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Ad outlook: Tough Q3 ahead for media conglomerates

Media conglomerates reported mixed results with advertising revenues in the most recently completed quarter. For the most part, they are not expecting positive advertising results in the months ahead. Meanwhile, live entertainment audiences continue to erode and the 2017 ad market won’t reflect the infusion of political and Olympic dollars in 2016.

March Madness impact

Advertising revenues were down for a second consecutive quarter at Time Warner Inc.'s Turner Broadcasting System Inc., which reported a 5.9% decline to $1.27 billion. Prime-time C3 ratings declined a combined 12.5% from 2016, with news network CNN the only one to post an audience advance.

The company in its earnings release also attributed the ad revenue drop to a tough comparison to 2016, when Turner's networks aired two additional NBA playoff games and broadcast the NCAA Division I Men's Basketball National Championship and Final Four contests.

Looking ahead, Turner indicated that despite a double-digit gain in scatter pricing for its domestic entertainment networks in the early part of the third quarter, it expects total ad revenues to decrease in the low single digits overall in the period.

While Turner missed the revenues associated with the marquee March Madness matchups, CBS (US) benefited from its turn with the national semifinals and title game under the partners’ rights deal, in which they alternate coverage year to year.

Sanguine CBS

CBS Corp. recorded a 4% gain in advertising revenues to $1.30 billion, with COO Joe Ianniello pointing to those telecasts as key drivers on the company's earnings call. The broadcast network scored a 7% gain in ad revenue overall in the second quarter.

During upfront negotiations for the 2017-18 TV season, CBS Chairman, President and CEO Les Moonves said CBS rang up high-single digit pricing increases in prime time and double-digit advances in late-night and morning daypart

The executives expressed optimism about their Madison Avenue prospects for the balance of the year, touting the upfront gains and double-digit increases in scatter pricing, as well as the availability of more available dollars in the marketplace owing to the absence of the Summer Olympics. While political dollars won’t flow this year, Ianniello said that means CBS has 10 more prime time hours, which had been pre-empted during the 2016 presidential cycle, to sell this time around.

Olympic effect

Advertising for NBCUniversal Media LLC's broadcast and cable segments slipped slightly in the second quarter. Broadcast dipped 1.2% to $1.27 billion, tied to audience declines, which were largely countered by higher pricing. A similar trend was afoot on the cable side, where ad revenues declined 0.9% to $906 million, as audience erosion was mostly made up by higher rates.

NBCU’s third-quarter ad revenues figure to take a major hit without contributions from the 2016 Summer Games from Rio de Janeiro. Broadcast TV revenues improved 92.4% in the third quarter last year, mostly driven by the Olympics, while cable ad revenues climbed 15.9%.

The expected declines should be offset to some extent by an 8% gain in upfront volume, or $400 million, and the high-single-digit pricing increases the programmer recorded during negotiations for the 2017-18 TV season.

Steve Burke, senior executive vice president of parent Comcast Corp. and president and CEO of NBCUniversal, on the earnings call with analysts said the volume increase doesn’t include ad sales against the 2018 Winter Olympics and Super Bowl LII. Those events, coupled with Telemundo (US)'s airing of the World Cup from Russia, should set NBCU up for a very strong advertising year in 2018.

Sluggish ESPN pacing

Walt Disney Co. also sustained advertising declines within its media networks during its third fiscal quarter. Ad revenues at the cable networks decreased 7.1% to $1.04 billion, stemming from 7% lower audiences deliveries, partially offset by a 2% increase in rates. The decline in impressions was tied to lower average viewership and a decrease in units delivered.

Ad revenue at ESPN (US) dropped 8% in the third quarter as higher rates were more than offset by a decrease in impressions. CFO and Senior Executive Vice President Christine McCarthy said on the company’s earnings calls that ESPN’s cash ad sales are pacing down in the fourth quarter, versus the prior-year period. She said that quarter to date, ABC (US)'s prime-time scatter pricing was up 11% over upfront pricing levels.

Football deflation

21st Century Fox Inc. reported a dip in overall ad revenue in the fourth quarter of its fiscal 2017 to $1.70 billion from $1.71 billion in the final period of its fiscal 2016.

Domestic cable ad revenue grew 6%, thanks to higher ratings at FOX News Channel (US) and increases at National Geographic Channel (US). These gains were partially offset by fewer NBA and NHL playoff games on the regional sports networks and the absence of the Copa America soccer tourney at FOX Sports 1 (US).

The TV segment saw revenues decline 3.9%. CFO John Nallen on the company’s earnings call said the lower broadcast ad revenues emanated from decreased prime-time ratings, including comparisons to FOX (US)'s final season with "American Idol" and softer local ad market conditions.

Looking ahead to fiscal 2018, Nallen noted that the cable networks are adding costs tied to the addition of the Big Ten Conference and the Argentine Football Association, but the properties will also present attendant revenue opportunities.

The TV segment, meanwhile, will experience pro football deflation: FOX won’t broadcast the Super Bowl this time round and it will have one less NFL divisional playoff on its roster. Nallen also mentioned it's an off-cycle political year and the company is not expecting an epic seven-game World Series to cap the 2017 MLB season as the Chicago Cubs and Cleveland Indians did last fall.

Ad load reduction

At Viacom Inc., domestic advertising revenues declined 2% to $955 million during the third quarter of its fiscal 2017, reflecting pricing gains that were hampered by lower impressions. Still, that marked sequential improvement from the 4% decline in U.S. ad revenue in the second quarter of fiscal 2017.

Results reflected Viacom's decision to reduce its inventory load on a number of its networks – notably BET (US) and MTV (US).

Viacom CFO Wade Davis said ad revenues would have improved at a 1% clip in the period without the ad reduction. He anticipates a similar domestic ad performance in the fourth quarter, with the lower inventory load likely to prevent the company from moving into positive ad sales territory in the period.