Advertising Bounces BackWall Street frets about cord-cutting set 1/03/2011 12:01:00 AM Eastern
As 2010 began, being dependent on advertising was
a bad thing in the television business, while subscription
revenue was good as gold. Going into 2011, the
shoe might be on the other foot.
The smart money is bullish on the resurgent ad market staying
strong, but Wall Street is concerned that digital marauders
ranging from Netflix to Google will disrupt what has been a
steady stream of sub fees.
Though the overall economy remains uncertain, TV advertising
revenue is surging, and outlets that looked like road kill a
year ago—particularly local stations—are posting double-digit
gains even after the frenzy of political spending has subsided.
Madison Avenue media buyers recently raised their forecasts
for 2011 spending. GroupM, for example, bumped up its U.S.
spending outlook to 3.7% growth, following a 1.2% increase
in 2010 and a 7.1% drop in 2009.
“Television and online media have been the primary beneficiaries of the rebound in spending,” said Rino Scanzoni, chief
investment officer of GroupM. “Moderately accelerated growth is anticipated
in 2011, as corporations with significant cash reserves deploy
investment in marketing and advertising to drive top-line growth.”
During the strong 2010 upfront market, the networks quickly sold a higher-than-normal share of their commercial inventory for the broadcast
year as they looked to lock in prices that were up by nearly 10%.
Those prices proved to be a bargain. In the scatter market, where commercials
are sold closer to air time, prices were up as much as 30%.
What happens next? At the annual UBS Media and Communications
conference in December, CBS’ ebullient CEO Leslie Moonves
predicted that the scatter market would remain strong through the
rest of the TV season. “That means the upfront should be even better
this year,” he said.
This year’s upfront will be missing a familiar face—Jon Nesvig, who
headed ad sales for Fox for more than 20 years and has been replaced by Toby Byrne. ABC will be showing
off its first upfront slate under Paul Lee,
while the new team at Comcast tries its
hand at repairing NBC’s schedule.
Indeed, assuming the year-long review
of the transaction closes, Comcast’s
leaders will be feeling the effects
of buying NBC Universal, which
means managing talent, wrangling
talkative affiliates, and learning new
businesses like international, theme
parks and motion pictures. Depending
on what concessions the government
gets, Comcast will also be taking
charge of Hulu.
Also under new management are
Lifetime and Travel Channel. And
March Madness starts its move to cable
under a new deal struck by CBS
and Turner Broadcasting to share the
NCAA men’s basketball tournament.
While everything appears to be coming
up roses with advertising, threats
that consumers might cut their cable
cords has Wall Street worried silly. At
a time when the number of traditional
video subs is shrinking for the first
time, the notion that digital upstarts
could cause a fundamental change in
the content creation and distribution ecosystem is affecting the earnings
multiples investors assign to media stocks, limiting their upside.
Chief among the skunks in the media garden party is Netflix,
which is able to stream movies and television shows directly to TV
sets for about $8 a month, well below the $40-$60 cable bills some
consumers are balking at as times get tougher.
Jeff Bewkes, CEO of Time Warner, a company whose stock analysts
say has been particularly impacted by cord-cutting fears, has been
taking aim at Netflix in recent statements. Bewkes recently suggested
that Netflix won’t be able to get access to expensive content without
paying higher fees than it does now.
This year, one of Netflix’s biggest deals—one with Starz that gives
it access to movies from Sony and Disney—expires. Netflix is now
paying an estimated $30 million to Starz per year, and analyst Richard
Greenfield of BTIG Research estimates a new deal could cost 10
But not everyone’s afraid of Netflix. In December, Disney signed a
deal that lets Netflix distribute shows from ABC, Disney Channel and
ABC Family over the Internet 15 days after they’re initially telecast.
According to reports, Disney is getting $50,000 to $150,000 per
episode for its shows—significantly less than it gets in syndication.
But the one-year deal’s total value, estimated at $150 million to $200
million, demonstrates that a little bit of green will go a long way in
the new year.