Despite a weakened economy and the gravitational pull that cable continues to exert on television viewers, broadcasters are positioned to grab more advertising dollars going forward and could very well find themselves ultimately benefiting from the proliferation of new cable channels, according to media banking firm Veronis Suhler Stevenson.
The cable sector, like satellite, is holding its own, thanks to the bundling of video and high-speed data services, the increased penetration of digital cable and the success of new programs on cable networks, which are attracting more subscribers and helping to drive up advertising spending.
In a just-released study, Veronis Suhler projects that broadcast networks will see advertising spending grow 3.6 percent to reach $16.9 billion in 2003, up from the 2002 figure of $16.3 billion. TV station advertising should grow 2.4 percent to $24 billion this year, split between local spot at $13.3 billion and national spot at $10.6 billion.
And things are likely to get better from there: Veronis Suhler is projecting that total advertising spending on broadcast television will grow at an annual compounded rate of 4.4 percent through 2007, up considerably from the 2.5 percent annual compounded growth rate reported between 1997 and 2002. That could mean total broadcast television advertising reaches $52 billion by 2007, from 2002’s level of $41.8 billion, the report projects.
Meanwhile, cable and satellite operators are expected to see total spending by consumers and advertisers balloon to $110.5 billion in 2007, growing at an annual compounded rate of 7.5 percent a year, from 2002’s $76.9 billion level. Advertising spending will make up $23.3 billion of that 2007 total, Veronis Suhler said.
Those numbers come as viewership continues to tilt toward cable, with network prime-time audience shares falling to 52 percent in 2002 from 62 percent in the 1995-96 season. However, Veronis Suhler’s analysis indicates there could be some stabilization ahead in the migration of viewers to cable from broadcast, with projected audience share expected to hold steady at 52 percent through the 2004-05 season before slipping slightly to 51 percent starting in the 2005-06 season.
“I think the real highlights are that the [broadcasting] business started to turn around in 2002 and we are having a pretty good year in 2003, even without the Olympics and political advertising,” said James Rutherfurd, executive VP at Veronis Suhler.
The projections for broadcasters, which are part of Veronis Suhler’s annual Communications Industry Forecast, stand in stark contrast to 2001, when the broadcast market was hammered by the one-two punch of a recession and the Sept. 11 terrorist attacks. Both forces combined to depress advertising spending by more than 13 percent that year, according to the study.
The year 2002 rebounded by nearly 8 percent, thanks to a modest economic recovery, robust political advertising spending and the presence of the Winter Olympics in Salt Lake City. Mr. Rutherfurd noted that with the Olympics in the United States that year and during February sweeps, advertisers stepped up their buying significantly.
Meanwhile, 2003 started out dicey due to jitters over the impending war with Iraq and contradictory evidence of a supposed economic recovery. Once the war came, the broadcast networks lost $50 million in advertising during the first week alone. But a robust upfront market gave rise to the expectation that the year would see ad spending increase. Yet even with a healthy upfront market, Veronis Suhler analysts warn against expecting 2003 to be a repeat of 2002; the lack of political advertising, which in 2002 reached $1 billion, is likely to restrain the growth.
Next year is likely to be stronger, given the 2004 presidential race and the Summer Olympics. However, the report expected Olympics-related ad spending to fall short of 2002 levels because the games are in Athens, Greece, and will be held during the slower summer period.
Digital Choice
For cable and satellite’s part, 2002 was likewise a difficult year, with ad spending rising just 3.5 percent, compared with previous years’ growth in the double digits. However, the emergence of new products such as digital cable and broadband helped to offset slow ad growth, with consumer spending rising more than 10 percent on cable and satellite service.
Those additional services also bolstered subscriptions, with cable and satellite reporting a 2.3 percent jump in subscribers last year.
However, after seeing substantial growth during the past five years, Veronis Suhler projects both cable and satellite will see their growth over the next five years level off somewhat. Cable, which experienced a 1.6 percent annual compounded growth rate between 1997 and 2002, will see that rate slow to 1.2 percent through 2007. Satellite, meanwhile, will see its growth rate slow to 8.5 percent through 2007 from an explosive 29.7 percent between 1997 and 2002.
The study also found that having more choice with digital cable and its 120-plus cable channels doesn’t necessarily spell the end of broadcast TV. According to the report, TV viewers watch an average of 15 channels when their cable systems offer between 51 and 60 channels. When the number of available cable channels balloons to more than 120, Veronis Suhler says that number rises to just 17.9.
“The average consumer is spending more time watching cable, but because there is so much clutter, it might now be a matter of cutting through the clutter,” he said. “That benefits broadcast.”
Mr. Rutherfurd added that while cable collectively has chipped away at broadcast’s dominance, looking at cable channels individually tells a different story. “If you take a look at particular shows, none, with the exception of maybe `The Sopranos’ or `Sex and the City’ are in the top 100,” he said. Plus, he added, when even popular cable shows are rerun, broadcast reruns far outpace them in terms of viewers.