Key issues are ratings, auto sales, Nathanson says
With some advertisers stopping their spending on Google and YouTube content, some of those ad dollars could return to TV but likely not many, according to a new analyst report.
Michael Nathanson of MoffettNathanson Research said that as a result of the headlines about Google and measurement issues at Facebook, he is often asked by investors if TV can win back money from digital competition.
“While we think, on the margin, that is indeed possible, digital’s over-reliance on both the long-tail of small to medium-sized enterprises and non-brand direct marketing dollars provides resiliency in the marketplace,” Nathanson said.
That means that only a small portion of digital spending comes from the kinds of major marketers that tend to buy advertising on national TV. That’s one reason why both digital and TV advertising were able to grow in 2016.
Nathanson says there are other factors that may be more important in determining the growth of TV advertising. The first is ratings, which have been falling a year after a change in Nielsen’s methodology gave cable networks a boost at the beginning of 2016.
“These levels of ratings declines could artificially lead to elevated levels of pricing growth, but only for companies with inventory available for sale (and without make-good issues). It could also support another solid upfront, forcing buyers to lock up commercials in key programs ahead of time,” he said. “However as we have long written and observed, there is often little correlation between upfront dynamics and ultimate advertising revenue growth.”
The other factor is whether auto sales can continue the growth they’ve seen since the bottom of the 2009 recession.
“What happens in 2017 is a key swing factor in TV ad growth this year,” Nathanson said.
Bottom line: Nathanson is keeping his estimate for TV advertising for 2017 at 4% lower than last year’s Olympic and election fueled total.
Looking ahead at the next four years, he sees TV earning only 16% of incremental ad spending and its share of overall spending declining to about 35% from 38% in 2016.
“Our view remains that owners of must-have live TV content and mass reach properties will take share relative to those networks that are constructed out of repeat, non-passionate programming,” he said.
