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US TV Industry at a Crossroads
July 12, 2018 // In the News
by VINCENT LETANG. Published by RTL ADCONNECT on July 12, 2018.
2017 may go down as a tipping point: a year when several existing trends in media consumption and TV advertising market reach tipping point and suddenly accelerated. The U.S. television industry is facing unprecedented challenges and uncertainty as the media ecosystem is going through complex, rapid transformations.
Cord-Cutting: The Cable slump.
The near universal availability of smartphones and over-the-top TV connections are causing dramatic changes in media behavior, and it’s no longer restricted to younger generations. The rate of “Cord Cutting” – households cancelling their subscriptions to cable/satellite pay TV (Multichannel Video Providers Distributors or MVPDs) – suddenly accelerated in 2017 as the MVPD industry lost more than 3.5 million households (dropping from 100.5 to 97 million homes). MVPDs and broadcasters have designed “skinny bundles” of cable networks, available online (e.g. Dish’s “Sling”), to win back cord-cutters with the concept of linear TV bundles. They’ve had some success, but it did little to mitigate the decline in the penetration and reach of many cable networks in the last three years.
Linear TV: low consumption, high ad demand.
The decline in linear TV consumption continued in 2017. Typical ratings on broadcast networks are half of what they were just five years ago, and, by the end of the current broadcast season, MAGNA expects the average primetime rating (adults 18-49) to be under 1.0. In 2008, the average American between 18-49 was consuming 35 hours of video entertainment per week, 32 hours of which were live television (an all-time high). In 2018, Americans consume 55 hours of video on various screens, live linear TV down to 18 hours, while on-demand video consumption is growing (64% of households subscribe to at least one SVOD service).Meanwhile, the demand from advertisers remains robust. In fact, in 2017, a number of TV-centric verticals (food, drinks, personal care, pharmaceuticals, film releases) not only maintained the share of national television in their advertising budgets but increased it. Shrinking supply and stable demand mechanically leads to CPM inflation and, indeed, we’ve seen CPMs grow by an average of 10% per year across national TV over the last five years. In a good year (e.g. 2016) double-digit CPM inflation would offset double-digit rating deflation, stabilizing advertising revenues as a result. But that wasn’t the case in 2017 as the ratings crisis worsened.
Cyclical Ad Spend Rescues TV Revenues.
National television advertising sales were down -2.2% at $42 billion last year, according to MAGNA estimates (excluding the incremental ad sales generated by cyclical events e.g. Summer Olympics of 2016). No industry segment was spared: English-speaking broadcast networks’ Net Advertising Revenues (NAR) decreased by -3%, Spanish networks by -7%, and cable networks by -2%. Local television ad revenues declined by -14% at approx. $20 billion, mostly due to the lack of political spending (following the election cycle of 2016) but non-political ad sales decreased too, by approx. -4%.This year (2018), MAGNA anticipates that television broadcasters and stations will benefit from additional ad spend generated around cyclical events: Mid-Term elections ($3 billion of political spend), Winter Olympics (600 million) and FIFA World Cup (200 million). This will help national TV stabilize its ad revenue (+0.2%) and local TV grow its ad sales by nearly 10%. Television sales houses can mitigate the stagnation in traditional linear ad sales by better monetizing digital on-demand viewing platforms (e.g. Hulu and Full Episode Players on mobile devices and OTT). MAGNA estimates TV advertising sales houses generated approx. $1.7 billion of NAR from those platforms in 2017 (+12%). That growth, however, is not enough to offset the bigger erosion in traditional TV ad sales and stabilize total, cross-screen television advertising revenues.
