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Analyst: Don’t Underestimate 3Q Scatter Market

In the face of a slowdown in the TV ad market, analyst Marci Ryvicker of Wells Fargo says that the scatter in the fourth quarter will be stronger than investors fear.

Ryvicker bases this left-handed compliment on talks she’s had with media companies, ad execs and advertisers. Those conversations indicate that while there is a “somewhat accelerated shift of ad dollars into digital, our contacts have characterized such acceleration as ‘moderate,’” she says in a research report.

Despite confirming the shift of ad dollars to digital, Ryvicker says most industry executives don’t think television is as vulnerable as the stock market believes.

In some ways, TV’s losses to digital might be cyclical rather than secular. Ryvicker recounts one story she heard during her research that explains one aspect of what’s going on.  “Look, you have 20-something year old kids from B-school coming into these big firms trying to ‘make a difference’ by allocating a … ton of money to digital platforms – only to realize they don’t always work,” one industry executive told her. “We are going to see money come back to television in the scatter market – we always do.”

Taking a look at what the top 20 national advertisers are doing, Ryvicker came up with five observations.
1: Total ad dollars for these 20 companies. have in the aggregate gone up.
2: Total spend on digital has outpaced total spend on traditional (no surprise here).
3: Most of the “hemorrhaging” is in print and radio, but broadcast (more network than stations) and outdoor are “at risk.”
4) Year-over-year sales growth has been highest for those advertisers increasing both traditional and digital ad dollars.
5) Of the top 10 national advertisers that commented on forward-looking advertising plans, 6 intend to increase while 4 intend to decrease total ad spend.

After a weak upfront, fourth quarter scatter will be more important than usual to media companies. At this point it’s early but Ryvicker says “anecdotal” comments about scatter “seem to be more positive than negative.”

If scatter does firm up in the fourth quarter, Ryvicker says CBS, Comcast and Viacom in particular would be attractive to investors.