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Upfronts 2016: Hot Ad Market Bodes Well for Network Sales

CEOs of the industry’s largest TV conglomerates spent most of past 12 months trying to improve their sales pitch to advertisers in this year’s upfront market. But then something unexpected happened.

Demand for TV time went through the roof in the fourth quarter, sending spot prices soaring. By many accounts, the upward momentum continued nicely in the first quarter of this year, setting the stage for the most robust upfront environment for sellers since before the 2008-2009 economic meltdown.

Advertisers who wound up spending more for time in the scatter market are expected to plow more dollars into upfront commitments for the 2016-17 season rather than face sticker-shock later in the season, when prices are determined by supply and demand rather than upfront ratings guarantees.

“In terms of market dynamics, we’re going into the upfront season with a lot of wind at our back,” said NBCUniversal CEO Steve Burke during Comcast Corp.’s earnings call on April 27. Advertisers who held back in the 2015 upfront have since faced “one of the strongest scatter markets I’ve ever seen,” Burke said.

For the past few years, television has battled the upsurge in spending on digital advertising. That has fueled the consensus industry narrative that TV advertising revenue was generally in decline on the largest networks as ratings dwindle and viewers fragment across multiple platforms.

But the fourth quarter surge was the tide that lifted all boats. Digital advertising saw a double-digit increase — powered by massive gains at Google (up 24%) and Facebook (up 64%) — while TV advertising grew 7.2%, according to a report by respected analyst Michael Nathanson of MoffettNathanson Research. The title of his March analysis says it all: “U.S. Advertising: How Is This Possible?”

Broadcast networks logged an 8% year-over-year gain while ad-supported cable rose 6%.

Nathanson pegs the fourth-quarter growth to the pullback on spending on last year’s upfront, the heat of automobile sales and the fact that there’s relatively little overlap between the big-spending advertisers in digital and in TV. It all added up to an 11.4% gain in total advertising spending for the quarter — the highest growth in a quarter without the Olympics in 10 years.

“Despite all our concerns about the economy, measured advertising surged in the fourth quarter,” Nathanson wrote.

Another big surprise was the strength of the broadcast networks in the face of an upsurge in competition from cable and digital outlets such as Hulu, the only one of the major SVOD players that competes for advertising dollars.

The strength of the current market will add momentum to the Big Four’s efforts to push advertisers to use so-called C7 ratings (commercial ratings for programs viewed live or within seven days of premiere) as the standard for advertising deals rather than C3 ratings, which has been the baseline metric for nearly a decade.

“This year more than 50% of the deals will be (based on) C7,” CBS Corp. chairman-CEO Leslie Moonves said in March. Advertisers and media buyers “are realizing that C7 is a better way of measuring” viewership, he said.

Extending the standard for time-shifted viewing beyond a mere 72 hours is a priority and an opportunity for the networks as they jockey for market share with digital. MoffettNathanson predicts that digital will catch up with TV’s roughly 40% share of overall advertising spending by next year.
NBCU’s Burke suggested Madison Avenue has some dissatisfaction with the results they’ve seen from digital blurbs.

“The emotion of the market has swung pretty dramatically over the last year,” he said. “People have come to the realization that broad television reach is really important to a campaign, that digital has a place, but that television has a big place.”

Moreover, the broadcast nets still have a surprisingly strong early-adopter advantage, he said.
“I would not have predicted this 10 or 20 years ago but it feels like broadcast is getting stronger and stronger in this period,” Burke said. “It’s tougher and tougher in a fragmented world to get a rating, but when you do, you get rewarded for it significantly.”

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