Continued digital ad growth will eventually eat into TV ad budgets, analyst says

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If digital ad growth continues at 20 percent or higher rates, it will eventually start eroding traditional advertising budgets, according to MoffettNathanson analyst Michael Nathanson.

Nathanson said that in the second quarter digital advertising grew more than 27 percent (or more than 170 basis points) due to a boost from small to medium-sized businesses who can’t afford to or don’t want to buy TV ads. Right now those factors don’t necessarily hurt TV advertising but in the future they could.

Comparatively, in the second quarter national TV advertising lost 350 basis points to online advertising. That loss, Nathanson said, calls into question TV’s ability to take share away from digital. He added that, despite a successful upfront, TV ad growth will return to “normalized” low single digit levels, and that a strong upfront could hurt scatter demand for ad time sold nearer to actual programming air dates.

“However, with the Olympics underperforming from a ratings perspective, it will be interesting to learn if NBC has to use other sports inventory for make-goods, which could actually tighten scatter inventory,” said Nathanson.

Nevertheless, the firm raised its long-term U.S. advertising outlook after the second quarter to more than 8 percent (up from 7 percent) for 2016. But for 2017, without the benefits of political advertising and the Olympics, the firms sets growth at more than 3 percent.

Among national broadcasters during the second quarter, NBC lead the way with $1.285 billion in TV ad revenue, representing a 2.8 percent increase year-over-year. CBS followed with $874 million (down 3 percent annually) and ABC came in third with $815 million (down 4 percent annually. Fox was well behind with $421 million but pulled in enough to raise its quarterly total 5 percent year-over-year.

Among cable network companies, Disney and Time Warner led during the second quarter with $1.122 billion and $1.211 billion, respectively. AMC Networks, though far behind with $289 million in revenue, grew its total 28.9 percent year-over-year.

For more:
- read this MoffettNathanson report (sub. req.)

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