Another quarter of media and entertainment results are in the books and upfront season is in full swing, so the timing is right to look deeper at the forces shaping ad revenues for the major players.
This quarter, mighty conglomerates like NBCUniversal raked in massive advertising windfalls, while scrappy independent programmers like AMC Networks struggled a bit.
Here we’ll break down how all the big companies did and offer a glimpse at what’s ahead.
To the surprise of absolutely no one, broadcasting both the Super Bowl and the Olympics in the same quarter really does wonders for a company’s ad sales. Super Bowl LII—which slipped a bit in ratings but still pulled in a mind-boggling 103.4 million average viewers—combined with the 2018 Winter Olympics in PyeongChang, South Korea, to boost NBC’s broadcast television revenue by 58.3% to $3.5 billion as advertising revenue increased a whopping 84.9%. The cable network segment also saw its advertising revenue rise 19.6%.
The Super Bowl/Olympics rocket booster currently powering NBC could lead to some pretty tough comps come first quarter 2019. But if UBS analyst John Hodulik is right, the second quarter (and perhaps beyond) could continue the upbeat advertising trend for NBC.
“At NBCU, advertising growth at Cable Networks was stronger than expected, helped by MSNBC, a trend likely to continue heading into mid-term elections,” Hodulik wrote in a research note. “2Q will benefit from Telemundo’s first-ever broadcast of World Cup soccer while Film and Parks face tough comps from a smaller slate of titles yoy and the timing of spring break.”
While NBC got fat off big sports, Viacom continued to struggle somewhat to rekindle its once-inalienable relationship with younger audiences. While the company’s media networks revenues increased 1% to $2.43 billion, that was primarily driven by growth overseas, as domestic revenues decreased 3% to $1.86 billion. Despite higher pricing, advertising revenues fell 3% to $841 million due to lower linear impressions. But Viacom hopes that live linear ad insertion and virtual MVPD growth—which will boost inventory within Viacom’s Advanced Marketing Solutions unit—will help return domestic advertising growth by the time the fourth quarter rolls around.
Jefferies analyst John Janedis saw some upside for Viacom as well.
“Given ratings/industry supply issues and a solid scatter market, the upfront should be solid - VIAB will look to be more aggressive on price this year relative to history given improved ratings and a new slate of programming,” Janedis wrote in a research note.
CBS’ overall revenues jumped 13% during the quarter, but the company didn’t manage to move the needle much in terms of ad growth at its flagship network. The CBS Network’s advertising revenue grew just 1% during the quarter, but CBS’ entertainment segment grew its ad revenues 11% thanks in part to the acquisition of Australian broadcaster Ten Network.
The sluggish growth at the CBS Network could have something to do with local markets.
“1Q results support our view that national demand is healthy while local is more challenged. Looking ahead, we expect upfront CPMs to be ahead of last year's 8% increase, with limited supply playing a role,” Janedis wrote.
Part of that CPM boost comes from CBS’ digital footprint, which includes All Access, CBSN and the recently launched CBS Sports HQ.
“On the OTT front, they are at higher CPMs because they're more effective, they're more targeted. And so we have the data to support that and it's more valuable to the advertisers. So as more and more of that consumption becomes more and more acceptable to the advertisers and they see the effect, I think it just becomes standard,” CBS COO Joe Ianniello said during the company’s recent earnings call, according to a Seeking Alpha transcript.
Discovery Inc.’s earnings are a little difficult to parse on a year-over-year basis given the company just closed its $14.6 billion acquisition of Scripps Networks and received a massive quarterly boost because of it. The company’s revenues rose a whopping 43% with Scripps officially on board. But part of that came from advertising growth for both Discovery’s domestic and international networks, up 4% and 11%, respectively.
MoffettNathanson analyst Michael Nathanson pointed out that snagging the Olympics across Europe helped Discovery drive up international ad revenues, but that it came at a high price.
“Internationally, strong pro forma advertising (+25%) and distribution (+18%) were helped by the Olympics. However, high pro forma expense growth (+60%), also driven by the Olympics led to a -25% decline in EBITDA,” Nathanson wrote in a research note.
