Big Media Companies' TV Ad Revenue Down 0.5%

Television advertising revenue fell 0.5% in the third quarter—the worst quarter since the recession, according to analyst Michael Nathanson of MoffettNathanson Research.

Looking at media company earnings calls mostly last week and adjusting for the Olympics, Nathanson says that despite revising ad numbers lower before the earnings reports, five of the 11 companies he covers still missed estimates.

Nathanson figures that the broadcasters' ad revenue was down 0.3% to $3.1 billion, with only NBC (and its stations) in positive territory. National cable network groups were down 0.6% to $5.1 billion. 21st Century Fox, Scripps Networks Interactive and Disney did the best, up 5% a piece.

During the calls a number of explanations for the weakness were put forward by management, including advertisers looking for more flexibility, ratings measurement issues, weaker economic trends and even Ebola fears, says Nathanson, who in a research note concludes, "in the end, a soft scatter market is largely to blame."

Nathanson says that measurement issues are leading to "shockingly bad ratings, especially with cable networks targeting younger demos" and that the lack of ratings hurt those networks before they start trying to sell advertising. The quarter had few tent pole events and advertisers in key categories seem to have slowed spending. Lastly, there is finally a growing acknowledgement that the shift to digital platforms is taking a share out of TV budgets. All of which added up to a supply and demand situation that added up to no growth, he said.
Looking ahead to the fourth quarter, "lower upfront volume and lower upfront CPM inflation will put extraordinary pressure on scatter demand," Nathanson said

"Still, we were surprised with the end of 3Q and start of 4Q that the ad market didn't show some renewed vigor. With the NFL back on the air, with premium CPMs and steady audience growth, and marketers - especially autos and retail - looking to the eight to ten weeks before Christmas to move product in hopefully an improving economy, it is very troubling that the ad market is so slow in 4Q," he said. "We think the issue of (and debate over) weak ad demand is now front and center for investors and analysts.  Given that, with the worst ad quarter in a non-recession, non-Olympic compare quarter now in the books, the debate about 'structural' or 'cyclical' will weigh on multiples for the foreseeable future."