Media Companies Hope Box Office Bounty Masks TV Troubles

Box Office and Television Revnue Wall
Jon Reinfurt for Variety

“Movies … now more than ever.” It’s a made-up slogan used by a fictional movie studio at the center of the 1992 film “The Player.” Some of today’s biggest media companies likely wish this confident pronouncement were real.

Box office isn’t typically the biggest contributor to the bottom lines of entertainment giants like Time Warner, 21st Century Fox, Viacom and Disney, but in an era when normal patterns of ad spending are in massive flux, executives at those companies may feel more warmly toward Hollywood than they do Madison Avenue, even though film success has long been more unpredictable. “You know you are in trouble when the only positive media data point in the quarter is the U.S. box office,” said Michael Nathanson, a financial analyst who covers the media industry, in a recent research note.

Case in point: Comcast’s successful second quarter was buoyed not by ad cash flowing into TV networks like NBC, USA and E!, but by an outsized performance by summer blockbuster “Jurassic World,” as well as big returns for films including “Furious 7” and “Pitch Perfect 2.” While the conglom’s cable business also drove revenue, the movies represented “the highlight of the quarter,” said Brian Roberts, Comcast’s chief executive, speaking to investors July 23.

With the supply of advertising dollars disrupted by the many new ways consumers gain access to video entertainment, it’s little wonder Wall Street is, at least for now, focusing on film. Other big releases during the quarter included Disney’s “Avengers: Age of Ultron” and “Inside Out” (under the Pixar banner), and Time Warner’s “San Andreas.”

And there may be more light coming from the projector. Among the big properties set for release in weeks and months to come: Lionsgate’s “The Hunger Games: Mockingjay — Part 2”; Disney’s “The Good Dinosaur”; Sony’s “Spectre,” the newest entry in the James Bond franchise; Fox’s “The Peanuts Movie”; and, of course, Disney and Lucasfilm’s “Star Wars: Episode VII — The Force Awakens.” Analyst Nathanson called for domestic box office growth of 6% in the third quarter of 2015, and 13% in the fourth.

The glitzy celluloid results are a welcome distraction. It’s no secret that traditional TV ratings, the measure upon which ad deals are based, are slumping. What’s more, the industry has yet to come up with a broadly accepted means of counting the number of people watching ads via new platforms like video-on-demand and mobile streaming video. Such a breakthrough could give advertisers the bigger audience numbers they crave from TV, and bring about a return of some of the dollars they have earmarked for new media.

Ad spending on broadcast TV fell 16% in June, compared with the same month in 2014, according to Standard Media Index, a company that tracks U.S. ad spending by examining the bookings of media-buying firms it says represent 80% of the market. Meanwhile, advertising on social-media sites like Facebook and Twitter, and video sites such as YouTube and Hulu, grew 37% and 43%, respectively. (Ad spending on cable fell 1%.)

The dynamics are clearly changing. Revenue at Comcast’s NBCUniversal cable networks was off 1% in the second quarter, while advertising revenue fell 3%. Revenue from broadcast, meanwhile, was off 0.2%, and ad revenue increased only slightly.

Longer-term trends are not robust. TV’s annual upfront market is slowly wrapping, and the volume of ad commitments is expected to be down for both broadcast and cable — the second consecutive year in which marketers have cut back on the amount of money earmarked for both sectors of traditional TV. The case is worse for broadcast primetime. Madison Avenue hasn’t increased the amount of money it commits in advance for that daypart since 2011.

Big Hollywood films often present happy financial endings, but their recent success doesn’t always translate to a bottom-line boost for the media industry. Simply put, most congloms get more money from advertising and distribution than they do from the turnstile. Box office may be boffo right now, but it isn’t the backbone of the biz.

Viacom, for example, captured $10.2 billion in revenue from advertising and affiliate fees in 2014 from its TV networks, but around $4.3 billion from its filmed-entertainment operations. In the same year, Comcast notched more than $44 billion from its giant cable unit, $18 billion in revenue from its NBCUniversal TV networks, and north of $5 billion from its movie operations.

Movie money can be a nice shot in the arm, but big media companies must remind themselves that such revenues are good in a pinch. Now more than ever, they need advertising to pick up.

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