Cable Revenues Struggle, More Ads Packed Into Shows
12 Aug, 2015By: Doug McPherson
NEW YORK – It’s getting to be a common scenario: when ratings and revenues drop, media companies stuff more ads into their networks’ airtime to keep revenues from falling further.
Late week set the stage for more of exactly that. It wasn’t a good week for media companies on the stock exchange. Shares in Comcast, Time Warner, 21st Century Fox, CBS, Viacom, Discovery Communications, AMC Networks and Disney were all down mid-week.
Disney dropped 9 percent, Discovery plunged 12 percent, and Viacom was down a massive 22 percent in mid-day Thursday trading. Disney then reduced growth expectations for its vast cable network division, which contributes roughly half of its annual operating income. The news sent some investors into panic mode.
The New York Times reports some analysts cautioned that investors had mistakenly freaked and that the companies largely delivered solid business results. Others said that the industrywide sell-off illumined long-term fears about the fate of traditional media companies in a new digital world, where viewers are canceling their cable and satellite subscriptions as they spend more time watching on-demand streaming television that doesn’t include advertising.
“There is almost an eeriness to this; it doesn’t seem fundamentally driven,” David Bank, an analyst with RBC Capital Markets, told The New York Times. “The concern is when you look at five to 10 years out, you become less certain about the ecosystem.”
Not only have subscriber and distribution revenue come under pressure as viewers choose not to pay for traditional cable and satellite service, but so, too, has ad revenue in the face of huge declines in TV ratings.
“You have both legs of the media stool being kicked,” said Richard Greenfield, a media analyst with BTIG Research. “The consumer is shifting, and these media companies are not built to take advantage of technological disruption.”
Fueling investor anxiety, some analysts said, is the fast rise of digital rivals like Netflix, which some analysts said was cutting into the time people spend watching traditional television, and Facebook, which is capturing a larger share of advertising dollars.
Meanwhile, AMC Networks increased its load of ad time by 10 percent in the second quarter compared to a year ago, according to a new report by Todd Juenger of Sanford C. Bernstein. Also posting big increases were Viacom, up 7 percent, and A+E Networks, up 5 percent.
Juenger notes that Viacom and A+E have been ratcheting up their ad loads because they also registered among the biggest commercial ratings declines. AMC gained in share of viewing, but Juenger says its original programming underperformed, possibly missing audience guarantees, leading the company to put more ads into its movie lineup.
C3 ratings among adults 18-49 in primetime dropped about 9 percent, he says.
“The continued ad stuffing is an obvious and unsustainable action by the networks to prop up ad revenue in the face of declining audiences,” Juenger said in his report. “Not only can this not be sustained going forward, it further contributes to the audience declines, making SVOD that much more preferable for viewers made numb by the absurd amount of ads, as well as decreasing the efficacy of the advertising that is still seen.”