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August 06, 2010
The recovery in US TV advertising spending is far more robust than the lukewarm improvement in the general economy. In Q2 media company earnings, three TV advertising trends are evident:
· Local station advertising revenue is up a breathtaking 20-plus percentage points from depression-like levels of a year ago
· For broadcast network TV, advertising growth surged in the high-single-digit-percent range compared to Q2 2009
· Basic cable networks, which managed modest gains in the economic downturn, shifted into high gear with percentage increases in the low-to-mid teens
For the March to June time frame, News Corp. reported its Fox owned stations posted a 29% hike in advertising, while for the trailing 12-month period this gain was 8%, indicating momentum as its fiscal year progressed. "Our (local TV advertising) bookings at the moment are extraordinary in every category, I think, except maybe beverages," News Corp. CEO Rupert Murdoch said in an earnings conference call Aug. 4 "In July alone, we were up 44% in automotive and pacing for the next two months, which may be a little bit hefty because people are now making their bookings earlier, we're talking an 80% to 90% increase in automotive. So it's really very, very strong."
While the Fox station gains are impressive, it is important to note that two domestic car companies virtually stopped spending on TV ads a year ago during their bankruptcy, making for huge declines in 2009 and allowing for big percentage gains.
Time Warner's basic cable networks posted a 14% hike in advertising, which CEO Jeffrey Bewkes said in his conference call "is the highest (gain) in years." It's particularly impressive because CNN's ratings are slumping.
At CBS, its national broadcast network sold 80% of its inventory in the upfront market in advance of the new fall programming season versus 65% last year when buying demand was lower and rates had to be discounted. "We don't foresee a slowdown," CBS CEO Leslie Moonves said in his company's conference call.
It's time to chill the champagne, but it's still a little early to start popping the corks. While the ad recovery in Q2 was breathtaking, there are signs that the road ahead could be bumpy. Consumers are still skittish, holding back their buying activities, and corporate revenue remains stuck in a funk even as corporate profits soar from cost cutting.
In looking at TV advertising, comparisons are easy since 2009 was a disastrous year when global ad spending slumped 10%. Overall ad spending is forecast to grow 3-4%, which is welcome but still leaves total spending behind levels of a few years ago when the economy was booming. Because TV is capturing bigger gains, other media sectors are still suffering, such as newspapers from which the Internet has siphoned classified, movie and other types of advertising.
Spot TV (local broadcast stations) was already up 20.8% in gross terms in Q1 according to Kantar/TVB and network TV was up 11% but that was mostly driven by the come back of automotive manufacturers as the category was up 75% year-on-year. GM, Ford and Chrysler had virtually stopped any advertising last year, so that their spend in spot TV grew by 380% for GM and 108% for Chrysler. Six carmakers were listed in the top 10 advertisers in the quarter.
Also, this is an election year bolstered by political spending, and the Winter Olympics in February generated one-time advertising that won't reoccur in 2011. Another wrinkle is that year-to-year comparisons in corporate earnings for basic cable networks can overstate gains because most channels are still adding subscribers (this is not the case for broadcast TV, which is a mature market). Finally, local cable advertising is an emerging business with targeted insertion, interactive capabilities and interconnect infrastructure being built that is all new.
While TV stations posted the biggest gains, expect them to top out faster than the broadcast network or basic cable. TV stations are dependent on local advertisers, and a big chunk of them have closed shop, especially car dealers that are TV stations' single biggest category. Just look at all the vacant retail space around towns. National advertisers may cut ad spending in a recession, but they don't fold, so they are at the ready to rev up ad spending again when economic conditions warrant.
Despite those caveats, the advertising recovery - typical after a recession - appears to be, this time, as robust as the latest recession was dire. That will be reflected in a revision of our cable-network advertising projections in the month ahead.
Screen Digest is currently forecasting total TV advertising to grow 8.8% in the US for full-year 2010, with local stations up 14%, networks up 7% and cable up 8%.
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