After last summer's tepid upfront market exacerbated fears that digital was finally clawing into TV ad budgets, media CEOs swore up and down that the later, so-called scatter market would bail them out. Trouble is, the rebound never happened, and if this year's first-quarter trends are anything to go by, the 2015-16 upfront bazaar could be an even greater letdown than its predecessor.
As the heads of the major media conglomerates acknowledged during last month's earnings calls, the first-quarter scatter market is lukewarm at best. In almost any other year, the "high single digit" pricing increases reported by CBS and the 10% premiums achieved by ABC would be a not-inconsiderable improvement upon the rates set in the upfront. But in this particular case, those figures are more modest than they may first appear.
That's because lower demand and depressed ad rates last year left TV sales execs with more inventory on their hands than is customary after an upfront, the annual marketplace for commerical time in the upcoming TV season. That left networks pinning more hopes on scatter. As MoffettNathanson Research analyst Michael Nathanson observed this week in a note to investors, scatter hasn't been strong enough to offset that original shortfall. "General scatter pricing remains weak," Mr. Nathanson wrote. "Modest gains in scatter pricing will not meaningfully improve growth."
And per the most recent industry estimates, broadcast prime-time scatter dollar volume was down 15% in January. Cable was slightly up, although most of those gains can be attributed to a strong showing by ESPN.
As Discovery Communications CEO David Zaslav put it a month ago, "We don't have a lot of visibility to how it's going to be for the next three quarters … but the current assumption is that the advertising market will be tepid this year."
Old-school ad execs describe the seemingly inevitable rebound in scatter after any weak upfront as the "Slinky Effect," and yet through the first 24 weeks of the 35-week broadcast season, the market has failed to spring to life.
Some of the depression can be chalked up to weakness in key TV categories. While 2015 car and truck sales have been robust, first-quarter auto spend is down. Consumer packaged goods ad spending also has taken a hit.
To look only at certain categories, however, is to ignore the bigger picture. As Twenty-First Century Fox President and COO Chase Carey acknowledged last month, traditional TV can feel digital rivals drawing closer.
"We anticipate the industry trends impacting advertising will be slightly larger than previously expected, as both advertising and viewership continues to migrate to digital platforms," Mr. Carey told analysts during the company's earnings call.
Season-to-date, Fox's prime-time ratings are down 25% from the year-ago period. Declines related to the ratings shortfall at the broadcast unit were "exacerbated by adverse trends" in the linear TV space and the "TV advertising market" as a whole, Mr. Carey added on the call.
These trends include unmeasured viewing that has migrated to mobile platforms and an ongoing shift of TV dollars to digital.
Given that scatter remains relatively slow as so many general economic indicators are up, it's difficult to see TV faring much better in the upfront than it did last summer. But as the scatter picture continues to develop, a clearer outlook for the upfront will begin to emerge. Barring an unforeseen macroeconomic collapse, April scatter trends should go a long way toward foreshadowing demand in the 2015-16 bazaar.