The Wall Street Journal
Quarterly results are heartening; ‘scatter’ ad pricing is mixed blessing
The cast of "Grease Live!" Photo: Kevin Estrada/Fox Feb. 11, 2016 4:48 p.m. ET
By Steven Perlberg
Big media companies continued to report pretty decent ad revenue growth in the most recent quarter. Time Warner Inc. on Wednesday said its advertising revenues in the period increased 5%. Domestic ad revenue at 21st Century Fox ’s cable networks division grew 3%. At Comcast, NBC broadcast revenue was up 7%. NBCUniversal cable networks’ ad revenue dropped 9.3%, but excluding political revenue it increased 2.8%.
Bernstein estimates that Disney ’s advertising revenue rose 14%. The company said advertising revenue at ESPN was up almost 25%, thanks to college football bowl games and a strong sports advertising marketplace. Viacom ’s ad revenue was down 4%, but that was better than Wall Street analysts generally expected from the struggling media company.
Those aren’t necessarily stellar figures, but media executives during recent earnings calls still took time to laud the health of the “scatter,” or year-round market for advertising, as they have done in recent quarters. Executives also suggested the advertising market would continue its momentum into the summer “upfront” marketplace, where networks and marketers negotiate ad time ahead of the fall season, unlike last year’s tepid results.
At times during the various calls, it seemed as though executives were reading from the same script.
“We are seeing pricing in the scatter market over the last upfront in the neighborhood of 20%. So that bodes very well for the upcoming upfront,” said Viacom Chief Executive Philippe Dauman.
“With scatter pricing pacing up double-digits versus the upfront... every indication points to a very strong upfront this year,” said Howard Averill, chief financial officer of Time Warner.
“I think the scatter market is as strong as it’s been any time in recent memory and when we went through the upfront, we were wondering -- everybody was wondering -- is more money going to digital and is that depressing the upfront or are advertisers just waiting?” said NBCUniversal CEO Steve Burke. “Now appears given that scatter has been strong now so consistently, that a lot of advertisers were waiting and placing their money later.”
Understanding the underlying strength in the scatter market isn’t so simple. As a result of pervasive ratings declines, networks have for months owed advertisers “make goods,” or free ad time to compensate for the shortfall. As a result, there has been less advertising inventory to go around, and that lack of supply has driven scatter prices up.
“There’s definitely a lot of scatter activity in the marketplace,” Dave Campanelli, director of national TV at ad buyer Horizon Media. “The pricing that’s coming out of it is somewhat artificially high.”
Pricing is one thing -- and volume (the overall quantity of sales) is another.
Ad buyers say scarcity is the chief driver of higher pricing in scatter, and they are dubious that those economics will compel marketers to spend more during the next round of upfront negotiations. Marketers these days want to hang on to budgets for longer, even if that means having to pay a larger premium in the scatter market than they had hoped for, buyers say.
There may be another factor at work. Some marketers who moved money out of television in favor of digital spending are having doubts about the efficacy of their advertising on those new channels, ad buyers say. A handful of issues plague the online advertising space, such as bot traffic and “viewability,” or the extent to which ads that are served on webpages are actually seen by the human eye.
“There’s no doubt about it. This whole viewability issue has obviously taken root,” said Rino Scanzoni, chief investment officer of GroupM, the largest ad-buying firm in the world. “Clearly when you factor in fraud… that takes a lot of real impressions out of the equation in digital.”
Mr. Scanzoni said there “probably has been a movement back” from digital and into television by marketers, but that it’s not enough to have caused the rise in scatter pricing, which he attributed mostly to scarcity. Marketers may also decide to be more careful with their spending during the upfront due to questions about the stability of the global economy and the turbulent stock market, he said.
Mr. Campanelli said that traditional TV companies can reap revenue from digital spending, too, on their various sites and apps on over-the-top devices.
“The shift in consumption to digital or video-on-demand doesn’t mean that people are not watching ABC content and now they are only watching YouTube. They are still watching that content on other platforms,” he said. “Digital spending doesn’t mean spending away from traditional media companies all the time.”
Advertisers will spend about $72.7 billion on television this year, compared with $67 billion digitally, according to an eMarketer estimate.
This spring, networks will hope to dazzle marketers with their slates of new shows during the upfront presentations in the hopes that they will open their wallets come summer. The open question will be whether marketers will pony up like media executives are anticipating.
