PQ Media POV

PQ Media Point of View - December 2014

TELEVISION ADVERTISING MARKETING 4Q14

CPM Increases During TV Upfronts Lowest Since Great Recession
Volume Sales Fall for both Broadcast and Cable Networks
C7 Important Selling Strategy, Numerous Brands Cut TV Budgets
Weak Upfront & Political Media Buying Could Have Spurred a Strong Scatter Market

Back in September, all five major broadcast networks and the aggregate of more than 50 ad-supported cable networks reported CPM rate increases. However, the rate of increase was the lowest since the 2009-10 season. For most networks, it represented the third consecutive year that CPM rate growth decelerated after posting a double-digit gain in 2011-12. The exception was NBC, which equaled last year's estimated 8% increase, after winning the coveted 18-49 year old demo for the first time in almost a decade after Friends ended its run. CBS, based on the overall strength of its schedule, was able to secure a 5% increase in 2014, down from the estimated 7.5% rise in 2013. Fox fell the hardest, raising rates a mere 2.5% compared with 6% last year. Meanwhile, ABC rate increase is projected to be approximately 4.5% in 2014, a three point drop from the 7.5% it commanded in 2013. CW fell to about a 3.5% gain, below the 5.5% increase it requested last year. Cable network CPM rates ran at about 5% for the current season, about two to three points less than the average increase in 2013-14.

Concurrently, overall sales volume fell by more than $1 billion during the upfronts, or about 5% to $18 billion for the 2014-15 season, compared with $19.1 billion in 2013-14. Broadcast networks dropped almost 10 points to an estimated $8.3 billion, a decline of approximately $850 million from last year. Combined cable network upfront sales dipped by 2% to $9.7 billion, down $200 million from 2013-14.

All the broadcast networks reported that expanding the ratings week from C3 to C7 helped procure commitments from a number of agencies, such as Group M. However, the industry was severely affected by major brands cutting budgets, particularly Proctor & Gamble, Kellogg, and General Motors. While the networks lamented over the weak upfronts, many key stakeholders believed that the scatter market will be among the strongest in over a decade when inventory becomes tight during the political campaign season. SuperPacs had begun to spend on political ads six months before the election, particularly in key DMAs in which Democratic seats accurately proved to be vulnerable as the two parties vied for control of the Senate leading up to the 2016 Presidential elections.

So with the election complete, has the scatter market proved to be so lucrative? For the networks, political media buying was not a factor, as no candidate or SuperPac ran a national ad on any broadcast or cable network. Rather, both parties have become more sophisticated in their media buying, as well as controlling their overall budgets. Monies were taken out of media budgets, for example, and shifted to more engagement activities, such as targeting specific neighborhoods for one-on-one get-out-to-vote initiatives, like canvassing door-to-door. Digital media budgets were expanded and used more efficiently than in past campaigns, based on the successful models employed by President Obama. Many campaigns cut TV budgets, allowing the SuperPacs to dominate airwave buys. Thus, inventory at the station level was not as tight in some DMAs as expected.

For the networks, the increase in the scatter is based upon early season results, which to date haven't drastically different from the previous few seasons. Networks continue to lament that consumers continue to shift to digital devices to view programs, particularly tablets and smartphones, as well as over-the-top video providers, such as Netflix, having success with their original programming alternatives, like Orange in the New Black. The one bit of good news released by Nielsen in December is that overall viewing on TV continued to climb, albeit at less than a 1% gain, while viewing TV programming on PCs was flat.

So the success of the scatter market comes down to what's happening with specific programming. In this instance, the results are mixed and aren't a major deviation from previous seasons. For the broadcast networks, the number of new breakout hits emulates previous years, such as Jane the Virgin and How to Get Away with Murder compared with the hosts of new shows that have already been cancelled, such as Selfie and Manhattan Love Story. Returning programs, like The Voice and Modern Family, have seen rating declines, but not at alarming rates, although others, such as Two and a Half Men, haven't been so lucky. Meanwhile, cable networks report similar results, with The Walking Dead breaking viewership records and charging the highest CPMs among scripted programs versus the end of previous stalwarts, like White Collar, and the unfortunate scandal which led to the cancellation of Honey Boo Boo.

Thus, has the scatter market been tight as originally projected? Yes, for programs that rank among the highest rated, because there are fewer to choose from each year, which provides no room for negotiations for lower CPM rates. No, for programs considered middle-tiered with passable, but not spectacular ratings, because there are so many of them to choose from, allowing advertisers to subsequently ask for discounted scatter CPM rates.