[opendtv] Analysis: Upfront TV Ad Gains Overhyped as Networks Sidestep New Media Profits
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 14 Jun 2010 07:28:30 -0400
An interesting analysis...
http://seekingalpha.com/article/209856-upfront-tv-ad-gains-overhyped-as-networks-sidestep-new-media-profits?source=marketwatch
Upfront TV Ad Gains Overhyped as Networks Sidestep New Media Profits
Diane Mermigas
June 14, 2010
A reality check on concluding upfront fall TV ad sales shows they are
far from the triumphant rebound heralded by industry executives and
the press -- barely recovering half of last year's 20% recessionary
spending losses.
The other $1 billion in lost ad spending (from the $9.2 billion high
bar set in 2006) likely will never be recouped by the Big 4 networks
as advertisers drift into new forms of digital marketing -- as well
as mainstream online and mobile media.
Unlike other economic recoveries, advertisers now have viable
alternatives to connect with targeted consumers that eventually
should render more measurable and actionable than TV's return on
investment.
There is mounting, concrete evidence that this year's $8 billion
upfront, generally created by 8% to 9% increases in ad pricing across
the four broadcast networks, marks the beginning of the end of the
bloated ad ritual that is a shrinking portion of a more than $250
billion ad market.
The absurd notion that ABC (DIS), CBS (CBS) and NBC (GE) were mad at
Fox (NWS) for closing its upfront negotiations with advertisers too
soon, and at lower than expected rate hikes, assumes a network TV is
status quo that began a slow death in the last decade.
You don't need to look much further for proof than Apple and Google
locking horns over a nascent mobile interactive ad business about to
explode -- with or without much of Madison Avenue and Hollywood in
tow.
The stakes are high as federal regulators begin to investigate
whether Apple (AAPL) is indeed shutting out the mighty Google (GOOG)
from its walled iPhone-iPad ecosystem. Apple is launching its own
iAds platform to fight Google's Double-Click, AdMob machine for what
JP Morgan analyst Imran Khan estimates will be a $3.8 billion mobile
ad market this year.
With mobile phones already matching TV's scale domestically, Khan
says he expects advertisers and content producers to adjust to
smaller screens and fragmented audiences in pursuit of long-term
wealth creation.
Global online advertising will top $100 billion within five years,
according to Magna Global
Morgan Stanley Internet guru Mary Meeker estimates the "golden age of
mobile advertising" is initially a $50 billion opportunity with apps
bridging advertisers to sustained rapport and transactions with
target consumers. Meeker points to the disparity between 31% TV
consumption by viewers and 39% TV ad spending, compared with rising
28% consumer Internet time and only 13% of all ad spending.
The broadcast upfront take on a whole new meaning in this broader
media context. Consider these compelling data points:
*While the networks had nowhere to go but up from last year's
disastrous $7.2 billion upfront, they are without real, organic
growth.
*Emerging retrans fees as a second revenue stream barely makes the
broadcast networks whole. The Big 4 initially will reap $1.24 billion
in retransmission fees, based on 50 cents per subscriber and 50/50
revenue split with their owned and affiliated TV stations, Kahn said.
*The Big 4 power base will continue losing about 6% of their viewing
audience annually. Since 2004, they started to erode their pricing
power -- and not only against thriving cable networks, which tier
corporate parents also own as hedge.
*Credit Suisse analyst Spencer Wang points out that cable and
broadcast networks this year reach relative parity, each with $8
billion-plus in ad sales, which cable achieves by selling more time
at lower prices. Cable networks will grow ad revenues at more than 5%
annually, while the broadcast networks look to flat-to-low single
digits.
*In fact, Wang predicts that total 2010 advertising revenues for CBS,
ABC, NBC and Fox could collectively decline 10% to $14.7 billion,
more than 60% of which will be sold upfront.
*This lower, new normal in broadcast network revenues can only partly
offset by continuing cost cuts and retransmission fees -- and those
are only good until cable operators feel the competitive heat from
web video. A majority of U.S. Internet users will come to routinely
watch some long-form video on their mobile devices over the next
several years, according to eMarketer.
*Even then, cable networks already have the upper hand. The $25
billion in cable affiliate fees paid in 2009 outpaced broadcast and
cable network ad revenues and outpaced cable ad spending, according
to Barclay's Capital analyst Anthony DiClemente.
*The proliferation of Web content presents stiffer competition to the
networks' inefficient high-priced fare -- averaging $2 million an
hour to produce and more than 95% of which fails every season.
*The broadcast networks and their corporate parents Walt Disney,
General Electric, CBS and News Corp.) have not successfully monetized
their content as streaming video in digital ventures, such as Hulu,
co-owned by NBC, ABC and Fox, or CBS' TV.com. As long as they
maintain their legacy costs, operations and revenue models, their
economic picture will remain strained.
*That is why, despite company denials, it makes sense for Disney to
be preparing to sell its ABC-TV network and TV stations affiliations.
Comcast (CMCSA) also must dramatically revamp the last place NBC
network when it takes ownership control next year. A pure-play CBS,
which revolves around its broadcast network and relies on advertising
for more than 60% of revenues, will most certainly become a takeover
target. It's just a matter of time.
Disclosure: No positions
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