet viewership guarantees they had made to advertisers at last year’s upfronts, had to offer free inventory known as “make-goods,” thereby tightening up the market and driving up per-unit costs.

Rob Sharenow, executive vice president of Lifetime and A&E attributed much of the ratings blues to changing viewing habits and copycat programming. “There was a lack of innovation in the production community and the network side,” he said.

However, Mr. Sharenow said he is encouraged, especially by two new A&E shows that are off to promising starts, “60 Days In,” a look at the prison system, and “Born This Way,” about seven people with Down syndrome.

Network executives say TV’s greatest strength remains its ability to reach large numbers of people simultaneously.

“As we all know, television viewing has experienced some declines across the industry,” said David Levy, president of Time Warner’s Turner cable TV unit. “But being down doesn’t mean you still aren’t the largest reach vehicle out there.”