TV Ad Sales Revenues Have Been on the Rise, But Don’t Call It a Comeback

It’s not easy to get a straight answer on the state of the TV industry. On one hand, there’s the doom-and-gloom perspective: Ratings are falling; subscribers are cutting or shaving the cord. But then there are the optimists, who point out — correctly — that ad revenue has shown growth for three straight quarters. So the question becomes whether we are seeing a true recovery or just a blip in the general downward trend.

In the face of industry headwinds, what is driving the current growth? First-quarter financial reports provide some clues.

Disney’s cable networks sold more ad units but saw a slight decline in ad revenue due to lower ratings and rates. The company’s broadcasting arm, meanwhile, saw higher ad revenue due to rate increases, even though ratings dropped.

Comcast’s distribution business showed ad revenue growth due to higher rates and abundant political advertising. On the programming side, revenue was flat, as higher ad rates offset ratings declines. The NBC arm’s total quarterly revenue was down from last year, when it carried the Super Bowl, but if you strip out the big game, underlying ad revenue actually grew 9.6% due to higher rates (and one additional NFL game).

21st Century Fox’s cable networks reported low-double-digit gains in ad revenue, thanks to higher prices and—get this—better ratings. Political spending drove up revenue on the broadcast side.

CBS not only benefited big from hosting this year’s Super Bowl, it also saw 12% growth in underlying ad spend in its Entertainment unit. Its TV station business recorded growth from political advertising.

The driving factors here are clearly higher rates and political ads. While the latter demonstrates predictable, cyclical gains, the effects of pricing increases are more complex. At last year’s upfronts, some of the networks sold less inventory because advertisers weren’t willing to pay the higher prices. Instead, the networks gambled on selling more later, in the scatter market — a bet that worked out well for CBS. Going into this year’s upfronts, the networks were banking on locking in more ad spend at the new, higher prices. In recent months, Disney and 21st Century Fox cited scatter pricing 20% higher than last year’s upfront rates, and they should see a decent uptick there this year, too.

The big question is what happens now that the upfront presentations are over. It’s arguable that last year’s market was hurt by the gloomy prospects for TV advertising, and the market has simply corrected itself to historical levels. But that doesn’t mean we’ll see this rate of growth continue — it was likely a one-off recovery from last year’s dip, and it’s quite possible we’ll return to flat-to-declining ad revenue. All that makes this year look less like a turnaround and more like a dead-cat bounce.

Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.

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