In terms of programming there have been few winners in the 2017-2018 season so far. The number one show was, yet again, The Walking Dead on AMC. The Walking Dead made television history in 2012 when it became the first cable show ever to top the year’s ratings, beating broadcast shows. However, with an average rating of 3.4 (live+same day, ages 18-49 with 7.8 million viewers – 11.7 million when adding DVR), season 8 was down by -30%, showing that not even popular shows are immune from the general and dramatic fall of ratings.The reboot of Roseanne on ABC in March 2018, bringing back the same cast 20 years after the first series, was the top rated new sitcom this year. It’s been the most successful reboot by far in the long list of trials over the last few years (X-File, McGyver, Will and Grace, Hawaii 5-0, 24 etc.). The Roseannereboot also made headlines as an attempt to target white working class families who, some have argued, had been under-served by TV programming in recent years while several shows focused on minorities with some success (ABC’s Black-ish and Fresh Off the Boat). Roseanne was nevertheless cancelled by ABC in May, following a racist tweet from the star of the show Roseanne Barr. That was the latest example of television programming getting embroiled in the bitter “culture war” and toxic political environment affecting the US in the last two years, as Roseanne Barr, a left-leaning working-class actress twenty years ago, went on to embrace Donald Trump’s politics and rhetoric.Among other successful new shows are The Good Doctor on ABC (highest rated new drama) and Young Sheldon (a Big Bang Theory spin-off) on CBS. Meanwhile, the highly emotional drama This is Us on NBC remains the second highest rated show on broadcast TV and one of the very few shows whose ratings grew over the previous season despite the general ratings erosion.
Traditional Media Consolidates Against the “Duopoly”.
2017 also kicked off an unprecedented wave of mergers and acquisitions in the television industry, which remains, for now, less concentrated than most European media landscapes. ATT/DirecTV just won the court approval to acquire Time Warner (Turner, HBO, Warner Bros, etc.) for $85 billion, despite the opposition of the Department of Justice (DOJ), and this decision is likely to trigger more consolidation in the industry. Producers and broadcasters of premium television and movie content need to increase scale to fend off the multiple threats of Netflix, YouTube and Facebook. Disney seems set to win a bidding war against Comcast/NBCU to acquire most of Fox’s assets for $71 billion, after getting approval from the DOJ. The Burbank company is keen to strengthen its catalogue before launching its SVOD service in 2019, when Disney movies and series will no longer feature on Netflix. Discovery bought Scripps. Meanwhile the MVPD sector has consolidated around Comcast, Charter and ATT (66% of the combined market share) and local television has consolidated around Sinclair.
“Advanced TV” advertising sales in 2018
In the works: Advanced TV and Real-Time Monitoring.
A consolidated television industry may have the resources and scale to successfully develop new, more sophisticated advertising products which would enable brands to leverage consumer data in linear television campaigns, as they do today with digital media formats. MAGNA forecasts that “Advanced TV” advertising sales will grow by +40% this year to reach $2 billion. That includes 800 million dollars in household-addressable linear dynamic insertion campaigns served by MVPDs through set-top boxes on the two minutes of cable network airtime that they control (enabled in 52 million households). Meanwhile, smart TV manufacturers (Samsung) and system operators (Roku, Sorenson) are developing the capability to serve targeted commercials alongside or within linear TV feeds, with real-time monitoring. This will allow any television provider to offer addressable campaigns and tap into “programmatic” ad budgets, beyond the traditional two minutes of locally-inserted commercials on cable networks.
A Conversation with Conan O’Brien and David Cohen
June 20, 2018 // Thought Leadership
June 20, 2018: David Cohen (President, North America) interviewed Conan O’Brien at Cannes in an event hosted by Turner. Watch the recorded live stream below (interview begins 15 minutes into the video):
Episode 19 – Ecommerce Trends Breakdown feat. MAGNA
June 20, 2018 // Thought Leadership
Brian Hughes, SVP of Audience Intelligence and Strategy, joined the IPG Media Lab in their recording studio to discuss the most recent Media Economy Report for their podcast show, Floor9. Over the course of 30 minutes, they covered
- Background on the 2018 Media Economy Report
- The demographics of the average eCommerce shopper
- Where consumers start their online ecommerce journey
- Hypotheses as to why desktop is still the preferred method of online shopping
- The trend of digital-native brands expanding into brick-and-mortar retail
- Trends in grocery shopping as it continues to move online
- Hot takes on Walmart’s new luxury shopping service Jetblack
- Brand takeaways on how to stay connected to consumers as eCommerce takes over
Cannes Update with David Cohen and Dani Benowitz
June 19, 2018 // Thought Leadership
June 19, 2018: David Cohen (President, NA) and Dani Benowitz (EVP, Strategic Investment) share an update from Cannes Lions. For information on the festival so far, upcoming events, and recently published intelligence reports, view this short video.
