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Soft Q1 Advertising Sales for Media Conglomerates Put Networks in Tough Spot

The narrative is not pretty. Across the board at the major media conglomerates, advertising sales reported in first-quarter earnings were flat at best or down sharply from year-ago benchmarks.

Most of the majors are facing tough comparables from last year, when the presidential election cycle revved up demand and the scatter market was generally buoyant. Executives acknowledged that shaky demand in both domestic and international markets, coupled with the trend of declining live-TV ratings, made for an uphill climb.

The first-quarter results set the table for a tough round of upfront negotiations when TV ad sellers and buyers begin the annual haggle over $10 billion-plus in advance advertising commitments for the coming TV season. The first phase of that process, the network programming presentations, are underway this week in New York.

Anthony DiClemente, senior media analyst for Nomura Instinet, cited CBS, Scripps Networks Interactive and Discovery as bucking the downturn. He sees local ad demand as inevitably lower than in the politically charged 2016 presidential cycle. Auto sales are cooling off, which will trickle down to lower spending on local stations.

“What was new was the mixed commentary around the stability of the ad market — and this may be a result of posturing on the agency and media buyers side,” he said.

Indeed, some executives said there was a feeling of hesitancy on the part of blue-chip advertisers in vital TV categories such as automotive, tech and pharmaceuticals.

“Given some uncertainty in the economy, we think that advertisers are holding back a bit, and they’re taking a little bit of a wait-and-see approach,” said Turner CEO John Martin during Time Warner’s May 3 earnings call. Martin also cited a slowdown in the number of overall new product launches for the pullback in spending.

The paradox of the fast-changing television market is that advertisers are steadily paying higher prices even as ratings dwindle. But the first-quarter numbers demonstrate that higher pricing isn’t enough to offset the decline in ratings. Even such mighty players as Comcast-NBCUniversal and Disney were caught in these crosscurrents.

Mindful of the looming upfront negotiations and Wall Street chatter about a correction coming in the valuation of media stocks, CEOs emphasized burgeoning efforts to make fundamental changes in the way TV advertising is sold. Buyers and sellers are trying to come to terms on standards for sales based on highly targeted slices of audience (new parents, likely car buyers, first-time homeowners, etc.) rather than broad age- and gender-based demographics.

There’s also continued focus on the fact that TV’s traditional measurement systems and ad protocols haven’t kept pace with the growth of multiplatform viewing. That amounts to money left on the table when viewing is done outside the three-day measurement window — or C3 rating — that has been the norm for a decade.

CBS Corp. chairman-CEO Leslie Moonves said the Eye has gradually moved many advertisers to a seven-day window, or C7. CBS expects to make more progress on that front in this year’s upfront. Those extra days will bring extra viewers that will plump up ad revenues for hit shows like “The Big Bang Theory,” Moonves predicted.

“The [viewing] numbers between C3 and C7 are quite large, and they’re growing larger every day,” he said. “So the numbers that will come into the marketplace will be much higher, and this will be found money.”

Time Warner’s Turner has joined with Viacom and Fox to offer a consortium approach to setting uniform standards for audience-based guarantees across all of their respective networks. Turner’s Martin said his company’s goal is that no less than half of the ad buys across its portfolio — including TNT, TBS, CNN, Cartoon Network and Adult Swim — will be audience-based rather than demo-based by 2020.

“That’s a pretty aggressive goal and ambition,” he said.

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