Do TV And Advertising Still Belong Together?

Analysis: A lot of the recent hand-wringing about TV ad spending may be overblown, but the medium will have to fight for its sponsors in days ahead

TV and advertising used to go together, to quote some famous commercial slogans, like baseball, hot dogs, apple pie and Chevrolet. Or like food, folks and fun. Now, a new thought is rising that the two sides fit together less snugly.

Cable ratings this summer have been weaker, and broadcast ratings somewhat choppy, too. Discovery Communications CEO David Zaslav recently told investors soft summer ratings could affect advertising revenue as well as results for this Silver Spring, Md., company’s third quarter. Nomura Securities analyst Anthony DiClemente has noticed unfavorable trends at Discovery, Viacom, Time Warner’s Turner , AMC Networks, and Walt Disney-owned cable outlets – and reduced his estimates for ad-revenue growth at the first three. Another media analyst, Michael Nathanson of MoffettNathanson, has cut his estimates for national TV ad spending growth in 2014 to 2% from 5% for broadcast and to 5% from 6% for cable.

The ratings turbulence adds a second punch to an industry gut soon after a first striking blow: a lackluster “upfront”market, during which advertisers opted to put less money down in advance for TV’s coming programs. In response, most media companies chose to sell slightly less of their ad inventory in the upfront and instead hold it for “scatter,” or ad time purchased closer to air. But the softer ratings – even though they come in summer – have spurred chatter that TV may have to work harder to turn a buck from Madison Avenue in autumn and during the winter holidays.

Are TV programs and the commercials that are intertwined with them coming apart at the hip?

One of Madison Avenue’s most followed allocators of ad money doesn’t believe so. Rino Scanzoni, who is chief investment officer of large media-buying firm GroupM, attributes some part of recent softness, particularly in the second quarter, to the presence of the Olympics earlier in the year. Advertisers had to pull from elsewhere in their marketing budgets to fund any promotion they wanted to do in conjunction with that heavily-watched event. “It comes mostly from TV budgets,” he said.

Also at play, he suggested, is a push for price correction in TV advertising, with marketers demanding to pay less for traditional commercials as consumers augment their TV consumption by sampling other kinds of video. Scanzoni projects moderate growth in ad spend for 2015 – with more money going to cable than broadcast.

The rapid adoption of digital media by consumers is also having an obvious effect. “On the structural front, we continue to believe there is a continued shift in TV budgets towards online video and [Internet] display,” said Nathanson in a recent research note. Earlier this week, Kantar Media, a tracker of ad spending, noted that four of the nation’s five biggest advertisers – Procter & Gamble, AT&T, Comcast, and L’Oreal appeared to trim back advertising on traditional media in the second quarter (meanwhile,six of the top ten, including General Motors, Pfizer and Toyota, increased spending).

There are plenty of signals advertisers see TV shows as sound promotional vehicles. Ford Motor has signed a deal with Fox to sponsor the superhero-inspired series “Gotham,” with Ford vehicles set to turn up in the show. NBC just unveiled a new deal with Nissan Motor that makes that automaker the exclusive car sponsor of “The Voice” for its next three seasons, NBC has sold between 70% and 80% of its ad inventory for its 2015 broadcast of the Super Bowl, an obvious proxy for advertisers’ feelings about the effectiveness of television.

One of TV’s most prominent executives does not see cause for immediate concern. Asked about advertising trends Wednesday at an investor conference organized by Bank of America, CBS chief executive Leslie Moonves said recent hand-wringing “doesn’t faze us at all.”

“We have 75% of our advertising locked in, which is perfectly normal, and the other 25%, I expect to be up from the upfront pricing,” Moonves said. “To sell from the 25% is not a big deal.”

He agreed some ad money is flowing to digital media, but believes the majority of it is “from print, clearly and also niche cable networks,” both of which emulate online advertising’s ability to aim for narrowly defined audiences.

It’s true, more consumers are using more kinds of devices to watch their favorite TV shows. But “that doesn’t necessarily mean we are watching less television,” said Tom Talbert, group director, media services at Interpublic Group’s Lowe Campbell Ewald.

Recent agreements that call for advertisers to pay for viewers who watch, say, “Scandal” or “The Good Wifeseveral days after their original air date, could give TV some new energy in weeks to come. But the battle to keep advertisers from testing new options in a world where consumers are increasing the time they spend with social and digital media will only intensify.

If TV wants to enjoy the bear hug it has had on its advertisers for decades, it will have to keep on innovating – and hold on to them more tightly.

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