Press Release: Magna Advertising Forecasts, Spring 2018 Update
June 18, 2018 // Press Releases
Global Advertising Market to Grow by a Record +6.4% This Year
Strongest Growth Since 2010. TV Resilient Thanks to Cyclical Drivers and Strong Pricing. Digital Advertising Reaches $100bn in the US
- In its latest report on global advertising market trends, released June 18, 2018, MAGNA forecasts media owners’ net advertising revenues (NAR) to grow by +6.4% to $551 billion in 2018 in the 70 countries analyzed by MAGNA. That’s the strongest growth rate since 2010.
- MAGNA increases its forecast for 2018 following strong market performance in the first few months. +8% in the US in the first quarter, and +31% for Google and Facebook globally.
- The 2018 growth (+6.4%) is an acceleration from 2017 (+4.5%), mostly due to the five billion dollars of incremental ad spend generated around cyclical events in 2018 (US Mid-Term elections, FIFA Football World Cup, Winter Olympics). Neutralizing cyclical revenues, the 2018 growth would be +5.5%, in line with 2017.
- Global ad spend remains strong thanks to robust economies (US +6.4%, China +10%, Russia +12%, India +12.5%) and convalescent/recovering economies (Latin America +10%, Middle East +9%). Western Europe lags behind due to low economic growth and political uncertainty (+4.1%).
- Digital advertising sales will grow by +15.6% in 2018 to reach $250 billion or 45% of global advertising revenues. Mobile ad sales reached half of total digital spend last year, and will increase to 62% of total digital spend this year. Digital will to represent half of the world’s total advertising sales by 2020.
- In the US, advertising sales will grow by +6.4% in 2018 to reach an all-time high of $207 billion, including $4 billion dollars of incremental revenues from cyclical events. Excluding cyclical revenues, underlying growth this year will be 4.7% (similar to 2017).
- US digital ad sales will grow by +15% this year to pass the $100 billion milestone (52% of total ad sales). Non-digital ad sales will shrink by -4.6%. National TV ad revenues will be flat while local TV will grow by +10%, OOH by +2%; print ad sales will decrease by -17% and linear radio by nearly -4%.
- Next year (2019) will see a slower growth in the US: +2% in the absence of cyclical drivers, although core growth will also slow (+3.6%).
According to Vincent Létang, EVP, Global Market Intelligence at MAGNA and author of the report:
“Global Advertising Spending is going to expand by the strongest growth rate since 2010 this year, as several of the largest markets – including the US, Russia and China – experience robust economic growth. Many consumer packaged goods and automotive brands are freezing or cutting ad expenditure, which hurts the revenues of traditional media types, while digital media, used by millions of small and local advertisers, seems to be immune from slow-down so far. Linear television will enjoy modest growth in most markets however, as cyclical events bring incremental budgets and strong pricing (CPM inflation), offsetting shrinking volume (ratings decline).”
- Globally, net media owners advertising revenues (NAR) are projected to grow by +6.4% in 2018, to $551 billion. This is above MAGNA’s previous forecast (+5.2% published December 2017) due to stronger-than-expected market performance year-to-date for digital media sales in particular. For instance, advertising spend grew by an impressive +8% in the US in the first quarter, while for Google and Facebook advertising revenues grew by +31% globally over the period, showing no sign of slow-down.
- The major cyclical events taking place in 2018 (The FIFA World Cup in Russia, Mid-Term elections in the US, Winter Olympics in South Korea) will generate five billion dollars of incremental ad spend this year (two thirds of it in the US alone), thus contributing one percentage point to global ad growth. Excluding cyclical revenues, global underlying advertising growth would be +5.5% in 2018, i.e. level with 2017.
