In the challenging landscape of advertising, legacy media companies find themselves grappling with persistent declines in revenue from linear ads, according to a recent report by Macquarie. During the third quarter, media networks, including industry giants Disney (DIS), Paramount Global (PARA), Warner Bros. Discovery (WBD), and Comcast (CMCSA), experienced an additional 12% decline in ad revenue, following a 13% decline in the second quarter.
Forecasts indicate that this decline in ad revenue is set to persist into the current quarter. Warner Bros. Discovery, for example, witnessed a significant drop in stock value last week, attributing it to ongoing weakness in the ad market, which may impact visibility for the year 2024, as highlighted by CFO Gunnar Wiedenfels during the post-earnings conference call. He emphasized the complexity anticipated in 2024, particularly concerning the possibility of prolonged sluggish ad trends.
Contrary to expectations, analysts and media executives had hoped for an improved TV ad market in the latter half of the year. However, this optimism did not materialize as ad buyers continued to face pressures. Macquarie analyst Tim Nollen noted, “All media networks face a dragging linear ad market and all but Warner Bros. Discovery have big sports cost step-ups this fall, which offset any positivity from direct-to-consumer turning the corner to profitability.”
Nollen projected another 12% decline in the overall linear ad market for the current quarter, citing the impact of cord-cutting trends on traditional television businesses. He highlighted that cord-cutting has maintained a steady downward trend of just under 10% year-over-year decline for the past three quarters, with total pay TV subscribers in the tracked group dropping to 40.2 million, experiencing a loss of more than 1 million subscribers in Q3 alone.
In stark contrast, direct-to-consumer (DTC) services showcased resilience, posting an impressive 29% average ad revenue growth. This growth was attributed to new advertising tiers introduced by streaming giants like Netflix (NFLX) and Disney. Nollen observed, “DTC has been gaining traction as cord cutting has continued,” with all media networks’ platforms reporting solid growth in their paid streaming subscriptions in Q3.
Digital advertising witnessed a resurgence for tech giants, with Google’s parent company, Alphabet (GOOG, GOOGL), reporting $59.7 billion in advertising revenue for the prior quarter, surpassing consensus estimates. Similarly, Meta (META), the parent company of Instagram and Facebook, experienced a surge in Q3 advertising revenue at $33.64 billion, beating analyst expectations. The digital advertising sector also saw notable improvements for satellite radio giant SiriusXM (SIRI) and audio streaming service Pandora, despite both companies shedding subscribers in the latest quarter.
While the first half of 2023 witnessed a 7% growth in non-linear TV ad sales, including advertising video on-demand platforms, connected TV, and free ad-supported services (FAST formats), traditional media owners continue to grapple with stagnant or declining ad revenues. A report from media investment and intelligence company Magna Global revealed that podcasting advertising saw a significant 14% jump, and digital out-of-home advertising rose by 9%.
In conclusion, the persistent decline in ad revenue for legacy media companies underscores the industry’s ongoing struggle to adapt to shifting consumer preferences and the formidable challenges posed by the dynamic landscape of digital advertising.
Source: Yahoo Finance
