The traditional TV advertising market continues to shrink, with 2017 a benchmark year in the shift from linear to digital.
A selection of nine major publicly traded U.S. TV network operators saw advertising revenue decline 4.2% on average in 2017. Of the operators of the Big Four U.S. broadcast networks — ABC (US), NBC (US), CBS (US) and FOX (US) — only 21st Century Fox Inc. saw advertising revenue growth in 2017, reporting a year-over-year gain of 3.5%. Still, Fox has yet to fully recoup from a nearly 9% decline in ad revenue seen in 2015. Its total ad revenue came to $8.02 billion in 2017, below a recent peak of $8.27 billion in 2014.
Only NBCUniversal Media LLC parent Comcast outpaces Fox in total ad revenue, reporting $9.05 billion in ad revenue from its broadcast and cable networks in 2017, however, that represented a year-over-year decline of about 15% for Comcast. Meanwhile, CBS Corp. saw advertising revenues drop 9.0% to $5.75 billion in 2017, while ABC owner Walt Disney Co. showed a 6.3% drop to ad revenue of $7.92 billion.
Amid the broader advertising shift to digital, broadcast and cable TV companies are investing in streaming video platforms and distributing content on virtual video platforms like AT&T Inc.'s DIRECTV NOW and DISH Network Corp.'s Sling TV. Looking at M&A, Kagan analyst Seth Shafer noted in recent research that telecom companies and broadcasters drove much of the deal activity in the digital advertising and media industry for 2017, with big moves like Disney's acquisition of over-the-top streaming technology company BAMTech defining a year of strategic digital deals. Kagan is a media research unit of S&P Global Market Intelligence.
Several linear TV network owners, including Disney and Viacom Inc., are also working on their own OTT services.
Despite their digital expansions, traditional video providers still face headwinds in a market dominated by streaming incumbents like Netflix and Hulu LLC. Shafer noted CBS, HBO and Showtime have started building their OTT audiences, "but only HBO has managed to approach the 5 million online subscriber mark — a benchmark that both Netflix and Hulu sailed past long ago."
Meanwhile, traditional programmers like CBS are reducing their dependence on advertising altogether. In recent years, less than 50% of the company's revenue came from advertising, CEO Les Moonves said during a conference call, as the company moved to steadier streams of revenue from retransmission consent agreements, OTT subscription revenue and other new distribution deals. When asked if digital was offsetting linear declines, the executive said, "It's getting there."
Elsewhere, after recent declines in advertising revenue, Comcast Senior Executive Vice President Stephen Burke said the company needed to invest more in digital offerings. "In terms of advertising, it's impossible not to see the strength, particularly of Facebook and Google, ... in terms of digital advertising. And a lot of the growth in the ecosystem is going toward digital, and we're not participating in that growth to the degree that we should be, given the span of our assets," he said.
Looking at nine of the biggest U.S. network owners, average advertising revenues have flattened out near $5 billion during the past five years, with a peak at $5.4 billion in 2016. Meanwhile, revenues at major digital advertisers Alphabet Inc. and Facebook Inc. and subscription revenues at streaming video service Netflix have been on a steady growth curve, with some of the gains undoubtedly coming from linear TV. Total ad revenues for Alphabet climbed from about $50 billion to $95 billion between 2013 and 2017. Facebook ad revenue jumped from less than $10 billion to about $40 billion in that time.