- Global advertising demand remains strong in countries enjoying a robust economic environment (USA +6.4%, China +10%, Russia +12%, India +12.5%), and is recovering in convalescent/recovering economies (Latin America +10%, Middle East +9%). Western Europe is lagging behind due to low economic growth and political uncertainty, but double-digit digital growth and a minor boost from FIFA World Cup on European soil, will ensure moderate growth (+4.1%).
- 69 of the 70 ad market analyzed by MAGNA are expected to show some level of growth this year, with Singapore the only market forecast to shrink this year. The fastest-growing regions in 2018 will be Central & Eastern Europe (+9.2%) and Latin America (+9.6%), followed by Asia-Pacific (+6.9%) and North America (+6.3%).
- Linear television ad revenues will grow again in 2018 (+3% to $185 billion), thanks to the return of even-year cyclical events, despite the continued, worldwide erosion of reach and ratings. Without the incremental even-year ad sales, TV would be just flat this year (+0.4% globally, -1.4% in the US).
- The resilience of television is also caused by sustained demand from big consumer brands in CPG/FMCG sectors (food, drinks, personal care and household goods), media/entertainment, restaurant chains and pharmacy (where allowed). Because some marketers are concerned about brand safety and ROI accountability in digital environments, many brands have paused the long-term diversification of their media mix towards digital formats and have instead remained loyal to traditional linear television in the last 18 months.
- That sustained demand for TV inventory, combined with declining supply (ratings) is driving high CPM cost inflation (ranging +5% to +15% in key markets while economic inflation remains below 2%). Strong TV pricing, however, is barely offsetting declining volumes resulting in flat revenues for broadcasters in the France, UK, Italy, Japan and the US (excluding cyclical ad spend).
- Television is evolving too. “Advanced television” advertising techniques are gaining momentum in markets like the US and the UK. That includes live linear targeted ad substitution (household-addressable campaigns), on-demand TV content on television sets, and more generally the ability to buy qualified audiences (auto intenders, families with babies or pets…) with less wastage and better engagement, compared to traditional age/gender targeting. Most “advanced” TV campaigns these days are based on cable or satellite subscription and managed through set-top boxes, but the ubiquity of “smart” connectable TVs and over-the-top (OTT) devices creates the opportunity to target all TV viewers, including “cord cutters”, on the big screen around “safe” television content, through on-demand or linear consumption. Companies like Samsung, Roku, and others compete to provide the operating systems of television sets and offer “advanced” targeted advertising solutions to marketers.
- Global Digital advertising sales (display, video, search, social) will grow by +15% this year, to $250 billion, slowing only slightly from 2017 (+18%), while offline ad sales (linear television, print, broadcast radio, out-of-home) will decrease by -0.2% to $300 billion. Digital media sales will represent 45% of total ad sales by the end of 2018 and MAGNA anticipates that it will reach 50% of global ad dollars by 2020. It will reach that milestone this year in the US, while the market share of digital media sales is already beyond 60% in markets like the UK or Sweden.
- Digital ad spend will continue to be driven by Social (+31%) and Video (+27%) formats this year. Search will grow by +14% to $47 billion and remains the largest ad format.
- Despite the scale reached by digital media spend and the controversies that hit some of the media owners in the first half of 2018, digital ad spend has showed no signs of slow-down yet. The combined advertising revenues of Facebook and Google grew by +31% year-over-year in the first quarter of 2018. Nevertheless MAGNA does anticipate a mild slow-down in the second half of the year but so far, spending from small, local, direct advertisers – often re-allocated from below-the-line marketing channels (direct mail, yellow pages) – continues to grow quickly, offsetting any slow-down in the spending from brand advertisers.
- The majority of digital ad sales (62%) is now generated by impressions and clicks on mobile devices (mostly smartphones). Mobile ad sales will grow by +30% in 2018 while desktop-based ad revenues will shrink (-2%), due to ad blocking and the rapid shift of digital media consumption towards smartphones and away from computers.