But Discovery could be looking at increased synergies from its Scripps acquisition. One in particular mentioned during the earnings call by CEO David Zaslav is that all of Discovery’s and Scripps’ networks will now be able to cross-promote instead of buying ad time from one another as they compete for similar demographics.
Disney managed high-single-digit ad growth during the quarter, but that likely wasn’t thanks to advertising revenue, which slumped across multiple segments.
Freeform translated lower viewership into less advertising revenue. A&E posted lower advertising revenue. And the broadcasting segment saw its ad revenues decline thanks to fewer network impressions. Hulu and ESPN managed to grow their advertising revenues but still lagged due to higher programming costs.
But Disney CFO Christine McCarthy was optimistic in the near term for ad revenue at ESPN.
“I did mention that quarter-to-date it was pacing down 1%. That was rounded up to 1%. So where we are with the NBA Finals with the teams that are remaining and what we anticipate being the Eastern Conference Final, we feel really good about the prospects of advertising performing well in the balance of this quarter,” McCarthy said during the recent earnings call, according to a Seeking Alpha transcript.
And as Barclays analyst Kannan Venkateshwar pointed out, it could have been worse.
“Media Networks operating income was down less than expected partly because of advertising coming in better due to the two College Football semifinal bowl games as well as costs coming in a bit lower than the guidance of mid-teens growth,” Venkateshwar wrote in a research note.
NBC got its turn to bask in the Super Bowl ad revenue glow this year, while Fox had to deal with the fallout of tough comparisons.
Overall, 21st Century Fox’s revenues fell 2% due to the absence of the Super Bowl but was saved somewhat by an increase in ad revenues for its cable networks. Higher pricing at Fox News largely contributed to a 3% increase in domestic ad revenues for Fox’s cable segment.
Cable could continue being an advertising strength for Fox, but the broadcast network is less certain.
“While domestic cable adv grew 3% in F3Q on the back of higher pricing at FNC, we think TV adv declined mid teens ex. the impact of the SB. However, looking ahead we anticipate improvement in cable as FX has a stronger slate of originals and ratings appear to be strengthening at FNC. At the network, F4Q will be an important quarter as the market remains challenging,” Janedis wrote.
In addition to Fox feeling the sting of no Super Bowl or Olympics, large broadcast groups like Sinclair also got pinched when it came to advertising revenue.
“As expected and reflected in our first quarter guidance, advertising revenue was soft largely due to the lack of Olympics and Super Bowl on many of our stations and with the auto category coming off its recent highs from last year. Fortunately, our distribution revenues now make up approximately half our media revenues which makes our business model very resilient to ad market volatility. Furthermore, growth and initiative advances in digital, network, programmatic and addressable advertising are showing results and becoming larger contributors,” Sinclair CEO Chris Ripley said.
According to Jefferies, one category in particular caused Sinclair some ad woes.
“To nobody's surprise, auto trends weighed on advertising in 1Q - with SBGI (like NXST) calling out more incentives in the quarter causing a pullback in auto spending. We continue our cautious stance on the category. At this point, we haven't heard of any incrementally negative news from Ford,” Janedis wrote.
Despite the softness, Sinclair is forecasting better times ahead. The company expects its media revenues will be approximately $684.3 million to $688.4 million, up 7.5% to 8.1% year over year.
AMC Networks modestly grew its net revenues and operating income, but the company had to bear the brunt of a stark advertising revenue slump. Lower delivery and the timing of the airing of original programming, despite higher pricing, led to advertising revenue falling 8.8% during the quarter.
AMC Networks CEO Josh Sapan acknowledged the decline and the explosion in scripted content growth but noted that much of that is happening on subscription (i.e. not ad-supported) platforms.
“As a result, our ad supported networks represent an increasingly rare opportunity for agencies and their clients to advertise in a scripted environment and reach a very particular type of highly engaged fan that gravitates to high-quality scripted programming found on the likes of Netflix, HBO, Showtime and others, obviously none of which are ad supported,” Sapan said during last week’s earnings call, according to a Seeking Alpha transcript.
Looking ahead, AMC Networks expects its national networks ad revenue to rebound due to market conditions and better timing for originals.