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Published: August 17, 2009 at 11:19 AM GMT
Last Updated: August 14, 2009 at 11:19 AM GMT
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The most important question being discussed in the television business today is "will the scatter market be strong?" With networks – both cable and broadcast – holding significantly more inventory going into the fourth quarter 2009 and 2010 than they have in recent years, they have bet the bank that scatter will not only outperform the Upfront on a cost-per-thousand basis, but that there will be sufficient demand to meet overall budget goals. They didn't have much choice in the matter, since total ad spending is down and networks successfully maximized their revenues per unit in the depressed Upfront marketplace. In this week's report I share insights on likely scatter market conditions and some interesting nuances to the just-concluded Upfront. Also in this report is my first look at the long-term economic prospects for the broadcast and cable network advertising marketplace.
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I am forecasting that broadcast network television advertising revenues will decline 8.0% in calendar year 2010 following an estimated 9.0% decline in 2009. Since the broadcast networks are also suffering from overall ratings declines, it would require increased CPMs to substantially exceed previous year revenue levels to achieve flat or positive growth. The trend of -1% to -8% CPM reductions from the 2008/2009 base should continue in the scatter market. While CPMs in the scatter market will be down on a year-to-year basis, they will be 2.0% to 15% better than Upfront CPMs, varying by network, quarter and advertiser. Based on our market checks, it is reasonable to assume that fourth quarter scatter will be strong, while first and second quarter scatter growth will again be moderated, picking up slightly in the third quarter 2010. Overall, it's my best bet that overall sell-out levels for the broadcast networks for the full season will be slightly less than previous years, but any shortfall will be compensated for by direct response, political and online revenues. Overall, considering ratings losses, 2010 will be a relatively positive year for the networks.
Long-term, I am forecasting a 2.0% revenue decline in broadcast network revenues for 2011, followed by three years of relatively flat performance – plus or minus 1.0%. This assumes the networks adopt advanced strategies for generating incremental revenues through online, mobile and especially promotional and database-driven business models. Insistence on traditional :30-second commercial exposure using demographic impressions as currency is a sure-fire route to newspaper-like double digit revenue declines.
For cable network TV, my forecasts are only slightly more bullish and I will be adjusting my spending forecasts to reflect Upfront spending and CPM declines. I am now projecting calendar year 2009 network cable advertising revenues will move into the red, declining as much as 3.5% with continuing projected declines in 2010 of 2.5%. Adding insult to the injury of these revenue losses for the cable industry is that increased investments in original drama and comedy content, sports programming, and leading-edge reality programming has translated into strong ratings gains. However, supply/demand realities penalize rather than reward networks for positive ratings performance, creating more inventory in an already oversupplied marketplace.
Long-term, my forecast for cable network television is more positive because of the investment being made not only in original programming but in the new business models required to capitalize on this content. My forecasts project 8.0% growth for cable network ad revenues in 2012, followed by sustained 4.0% to 8.0% annual growth through 2015. Within this growth market, the lions share of growth will go to those networks than can avoid the pitfalls of pricing commoditization.
Last week, media agency MPG, a division of European-based Havas, conducted its second online media buying auction, investing several million Upfront dollars for client Sears/Kmart. The first test auction several weeks ago proved the viability of the auction model for the agency, and last week's more advanced effort involved most of the major and several secondary cable networks. Overall, the experiment was well received by both networks and the agency. It's arguable whether MPG gained any real CPM advantages compared to manual person-to-person negotiating, but the auction did result in a reallocation of budgets among cable networks and reaffirmed that marketers and agencies are wiling to use technology to shift media buying from a human negotiating process to a computer-based procurement model.
Inevitably, cable networks are being forced into a marketplace in which their individuality and unique assets are being devalued. Networks with limited resources that can muster meaningful ratings with low overhead costs and minimal programming investments will achieve greater parity in an auction-based system, enabling advertisers to reduce their media costs by constantly zero-basing their buys. Loyalty, sponsorships, incumbencies and creativity will become less important.
One model for countering this dismal future is to focus on creativity, loyalty marketing, sponsorships, incumbencies, database marketing, and other non-CPM based offerings. The role model within the television marketplace remains Turner Broadcasting, which invests millions annually in support incentives that help build marketing partnerships directly with clients. TBS has the added resources of the Time Warner Global Media Group, now headed by former Y&R creative guru Mark D'Arcy. (D'Arcy's former co-president and partner at T-W, John Partilla, recently departed to head business development for Clear Channel.) D'Arcy's group enables Turner and T-W's other divisions to provide the creative capabilities required to implement some of their more inventive offerings. Media agencies, under severe compensation pressure from clients, are often unable to encourage or support media creativity because of their own creative limitations. Several other networks, including Hallmark Channel and Scripps Networks, provide clients and agencies with creative, production and marketing support.
Jack Myers consults with media, agencies and marketers on transformative business models and revenue growth strategies. He can be contacted at firstname.lastname@example.org.
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