- Other media categories will struggle to various degrees this year as they don’t benefit from the pricing power and cyclical drivers of national television. Global Print NAR will decrease by -11% to $54 billion. Radio ad sales will decrease by -2% to 28 billion. This reflects legacy ad sales only(paper, linear broadcast spots). When and where we add an estimate of the digital advertising sales of publishers and radio broadcasters or audio pure-players, it mitigates but doesn’t offset the revenue decline. This is because online display pricing is poor and music streaming is moving towards a premium ad-free model, limiting ad inventory. Podcasting is mostly ad-supported and becoming increasingly popular; it has the potential to rejuvenate the audio media industry, in combination with the rise of voice-activated smart speakers. Just like the television industry did, the audio media industry needs to develop an on-demand leg to balance the linear leg.
- The only “traditional” media category to show moderate growth in 2018 will be Out-Of-Home. Global NAR is forecast to grow by +3.4% to $33.5 billion. OOH does benefit from cyclical events but the main driver remains the roll out of digital OOH inventory. DOOH NAR will grow by +16% this year to reach $5.7 billion as new airports, malls and transport system become available for media buying this year. For instance the “old” DOOH system in the London underground is about to be upgraded and expanded, and thousands of screens are to be rolled out in the New York Subway.
- In the US, media owners net advertising sales (NAR) will grow by +6.4% in 2018 to reach $206 billion, a new all-time high. Neutralizing the ad spend generated around the cyclical even-year events, 2018 underlying growth would be just +4.7% compared to +4.9% in 2017.
- MAGNA increased its 2018 growth forecast from +5.5% (December 2017) to +6.4% (June 2018) following increased economic expectations, and a strong-than-expected market in the first few months.
- Cyclical events will drive $3.7bn of incremental advertising dollars this year, up +12% from 2014 (the last Mid-Terms year). Political advertising will bring in $2.9bn, an increase of +18% vs 2014, as far more House races are expected to be competitive than initially thought (101 races this year vs 79 in 2014). The Winter Olympics brought in an estimated $630 million in incremental television ad revenues, on par with Sochi 2014, as stronger pricing compensated for ratings being down -24%. The FIFA World Cup is expected to generate $180 million of incremental ad sales, down 18% vs 2014 due to the absence of team USA and the time difference with Russia.
- In the first quarter of the year, total ad revenues grew by an impressive +8% over 1Q 2017 – the strongest quarterly growth since 3Q16. Excluding cyclical (Olympic) spending, normalized growth was still +6.4%, thus accelerating from 4Q17 which had been the strongest quarter of last year (+6.0%). Digital media, in particular, grew faster than expected (Total +18%, Search +17%, Video +27%, Social +47%). National television also performed slightly above expectations (+5% year-over-year).
- Most of the national TV revenue growth in 1Q18 was due to the incremental revenues brought in by the Winter Olympics, but excluding cyclical spend national TV was stable (+0.5%). That was still an improvement compared to the prior six consecutive quarters of decline (by an average of -2%). Other media categories grew in line with expectations: local TV +0.4% (-3.9% excl. cyclical), Print -14%, Radio -4%, Out-of-Home +1.5%.
- MAGNA anticipates that US digital ad sales will grow by +15% this year to reach $106 billion, i.e. 52% of total non-cyclical ad dollars. Meanwhile, non-digital ad sales will shrink by -4.6% to $97 billion. National TV ad revenues will be flat (+0.2% or -1.4% excluding cyclical revenues), local TV will grow by nearly 10% (-3.4% excluding cyclical revenues), print ad revenues will decrease by almost -17% and radio ad sales by almost -4%. Out-of-Home ad spend will grow moderately (+2%).
- Digital advertising sales will grow by +15% this year to reach $106bn, slightly slower than last year’s +18% performance, and still comfortably the fastest growing media format. Digital ad spend will continue to be driven by a few key formats, namely Paid Social (+31%), Video (+24%) and Search (+14%). Traditional banner display (-8%) and other forms of digital advertising such as email and online classifieds (-15%) continue to shrink in favor of other more attractive formats. In addition, as more and more display inventory switches to video, not only is the inventory less attractive, but the total pool of units for sale is shrinking.
