To keep lower ratings from decimating advertising revenues, cable networks are significantly increasing the number of commercials they sell, according to a new analyst report.
Michael Nathanson of MoffettNathanson Research says that networks owned by Discovery, Viacom, Time Warner and 21st Century Fox sold 7% to 11% more commercials in the third quarter compared to the third quarter a year ago.
Nathanson based his figure on TiVo data, but says that selling more commercials, ad revenue will be lower in the third quarter for Time Warner, Viacom, AMC Networks, as well as ABC and Fox on the broadcast side.
"While selling more commercial inventory is logically a good thing and common industry practice during times of ratings stress, in the long run, as the U.S. radio industry found out a decade ago, adding to many minutes of commercials ultimately ruins the consumer experience and destroys brand value," Nathanson said in a new report.
Nathanson estimates that third-quarter primetime C3 ratings among adults 18-49 were down 2% among the broadcast networks and 8% for cable. The response to lower ratings is increased spot counts, with cable spots up 6% and broadcast spots up 2%, with most of the broadcast increase coming from Fox, which was up 14%.
The cable networks with the biggest increases in commercial counts, based on Nathanson's analysis of TiVo data, are Adult Swim, up 23%, Fox News Channel, up 22% and CMT, up 20%.
Other networks showing double-digit increases are American Heroes, MSNBC, HLN, Nick at Nite, Science, Galavision, NBC Golf, Investigation Discovery, Travel Channel, MTV, Animal Planet, Spike, TLC, TV Land, Discovery Channel and History.
With revenue, ratings and inventory numbers at hand, Nathanson estimates pricing changes for the cable network owners. Most of them are between 3% (Fox) and 7.5% (Comcast). Disney is high at 19.2%, possibly because of the World Cup on ESPN or because of Watch ESPN revenue not captured by traditional ratings data. On the low end AMC Networks pricing is down 1.7% and Scripps Networks is down 0.7%, which Nathanson chalks up to shifts in program and advertiser mixes.
The bottom line is Nathanson is lowering his third-quarter earnings estimates for Viacom and Scripps.