US TV-advert buyers hold back as viewers move online

By Shannon Bond in New YorkAuthor alerts

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From True Detective’s Matthew McConaughey to Robin Wright from House of Cards, the stars of US television will be back on the red carpet on Monday evening when the industry turns out to celebrate itself at the Emmy awards in Los Angeles.

But behind all the polished speeches and glittering smiles, the executives who pull the strings from behind the camera could be forgiven for feeling a little nervous.

The US television industry has just suffered the first decline in early advertising-buying since the recession. At this year’s upfront market – the summer sales process in which networks typically sell about two-thirds of their commercial inventory to big brands for the coming TV season – spending fell 6 per cent to $18.1bn, according to Media Dynamics estimates. This is the first annual drop in upfront ad sales across broadcast and cable networks since 2009.

Broadcast spending was hardest hit, down 7.7 per cent, while for cable the drop was 4.7 per cent. Industry executives attribute part of the fall to the new digital competitors that are starting to steal market share from TV.

“I think that you’re definitely seeing more compelling growth in advertising spending on new media platforms,” noted Bob Iger, chief executive of Disney, owner of ABC and ESPN, on an earnings call with analysts this month.

TV still commands the biggest share of advertising spending, at 38 per cent, according to eMarketer. Live programming, such as sport and awards shows, continues to draw large audiences: the World Cup final, for example, was viewed live by 26.5m people in the US while 17.6m people tuned in to watch the Emmy Awards last year.

But other shows are struggling as consumers migrate to video content on smartphones and tablet devices. Advertisers are following them, fuelling the growth in digital spending.

“I just think that advertisers see that they have more options now than they ever have in the past,” said Randy Falco, chief executive of Spanish-language network Univision, last month. “I don’t think digital is scaled up enough yet to sweep . . . a lot of the dollars off the table. But advertisers are increasingly looking for these transmedia deals.”

Rich Greenfield, analyst at BTIG Research, agrees. “TV is less special and unique,” he says. Given the growth of digital video and advertising opportunities on platforms including Instagram and Snapchat, Mr Greenfield warns that brands were less likely to “rush to lock in TV” spending.

This weaker advertising market may also reflect declining viewership, suggests Anthony DiClemente, Nomura analyst. “Our Nielsen database shows average aggregate cable ratings are down 5 per cent year on year in the second quarter, with broadcast ratings down 1 per cent year on year,” he points out.

Cable companies have been shedding subscribers, many of whom are turning to streaming services from Netflix, Hulu and Amazon. More Americans subscribe to broadband internet than to cable television, observes Bruce Leichtman, analyst at Leichtman Research Group.

Philippe Dauman, chief executive of Viacom, home of MTV and Nickelodeon, says it is the typically big spenders that are now cutting back.

“There were certain advertisers in the consumer goods sector and the automotive sector who chose either to defer or withhold the dollars from the upfront marketplace,” he told analysts earlier this month.

Procter & Gamble – which was the biggest spender on US TV advertising in 2013, buying $3.2bn-worth of inventory according to Kantar Media – is reported to be among the advertisers holding back this year. Future TV spending by the household goods group may also be in doubt, following its announcement that it would cull up to 100 consumer brands from its portfolio, which ranges from Pampers nappies to Gillette razors.

Disney’s Mr Iger and Steve Burke, chief executive of NBCUniversal, have said that advertisers might be waiting to pay for ads closer to when they run in the coming months.

But Brian Wieser of Pivotal Research Group seeks to downplay the gloom in a different way: arguing that “unusually” strong spending in the upfront market in recent years has resulted in “unrealistic expectations”, and that TV remains an essential advertising tool.

“As a very practical matter, there’s still not a lot of actual premium content out there to substitute for TV,” he says. “It’s physically not possible to shift a lot of spending.”