Analyst Turns Skeptical About Second-Half TV Ad Rebound
Michael Nathanson sees a difficult upfront and a 5% drop in revenue in 2023
While television executives optimistically expect advertising revenue to rebound in the second half of the year, MoffettNathanson senior research analyst Michael Nathanson, looking at the economic outlook and the scatter market, is questioning the industry’s conventional wisdom and popping its balloons.
Instead of a rebound, Nathanson sees the industry facing a tough upfront and, in a new research note forecasts that 2023 TV advertising spending will be down 5% to $78.7 billion, compared to his earlier forecast of a 3.3% decline. That includes a 22.5% increase in ad-supported video-on-demand (AVOD) revenue to $11.4 billion. (His earlier forecast had AVOD growing 27%.)
“With a highly uncertain macro environment — whose rapid changes we are quite attuned to — we are skeptical as to how companies can give such guidance with any certainty,” Nathanson said. “We have even more doubts after recent channel checks suggested no significant improvement to the broader TV scatter ad market, which portends weak demand for linear TV inventory ahead of the TV upfront season.”
Nathanson noted that while he’s lowering his ad forecasts for 2023, he’s not modeling either a full U.S. economic recession or an advertising recession.
That doesn’t make Nathanson’s new 2023 numbers any prettier. He sees a small improvement at the broadcast networks, with a 7% drop to $137 billion in ad revenue compared to his prior estimate of a 7% drop. But he sees national cable falling 7% versus 5% previously, syndication down 5% (unchanged), local broadcast stations down 10% vs 8% earlier and local cable dropping 16%, compared to 14.5% in his earlier forecast.
“We continue to believe that AVOD will be a growth category in the U.S. advertising market as engagement shifts from linear TV to ad-supported streaming services, albeit at a slower growth rate on a core basis,” he said.
Including Disney Plus and Netflix, Nathanson sees AVOD growing at a compounded annual rate of 23% from 2022 to 2025, topping $17 billion in revenue.
For individual media companies, Nathanson has lowered his first-quarter ad revenue estimates for Warner Bros. Discovery (now down 17.5% to $2.2 billion), AMC Networks (down 15.2% to $189 million) and Paramount (down 8.5% to $2.3 billion. The Walt Disney Co. is unchanged at $1.9 billion and Fox is showing an increase because of strong sales for Super Bowl LVII.
For all of 2023, Nathanson forecasts that Warner Bros. Discovery ad revenues will be down 10.7%, ABC will fall10.5%, Paramount will drop 4.7% and Disney will drop 6.2%. He predicted Fox ad revenue would rise 6.7% because of the Super Bowl, but that’s lower than his earlier forecast of an 8.5% increase.
The lower ad revenue will have an impact on earnings. “We expect both cyclical and secular pressures to weigh on media company results in 2023,” said Nathanson, who lowered his earnings estimates for Fox, AMC, Warner Bros. Discovery and Paramount. ■
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Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.