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Broadcast TV Make-Goods Could Tighten Scatter, Benefit Cable Nets

Buyers, Though, Don't Believe There Is Enough Demand to Drive Scatter Up

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Lackluster broadcast TV ratings in the first weeks of the fall season could free up advertising dollars to shift to cable networks. There's a problem, though: There aren't many ad dollars to move.

With broadcast ratings down 9% through week four of the season and the all-important 18-to-49 demographic decreasing 10% year-over-year, the Big Four networks will theoretically be required to provide meaningful make-goods to advertisers, according to Cowen Group analyst Doug Creutz in a Nov. 1 research note. "This, in turn, will use up otherwise available ad inventory and likely create a very tight broadcast scatter market, which could push up scatter CPMs [cost per thousand views]. However, with little available inventory, the net impact on CBS, Fox and ABC is likely to be negative."

The impact on cable TV networks with meaningful 18-to-49 viewership, however, could be positive. Mr. Creutz calls out Time Warner 's portfolio of networks, which include TBS and TNT, as well as Discovery Communications, as potential winners in this scenario.

Media buyers are hesitant to say a decline in broadcast ratings automatically means a shift of ad dollars to cable, especially in the current environment. "There isn't a steady flow of money going into the marketplace right now," said John Muszynski, chief investment officer at SMG Exchange.

"In terms of new dollars entering the marketplace, it's kind of quiet," said Rob Bochicchio, exec VP-chief media investment officer at ID Media. "I haven't had a client back out in the fourth quarter, but there's no real influx of dollars. We expect budgets to be flat to down going into next year. We expect the December [scatter market] to be wide open."

But in their earnings calls this month, cable networks were more optimistic. "The domestic advertising market ... feels quite strong now," said David Zaslav, CEO of Discovery Communications. Time Warner said domestic scatter appears steady with pricing up in the mid-single digits over a strong upfront. And at News Corp., Chase Carey, chief operating officer, said cable scatter is getting double-digit premiums as "national cable [is ] a bit stronger than the broadcast."  

Scripps Network President John Lansing said fourth-quarter demand is coming later than usual, possibly due to the election. He expects pricing for scatter to remain in the "mid-to-high single digits."

"A lot of the advertising that 's chasing make-goods in broadcast can come to a Scripps Network channel and not have to worry about [our] delivering on the estimates and the guarantees," said Mr. Lansing.

While the fourth quarter is a story that 's still unfolding, the longer-term trend should be worrisome to the broadcasters. "The accelerated decline in broadcast-ratings declines does increase our concern somewhat that broadcast CPMs could come under pressure and converge towards cable CPMs, as increasingly the broadcast networks are losing their advantage in being able to deliver significantly larger audiences per show than cable," said Cowen's Mr. Creutz. "While we do not believe this is likely to be a major issue in the near-term, it could cause problems two to three years out if double-digit ratings declines continue past this season."

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