This Year’s Upfront Is Looks To Be A Buyer’s Market

NEW YORK, NEW YORK – MAY 17: Writers Guild of America (WGA) East members walk a picket line at the … [+] Warner Bros. Discovery Upfront event at Madison Square Garden on May 17, 2023 in New York City. As the strike enters its third week the WGA East members picketed at events centered around New York Upfront week, a decades-old tradition where media companies stage lavish events to promote their new programming lineups in an attempt to woo advertisers. Union members have stated that they are not being paid fairly in the streaming era and are seeking pay increases and structural changes to the business model. Many are also concerned about the effects of AI across the industry. (Photo by Alexi Rosenfeld/Getty Images)

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It’s been over one month since the TV/video upfront presentations and there continues to be little activity in the ad market. This is an indication the 2023-24 season will be a seller’s market with probable rollbacks in pricing. Typically, in the past, the cost national advertisers pay for a :30 ad does not decline, despite the continued audience erosion begun decades ago. For example, last year, it was reported television networks negotiated CPM (cost-per-thousand, the metric used for ad buying) increases approaching 10%. For the 2021 upfronts CPM increases hovered around 20%. Variety reported this year some premium live sports will see CPM increases but other programming genres are expected to have cutbacks in CPM’s.

For decades audience erosion has been prevalent with broadcast television as viewers have a greater amount of video choices, yet declines in ad pricing rarely happened. More recently, the audience for many cable networks have been in a freefall. The primary reason is ad rates are not based on audience size but on advertiser demand. As ratings plummet more commercial inventory is required to reach an advertiser’s goal. For decades this model has sustained ad rates while increasing CPMs.

As media owners continue to invest and prioritize streaming video programming, linear TV viewing reached another all-time low. In a first, during the 2022-23 season (ending in May), not one regularly scheduled prime time scripted entertainment program on broadcast television averaged more than ten million viewers. (On cable, Paramount’s
PARA
Yellowstone averaged 11.55 million viewers for the season.)

As younger viewers continue to migrate toward streaming video, adding to the woes of broadcast TV is its aging audience. The median age for virtually every broadcast prime time show now lies outside the coveted 18-to-49 age group. For example, this past season, the median age of viewers to The Voice was 64.8, for Survivor it was 62.1 and for Abbott Elementary it was 60.2. The programs that are simulstreamed have, in all likelihood, a much younger online median age.

Cable programming isn’t faring any better. In second quarter 2023 there were only four cable networks that averaged over one million viewers in prime time; Fox News, MSNBC, ESPN and TNT. Both ESPN and TNT benefited from the seasonal NBA playoffs. In second quarter 2013 there were 15 cable networks reaching that audience threshold.

Cable viewing is also impacted by the acceleration of cord-cutting. In first quarter 2023, a record 2.3 million households dropped their Pay-TV subscription. Over the past decade 25 million households have ditched their cable subscribers. In the years ahead cord-cutting is expected to continue. PwC estimates by 2027 only 38% of U.S. households will have a Pay-TV subscription, resulting in a loss in revenue of $30 billion.

While it varies by network and upfront season, upwards of 75% of all commercial inventory over a 52-week period is sold. According to Insider Intelligence/eMarketer, the 2022-23 upfront marketplace generated $19.3 billion in ad revenue, a year-over-year increase of 1.5%. The projections for the 2023-24 upfront is $18.6 billion, which would result in a decline of 3.6%. This would be the first drop-off in upfront ad dollars since COVID.

There are several reasons for this year’s sluggish upfront including a weaker than anticipated ad economy, causing some marketers to slash their ad budget. Last month, Magna issued a quarterly update on ad revenue projections. For 2023, the advertising agency expects national TV ad revenue to decline year-over-year by 7.7% to $38.3 billion.

Another factor is advertisers have more choices than ever before on where and when to invest the marketing dollars. For example, Insider Intelligence/eMarketer expects Retail Media Networks in the U.S. to generate $51.4 billion in ad dollars this year, a 25.8% increase from 2022 ($40.8 billion). Amazon
AMZN
and Apple
AAPL
have been ramping up their ad supported streaming capabilities and Netflix
NFLX
launched an ad supported tier late last year. Roku also expects to offer greater ad support for marketers. Furthermore, despite concerns about suitable content among several other issues, more competition from such user generated content providers as YouTube and TikTok are expected to continue siphoning off ad dollars.

In addition, Insider Intelligence/eMarketer forecasts ad revenue for Connected TV to remain bullish, reaching $8.66 billion in calendar year 2023, increasing 36% to $11.75 billion in 2024. CTV accounts for about 70% share of the digital video ad marketplace. Magna and Group M also forecast continued ad revenue growth with CTV. In May, SMI noted linear TV ad revenue was down year-over-year by 6% with digital video at +16%.

A few media conglomerates have added a free ad supported streaming (FAST) service to viewers marketers. The Fox owned Tubi and Paramount’s Pluto TV will generate over $1 billion in ad revenue this year. Warner Bros. Discovery is expected to launch a FAST streaming service later this year, tentatively called WBTV. With the potential ad revenue, both Disney and Comcast
CMCSA
can be expected to launch their own “pure” FAST streaming channels in the near future.

All of them compete with a host of other FAST streaming providers including; Amazon’s Freevee, The Roku Channel, Sling Freestream, Xumo Play, Local Now, Plex, Samsung TV Plus, ViX, Redbox Live TV, Vizio WatchFree +, LG Channels to name just a few. Many FAST channels rely on an extensive program library for content.

Another factor is the current strike from the Writers Guild of America, which has entered its third month shutting down TV (and movie) production studios. Screen writers were picketing outside the venues during the upfront presentations in May. With the strike there have been no new program announcements forthcoming adding even more uncertainty to next season’s ad marketplace.

Adding to the volatility is the possibility of a screen actors strike. The current contract had expired on June 30. Last month 98% of SAG-AFTRA members voted to authorize a strike if need be. An extension in negotiations to July 12 has been agreed to. There are 160,000 members in the SAG-AFTRA.

Many large media companies are saddled with debt and being pressured by Wall Street to grow revenue. As a result, there have been a series of well publicized cost-saving announcements. Besides a work stoppage with writers and possibly actors, a weak ad sales upfront market is the last thing media companies need right now.

Source: https://www.forbes.com/sites/bradadgate/2023/07/05/this-years-upfront-is-looks-to-be-a-buyers-market/