TV advertising could drop for the first time in a non-recession year in 2017, says analyst Kannan Venkateshwar of Barclays and things could go downhill from there.
“Overall, we believe over the coming decade, the $67 billion n television advertising is likely to shrink meaningfully, with $26 billion spent on cable networks and the $20 billion spent on local advertising being the most at risk,” Venkateshwar wrote in a note Sunday.
Furthermore he says cable networks in their current form will be obsolete as a business model. In addition to pressure from cord-cutting, cable networks audiences are getting closer in size to those of Facebook and YouTube.
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And while network broadcast will continue to have value, this value will need to be anchored by sports rights.
“Without sports, it will be difficult for broadcast to maintain its reach advantage relative to most other online and offline platforms,” he said. “But as is already becoming increasingly evident, access to sports is unlikely to be exclusive on television going forward. Therefore, while networks will likely have more time to adjust to the shift, they will also need to invest in new skill sets and content rights on scale to be competitive in the end state.”
At this point, Venkateshwar said that despite a lot of talk about TV dollars moving to digital, digital platforms haven’t really competed directly with television thus far. There is very little overlap in the list of major spenders on TV and those that advertise on digital platforms.
He identifies four themes emerging around advertising that will impact TV.
- Boundary between content and advertising will dissolve
- Advertising as a proportion of GDP will go up even as TV's share of advertising declines
- Reach could continue to retain its value relative to targeting although over time, this distinction may become less relevant
- Shifts in advertising will be sudden rather than linear
And while dynamic ad insertion and targeted ads might provide a material opportunity in the future for legacy media, obstacles created by the way they do business could make it tough for them to monetize this opportunity anytime soon, Venkateshwar on a scale that can offset core declines.
(Photo via Pictures of Money's Flickr. Image taken on Sept. 17, 2015 and used per Creative Commons 2.0 license. The photo was cropped to fit 16x9 aspect ratio.)