Web Beats TV? Not This Year
In the upfronts, ad spending online will be just a trickle
By John M. Higgins -- Broadcasting & Cable, 5/7/2006 8:00:00 PM
If you’re caught up in the frenzy of Upfront Week in Manhattan, you may need to work hard to remember that the presentations are about broadcast TV, not the Internet. As advertising and media executives assemble, the big networks are pounding their chests about their big push onto the Web—whether it’s selling prime time TV shows via iTunes, streaming episodes on their Web sites or beefing up those sites with ever richer content.
All of that is fascinating and will ultimately transform television. But it’s not transforming television this year. As advertisers set their plans for the upcoming fall season, they’ll be steering a multibillion-dollar flood toward conventional TV and just a trickle to online TV.
While broadband television may seemingly set the tone for next week’s presentations, anyone trying to figure out the immediate ad market should focus on the Middle East and Venezuela. The upfront is primarily a referendum on corporations’ views of the economy. The prospect of gasoline’s soaring toward $4 a gallon will have a far more dramatic effect on upfront sales than any Internet opportunities created by broadcast and cable networks. And even the threat of the Internet is less than it might appear.
“Everybody has swallowed Kool-Aid on this one,” says a senior ad executive at one broadcast network. “It’s not going to be a dramatic amount of money. But we—as well as our competition—have got to be prepared to play in that game because it comes up in every conversation I have.”
Initiative Media’s Ray Dundas agrees—to a point. Advertisers will tie part of their network ad deals to online opportunities, hoping to blend the reach of television with the interaction of online video. For this upfront, though, it’s not big spending. “The question is not whether it’s 1% of our budget, 5% of our budget or 0.1%,” Dundas says, adding that it’s more about the opportunity and learning experience.
Look at the numbers. Morgan Stanley estimates that national broadcast, cable and syndication ad sales total around $46 billion. About $19.4 billion of that should be sold in the upfront market, the most important chunk of which is broadcast-network prime time.
The Web ad numbers, though, certainly look like a giant threat to television. In a fresh tally for trade group Internet Advertising Bureau, PricewaterhouseCoopers estimates that Web advertising surged an enormous 30% in 2005 to $12.5 billion from $9.6 billion a year earlier.
But take a close look. Most of that money isn’t being diverted from television. About 41%, or $4.3 billion, went to keyword search ads; another 23%, or $2.9 billion, to classified ads or traffic “referrals.” Ad spending on those items is coming out of the hides of print out-lets: newspapers, magazines and Yellow Pages. (When was the last time you cracked open a Yellow Pages directory?)
The most profitable ad opportunities on the Web are no substitute for network-TV advertising. The strengths of network TV are branding and driving traffic into restaurants and car dealers. The Web’s biggest revenue generator—ads tied to search—generally targets consumers who are already narrowing in on a particular product or brand. Google ads help close the sale.
Certainly, other elements of Web advertising pose a threat—particularly display ads that surfers click through to get a more elaborate pitch.
What about the Internet as an opportunity? For the immediate future, TV networks’ broadband advertising prospects are fairly small.
At a recent conference held by ad- industry Web site MediaPost, Adam Gerber, VP, ad products & strategy, for broadband video developer Brightcove, estimated that advertisers will spend about $500 million over the next 12 months for “traditional video, 15- and 30-second commercial advertising being either integrated into in-stream environments or in engaged ad units that can support video.”
That’s spread among all the broadband video sites, from YouTube to Yahoo TV. And that’s different from banner ads on the long-successful Web sites of such networks as CNN and MSNBC. Indeed, ads on CNN.com—largely conventional banner ads—account for nearly 10% of the network’s $400 million in ad sales.
THE THREAT IN FREE DOWNLOADS
Moreover, iTunes downloads are free of commercials. While they generate pay-per-view fees, downloads threaten ad revenues by diverting audience. (Prediction: In ABC’s presentation, Disney TV chief Anne Sweeney will talk about how online airings of Lost don’t cannibalize the network but are “additive.” NBC’s Jeff Zucker will talk about how iTunes sales energized viewing of The Office.)
ABC does insert ads into the prime time shows it started streaming on ABC.com last week. Although Sweeney calls the project a “test,” you should expect it to be renewed for the fall season and imitated by other networks.
So how will the upfront market shake out? I’ll stick with B&C’s March prediction, that upfront advertising commitments to national broadcast, cable and syndication will rise about 4% ($19.4 billion versus $18.6 billion in 2004).
Broadcast sales, not counting The CW and MyNetworkTV, will likely rise by a little more than 5% to $8.4 billion. That estimate is somewhat inflated, however, because NBC is expected to sell more this year—but probably at lower prices.
Overall, don’t expect new media to fire up the sluggish market for broadcast or cable networks this year.
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