- By device, mobile advertising is the growth engine within digi Mobile spend will grow by +29% this year to reach $70bn, nearly two thirds of total digital spending. Desktop spend will shrink by nearly -5%. Formats have transitioned to mobile at much different rates; social media advertising is almost entirely mobile, with 90% of total social spending this year coming from mobile devices. This is followed by search (58%), video (56%), and display (56%).
- Programmatic ad spend has seen rapid growth in the US, with $12 billion worth of display-related (banners and video) ad spend last year. That is already 62% of total display ad spend in the US and will increase to represent 78% by 2021. Programmatic campaigns are particularly popular in Finance, Technology and Automotive brands. The top programmatic advertisers last year were Apple, Samsung, P&G, Geico, and Amazon.
- Smartphones are the big winner when it comes to media consumption, while computers and tablets are losing grounds, but television screens are making a come-back. The growing availability of “over-the-top” (OTT) IP-delivered premium content on TV sets, supported by 70 million connected “smart TVs” and over 50 million standalone OTT boxes, is leading to ever-growing consumption and advertising opportunities. OTT advertising spend, defined as ad impressions generated on television screens by YouTube, Hulu and other OTT content providers and operators like Roku, will reach $2.2 billion this year, up by +40%. Meanwhile addressable TV campaigns are also attracting increasing budgets: $800 million in 2018 (+27%).
- OOH is the only traditional media channel likely to post net revenue growth this year (+21.9 to $8 billion), thanks to further organic growth in digital/ambient OOH inventory. One example is the launch of a multi-year development plan by Outfront Media and the New York Metropolitan Transit Authorities (MTA), aimed at installing 50,000 digital screens in the subway and bus systems, starting in 2018.
- Radio advertising sales will continue to suffer in 2018 because of a negative pricing trend (CPM -3%) and the continued decline in listening. MAGNA expects linear broadcast radio NAR to decline by -3.8% to $13.2 billion. The digital advertising sales of radio broadcasters and streaming players will grow by approx. +6%, but “audio advertising” market(broadcast + digital revenues, traditional broadcasters + streaming “pure players”) is still expected to shrink by -2%. The “Chapter 11” filings of iHeartMedia and Cumulus (which together represent 25% of the entire radio ad market), reflect the struggles of this media category.
- Print advertising sales will decrease by -17% to $14.7 billion. Adding publishers’ digital ad sales (+7% to $7.3 billion), total advertising revenues will still decline by -10% this year for publishers (newspapers -12%, magazines -8%). Finally direct mail advertising revenues (not included in MAGNA’s grand total) will decrease by -3% to $18 billion, as the expected boost from political mailing campaigns will not quite offset the long term erosion of mailing caused by the competition of digital formats.
- In terms of spending verticals, MAGNA expects reduced ad budgets from Automotive (-4%), and Movies (-10%). Those two sectors are cutting marketing expenditure as car sales and box office revenues are decreasing. Growth sectors this year will include Technology (+13%, but little or no growth in TV spend) and Finance (+7%, also concentrated in digital).
This is an Executive Summary from the Spring Update of MAGNA’s Global Advertising Forecasts, updated twice a year. Next update: December 2018. MAGNA’s market research publications that include dozen of reports on ad spend, ad costs, ad growth, media consumption, and ad tech, in the US and across 70 countries. To learn more, or to access the full report or dataset, contact Vincent.firstname.lastname@example.org.
Fig. 1 – Growth Forecast in Key Regions and Selected Markets
|World (incl. CE)||4.5%||6.4%||4.0%|
|World (excl. CE)||5.5%||5.5%||4.9%|
|Central & Eastern Europe||10.2%||9.2%||6.4%|
|United States (incl. CE)||3.3%||6.4%||2.0%|
Fig. 2 – Focus on the US Market
|2018 Size ($m)||2018
|National TV (incl. CE)||43,462||0.2%||-3.5%|
|National TV (excl. CE)||42,735||-1.4%||-2.0%|
|Local TV (incl. CE)||21,692||9.9%||-14.7%|
|Local TV (excl. CE)||18,726||-3.4%||-3.7%|
|GRAND TOTAL (incl. CE)||206,598||6.4%||2.0%|
|GRAND TOTAL (excl. CE)||202,904||4.7%||3.6%|