TV's Big Broadcasters Post First Quarterly Ad Sales Gains in 4 Years

Third-Quarter Results Surprisingly Strong

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Viacom President-CEO Philippe Dauman said the company is looking at running fewer ads to improve the viewer experience.
Viacom President-CEO Philippe Dauman said the company is looking at running fewer ads to improve the viewer experience. Credit: Business Wire
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The national TV ad sales market showed unequivocal growth in the third quarter, as higher upfront pricing, a burgeoning scatter market and a new football season conspired to power broadcast's first organic growth spurt in four years.

For the three-month period ended Sept. 30, aggregate ad sales revenue at ABC, CBS, NBC and Fox were up 1% versus the year-ago period, to $3.14 billion. And while at first blush that rate of change may seem to call out for the deft application of the shruggie emoticon, the $42 million bump marks broadcast's first year-over-year improvement in a non-Olympics quarter since the third quarter of 2011.

The reversal came as a pleasant surprise to many analysts; MoffettNathanson had anticipated a 1% decline at the Big Four. And it may mark a turning point for an industry besieged by digital interlopers and the rapid decline of live TV viewing.

"We are excited to see a positive national TV advertising data point," wrote analyst Michael Nathanson in a note to investors, before going on to note that his team "will wait to see if TV advertising in Q4 can build upon this trend to signal any real lasting improvement."

Despite not enjoying the inarguable benefits of broadcasting NFL games, ABC demonstrated the greatest year-over-year ad sales growth, improving 5% to an estimated $753 million. That increase reflected the network's take-no-prisoners approach to the 2015-16 upfront, in which it secured the highest ad-rate increases (up 6%) of any broadcast operation in what proved to be another underwhelming bazaar.

September NFL games helped give NBC (up 3% in the third quarter) and CBS (up 1% in the quarter) a leg up, as both nets commanded higher rates for their respective football packages. NFL broadcasts account for one-fifth of each network's overall gross ratings points. CBS also profited from higher sales for its summer slate of original drama series, while NBC reaped the benefits of a strong showing by its competition series "America's Got Talent" and "American Ninja Warrior."

The old-guard broadcasters were also buttressed by what CBS Corp. CEO Les Moonves is calling "the strongest scatter market we've seen in many, many years." This is precisely the development the networks needed to transpire leading out of an upfront in which dollar volume was down as much as 5%. (As with all upfront estimates, caveat emptor.)

Pricing for the current quarter is trending up between 15% and 20% higher than the rates established during the summer bazaar. Or as Mr. Moonves told investors last week, "our sales guys are beating down the door to remove our [in-house] promos and put sales spots in there."

Fox remains the outlier, with sales coming in down 7% to $409 million. Its summer-quarter performance was hampered by under-deliveries among its non-scripted stable ("So You Think You Can Dance," "Are You Smarter Than a Fifth Grader?," "Knock Knock Live," etc.). That said, Fox should post much stronger numbers in the final quarter of 2015, as it is the only Big Four net showing year-over-year improvement in its seasonal deliveries of adult 18-to-49 C3 ratings.

With 27% fewer weekly broadcast hours to sell -- Fox airs 16 hours of prime-time content; the three legacy nets pump out 22 -- the network's sports skew is significantly more pronounced. NFL and Major League Baseball account for nearly half (48%) of Fox's total GRPs; toss in college football, golf, Nascar and soccer and that number rises to 57%.

Cable also enjoyed a stronger-than-expected quarter, as all but two of the eight major conglomerates put up bigger ad sales numbers. On the one end of the spectrum, AMC Networks grew 52% to $210 million, reflecting both the flagship channel's rollout of "Fear the Walking Dead" and the inclusion of BBC America in its third-quarter tally. Back out BBCA and AMCX sales were up a gaudy 40% to $193 million.

The negative outlier was Viacom and its suite of millennial-targeted entertainment networks. The parent company of MTV, Comedy Central and Nickelodeon (to name a few) saw its ad sales revenue slide 7% in the quarter, to approximately $1.02 billion. And while that demonstrates some sequential progress after the previous quarter's 9% drop, it also speaks to an ongoing ratings collapse that began more than a year ago.

The core networks are taking the biggest body blows. MTV's total-day deliveries of its target audience (viewers 12 to 34) were down 24% in the C3 currency, per Nielsen, while Comedy Central's 18-49 demo plummeted 29%. Nickelodeon's C3 ratings among the footy pajamas set (kids 2-11) fell 13% in Q3, although that marked a world of improvement compared to its 30% Q2 losses.

Speaking on this morning's earnings call, Viacom president and CEO Philippe Dauman said he was encouraged by a number of factors that would seem to play in the company's favor in the coming year. Mr. Dauman told investors that the sales team was looking to triple the number of Viacom Vantage clients before the 2016-17 upfront takes flight.

"Currently we have 11 advertisers using Vantage, leading national advertisers across sectors that include automotive, beverages, consumer goods, financial services, and quick service restaurants," the CEO said. "We are in discussions with dozens of additional Fortune 500 partners, and demand is building."

Mr. Dauman added that Viacom is taking advantage of the scatter boom, which largely has been fueled by scarcity related to industry-wide under-deliveries. He also acknowledged that the MTV nets have a lot of makegoods to turn over. "We are, you know, working our way through our ADU obligations," he said, using industry shorthand for "audience deficiency units."

Elsewhere, Scripps Networks closed out the quarter up 5%, while Discovery and 21st Century Fox notched 4% gains. Sales at NBC Universal's suite of cable channels were up 2%, and Walt Disney Co. and Turner Broadcasting were flat.

A plateau in ad loads?
Once cable trend that bears watching is what appears to be a tidal shift in the approach to managing spot loads. For some time now, a number of top cable nets have overstuffed their programming with a surfeit of commercials, creating an unsustainably cluttered ad environment while all but inviting the viewer to tune out. But in Q3 that wave seems to have crested; while overall commercial minutes were up 4%, Discovery, Viacom and NBCU's respective ad loads were flat to up less than 1% versus the year-ago period.

Clutter-busting efforts are expected to continue into the new year, depending on how a pair of pilot experiments fare in the near term. Turner's TruTV last month said it would reduce its prime-time commercial load by nearly 50%, cutting its hourly ad allotment to 10 minutes from its current average of 18.25 minutes. In looking to reduce the "noise" in its ad breaks, TruTV hopes to earn a higher CPM for its troubles.

Viacom is undergoing a similar reduction at its core networks. "We have been looking at it network by network, and … we expect over time, as the viewing experience improves, that will improve the ratings," Mr. Dauman said. "And we do believe there are some pricing opportunities, particularly when you marry it with our Viacom Velocity and Vantage products."

For all that, premium pricing may not be sufficient to make up for the loss in sheer volume. Six years ago, Fox shuttered its ad-reduction initiative "Remote-Free TV" after it discovered that jacking up rates in prime-time shows like "Fringe" and "Dollhouse" could not offset a 50% reduction in their respective ad minutes.

As was the case with Fox back in 2009, the market will determine if the clutter-free TruTV and Viacom programming merits a significant CPM bump. When Fox first began negotiating rates for its Remote-Free TV shows, it looked to secure a 50% price increase. At the time the network shuttered the program, buyers said the rate increase was more along the lines of 25% for each half of its one-minute pods.

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