Agencies' caution benefits networks
Although the TV business is being upended by YouTube, Hulu and the like, Madison Avenue is stubbornly sticking with the tried and true.The pain of the global recession is rippling throughout the advertising world, as budgets are slashed and blue-chip marketers beat a temporary retreat in turbulent times. But the major broadcast and cable networks are suffering a little less than other sectors, thanks to the continued demand for national television advertising. For all the talk about the allure of digital alternatives, panicky advertisers are plowing the lion’s share of their precious marketing resources into the old-media outlets that they know can move the goods. That’s not to say that these are flush times for the networks — far from it. Networks are bracing for a drop in upfront advertising sales this summer that will undoubtedly spur more radical changes in the way they do business. But since the meltdown began in earnest last fall, the largest national TV players have been weathering the storm much better than local TV and radio, newspapers and magazines, digital and outdoor advertising. The larger cable nets — USA, TNT, ESPN, FX, Lifetime, MTV — also have the built-in bulwark against the downturn via the coin they generate through subscriber fees from cable and sat-TV operators — the revenue stream that has made cable such a vital profit center for showbiz’s biggest congloms. “It’s not a disaster” is the best assessment that Jack Myers, publisher of the JackMyers.com advertising forecast service, can offer about the state of network TV advertising. Even as viewers spend more time watching TV shows online, the ad money is not following at a commensurate level. Advertising-supported online video leaders like Hulu and ABC.com are having a hard time filling their vast store of ad inventory. Big Four network execs gnashed their teeth during the holidays, bracing for a rash of ad cancellations in the first few months of this year. Local TV stations have been pummeled by the disappearance of key big-ticket advertisers like car dealerships and financial institutions. But the exodus didn’t hit at the national network level, in part because the nets have bent over backwards to give advertisers more time to decide when to trigger commercial buys. Net execs acknowledge the potential for conditions to get worse in the second and third quarters of this year, as forecasts show no sign of the recession ending any time soon. “There are more (purchase) options being dropped in second quarter,” CBS Corp. chief Leslie Moonves admitted recently during his presentation at the Deutsche Bank investor conference in Palm Beach, Fla. “Not a severe drought (but) a bit more than normal in certain categories. I think the advertising agencies and the advertisers are nervous.” That nervousness is perversely benefiting network TV sales, even as online video viewing grows by leaps and bounds in the youthful demos most coveted by national advertisers. In the fourth quarter of 2008, young adults in the 18-24 demo watched an average of five hours a month of video online, according to Nielsen. They spent the same amount of time watching TV via DVR playback, according to a recent Nielsen Online report. But they still spent the bulk of their time watching regular TV: 118 hours a month. According to Myers’ most recent forecast for 2009, ad revenue for the Big Four networks and CW combined will probably drop 5%-10% from 2008 to about $17.2 billion. Some of that decline will be caused by lower ratings among the major nets, even though CBS is up slightly versus last season. Basic cable could be flat or up slightly in the $18.3 billion range. Local broadcast TV, by contrast, is projected to plunge 20% or more to about $20.4 billion, according to Myers. Cable is benefiting in part from the shift among marketers away from buying spots on local broadcast stations in carefully selected markets to devoting that money to spot buys on lower-cost cable nets with broader national reach. Digital ad spending is forecast to grow 2.9%, to about $25.4 billion, but that’s less than a third of the growth rate that the sector has posted during the past few years. Another revenue quandary for online video is that it carries far fewer commercials per episode, with only one 15- or 30-second spot running per break compared to four or five for a network telecast. By any measure, Hulu, the joint venture of News Corp. and NBC Universal, has been a hit with consumers. The site has seen 30% year-to-year traffic growth in recent months, and it now ranks second only to YouTube as a purveyor of Internet video, with more than 300 million vids streamed in February, according to Nielsen Online. But Hulu has yet to turn a profit. Revenue exceeded its internal projections for 2008, but 2009 is likely to be a different story, even though its revenue is growing month-to-month. And they just don’t have enough eyeballs yet to close the gap with their broadcast and cable brethren. As much as consumers have embraced the site and others like it as an alternative to old-fashioned TV viewing, advertisers are still in the courtship phase and are not diverting sizable hunks of their TV spending to online video — at least not yet. According to market research firm eMarketer, the ad market for online video will hit about $850 million in 2009. Hulu’s super-fast growth makes it, and other sites endowed with top-tier TV shows and movies, well positioned over the long term to capitalize on the advantages that digital advertising brings to the table — primarily the ability for advertisers to know a lot more about who’s watching their spots. But at the moment, it appears that major advertisers are too busy worrying about the fate of their bottom dollar to focus on keeping up with the cutting edge online.
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