TV's Ad Market Remains Muted in Time Warner Results

TBS Not Helped by MLB Playoffs Sweeps

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'Rizzoli & Isles' on TNT, one of Time Warner's Turner networks.
'Rizzoli & Isles' on TNT, one of Time Warner's Turner networks.

The tepid ad market is continuing to give cable networks fits as they work to sell the commercial time they didn't book in the upfront, when advertisers shop for the upcoming TV season. Sales executives have been looking for strong growth in the so-called scatter market after a sluggish upfront market last summer.

In a conference call with investors to discuss Time Warner's latest quarterly earnings on Wednesday, Time Warner CFO Howard Averill said ad rates in the scatter market are "up mid- to high-single-digits over upfront [pricing], while [dollar] volume is moderate."

Mr. Averill said he anticipated a flat market in the near term, with ad sales likely to show "modest improvement" going forward.

The muted forecast could have implications on the next upfront for Time Warner's Turner Broadcasting division, which includes TBS, TNT and CNN, because the relative strength of the scatter market is generally predictive of the pace and volume of TV's annual late-spring/early-summer bazaar. A marked uptick in scatter business in April and May would overwrite any mid-winter jitters, but with visibility this season practically limited to the end of a sales exec's nose, that all remains to be seen.

Playoffs sweeps
In the here and now, the impact the soft ad market has had on Turner is clear. Ad revenue at Turner networks slipped 1% in the fourth quarter, compared with the quarter a year prior, and inched up 1%, to $4.57 billion, in the full calendar year. (In 2013, Turner's ad sales grew 5% to $4.53 billion.)

On Wednesday the company chalked up its flattish ad performance to ratings declines, decreased demand from advertisers and, in the fourth quarter specifically, a much smaller chunk of Major League Baseball inventory. In a spot of bad luck, all three of TBS's postgame series were sweeps, resulting in the minimum number of games telecast: 11, including the American League Wild Card Game. By comparison, in 2013, TBS carried 15 MLB playoff games.

Turner is not alone in having to weather a somewhat choppy ad market. Last week, after reporting a 3% drop in its broadcast sales, the parent company of Fox Broadcasting warned of "adverse trends" in the market. Twenty-First Century Fox president and COO Chase Carey suggested that things wouldn't get any easier as the year progresses, predicting that the migration of viewers and dollars to digital will continue to steal share from linear TV.

This season's scatter hasn't been anywhere near as strong as it was during the post-recession boomlet, when some networks were able to command ad rates as high as 20% over their upfront rates. That's a disappointment for networks after the most recent upfront, which moved slowly, saw clients keep budgets tight and more dollars apparently shifting to digital.

While Time Warner chairman and CEO Jeff Bewkes echoed Mr. Averill's assessment, saying Wednesday that "ad growth has been muted," he added that cable's dual-revenue-stream model helped offset the slackening ad market. Turner last year saw revenue from distributors increase 7% to $5.26 billion.

Advertising aside
According to Mr. Bewkes, Turner only has three remaining long-term carriage deals with top 10 cable and satellite operators left to close, and the company is on track to wrap up the last of them by year's end. As for the ongoing standoff with Dish Network, Bewkes said the two parties continue to negotiate.

"We're having very good conversations … and we feel very good about our overall business together," Mr. Bewkes said.

All told, Turner revenue in 2014 improved 4%, or $513 million, to $10.4 billion.

Turner wrote off $775 million associated with restructuring and severance charges related to a comprehensive re-organization in its executive suite that saw former Fox Broadcasting chief Kevin Reilly replace Steve Koonin as the unit's president -- which was preceded by the departure of programming boss Michael Wright.

Time Warner execs spoke swimmingly of Mr. Reilly, noting that the FX and Fox veteran has brought new perspective. Mr. Reilly is charged not only with creating hits for TNT and TBS, but bringing down the age of TNT's core audience and attracting more men.

On the ad-free side of the ledger, Mr. Bewkes did not offer a target date for the launch of HBO's nascent over-the-top service, saying only that it would arrive "later this year." HBO chairman-CEO Richard Plepler later suggested that the new service wouldn't exactly be cheap. "We're going to price it in a way that obviously maximizes the value on all platforms," Plepler said. "It's a premium product and it'll be priced accordingly."

HBO generated $5.4 billion in total revenue last year, up 10%, the company said. Subscriptions accounted for $4.6 billion, or 85% of the unit's total haul.

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