Brian Wieser, a securities analyst at Pivotal Research Group, says the consensus on the upfront is that volume will be down by a few percentage points while pricing will increase by a few, but he cautions against using those numbers as a gauge of the health of the media companies. In this Q&A he also talks about excessive media concern about the shift of ad dollars to digital media, the need for big new ad categories, the pluses of programmatic buying and more.
As a measure of the financial health of media, Brian Wieser thinks the upfront buying and selling are overrated. Yet, he may have as good a sense of what may happen this spring as anyone. He was once a media agency executive who helped plot and execute upfront buying strategies, and today he is a securities analyst at Pivotal Research Group who not only follows the big advertising holding companies, but also the major media companies and Nielsen. He shares his opinions publicly primarily through notes on the quarterly earnings reports and in his Madison & Wall e-newsletter.
Here, in this interview with TVNewsCheck Editor Harry A. Jessell, he distills his thinking on the “tepid” ad market, excessive media concern about the shift of ad dollars to digital media, the need for big new ad categories, the pluses of programmatic buying and more.
An edited transcript:
So what would you say is the outlook for advertising overall this year as compared to last?
The word I would use is tepid. Total advertising this year should be at a growth rates of 2%-something, excluding political and Olympics. National advertising will grow something above that.
What does that mean for the upfront buying and selling this spring?
As of right now, it feels like a low-to-mid-single digit negative upfront volume and a low-to-mid single-digit price increase. That seems to be the consensus. But nobody knows at that point. You might have a guess, you might have a feeling, but nobody knows.
There are so many things that we don’t know. We have no idea what the mix of advertisers will be or how much volume there will be and you have got this good money, bad money phenomenon.
What do you mean by that?
A large package goods advertiser will have a lower cost base than, say, a movie studio. So you can have the same volume, but if the movie studio increases its spending by 5%, while the packaged goods company reduces its spending by 5%, even if they were in absolute numbers the same volume, you would end up with a very different inventory dynamic. You would end up with reported higher prices.
You’ve said that the upfront dealing is really not a great indicator in the broadcast business in general, right?
Yes. It’s mostly meaningless. If you are looking at the integrity of the media over the long-run, you would probably want to see some higher pricing in general. The fact is, in any given year, it doesn’t matter because there are just so many other variables that connect pricing to revenue.
But people in the business have always looked at the upfront pricing and volume as measures of the health of broadcasting in general.
I know, but it’s not reality. The real measure of the medium is what’s the revenue now and in the future. Stronger pricing is better for the long-run, but the pricing in any one year doesn’t mean anything.
Digital media had a pretty good 2014. IAB in April said digital ad revenue was up 16% to $49 billion in 2014. If they’re up that kind of money in a flat market, somebody else is down big. Who would that be?
Well, it’s primarily print. For small and medium-size enterprises, there is still money to be clawed out of yellow pages, there is still money to be clawed out of newspapers and there is still money to be clawed out of radio. But for the national brands, I don’t doubt there is some money coming out of TV, but it’s on the margins.
So the shift to digital is not a big deal yet for TV?
Oh, it’s a big deal in perception. That’s for sure. The perception is that it’s a much bigger deal than I think it really is.
What’s interesting is that if you strip out Google and Facebook from that number you get to zero growth.
There are other growers, but for every one there is a decliner. For every Twitter, you have a Microsoft. For every LinkedIn, you have a Yahoo. So the net, excluding Google and Facebook, is flat.
Are there new categories forming or new brands coming that can boost spending in traditional media?
It’s hard to point to any, and I think this is the bigger problem. Now, is that a temporary phenomenon or a permanent one? I would argue that’s a bigger issue than the shift to digital.
There are a couple of newish categories like health insurance that are going to become bigger. But is there a blockbuster category? Probably not.
In the 2000s, you had the wireless category emerge from being a local to regional to a national category. Theatricals are still doing incredibly well, having risen from local to regional to national. Pharma was still a new thing. But you don’t really have that now.
There’s some randomness to the creation of new categories. Take the auto insurance sector. It was never a given that that was going to be a TV-intensive ad category. Then, a small little gecko came along that catalyzed the whole category.
What about the local broadcasters? Is anything percolating that would help TV stations?
I’m not really digging that much into local. I hear mixed things, but the general truth that I have observed is that local TV, like national TV, is the worst form of advertising except for all those others that have been tried for building brand awareness. In 1980, local advertising was 70% of mass media advertising and national was 30%. By 2010, it had flipped, right? There’s a massive head wind on all local media that is caused by this industrial change in the economy, the national orientation of the economy.
Within that, TV has done less badly. It’s a major reason why radio is so weak and it’s certainly a significant contributor to the weakness in print, although newspapers have leadership issues, too.
At the Borrell conference in March, you were talking about programmatic buying and selling. You seemed to believe it would be beneficial to broadcasters.
I am saying it can be on a couple of levels. The first thing is there’s potential for yield improvement. There’s potential for plugging into new sources of demand. In other words, there’s a scarcity of premium digital video. When you think about premium video inventory that’s difficult to monetize, the local broadcasters dot twos [multicast channels] fall into that category. It’s hard to sell, it’s hard to measure. Could that inventory be sold through to a digital buyer? Yeah, I think so, but you need tools to help make that happen.
So why are broadcasters so fearful of programmatic?
The difference in TV versus digital is that advertisers tend to care about context in a much more meaningful way, the programming adjacencies matter, so much of what they sell is sold that way.
The biggest threat to broadcasting over a longer time horizon is if advertisers decide that value doesn’t lie in context, that it lies in the audience. Then, that does change the dynamics, but I think that we’re a long way from that.
The broadcast networks are trying to counteract fragmentation of viewership and the availability of everything on demand by investing more in live events — whether sports or entertainment. Do you think that’s an effective strategy for holding on to advertising dollars.
I think so. It’s definitely a way to capture advertisers’ budgets because they will invest in those sorts of programming initiatives. Unfortunately for the networks, some of that is lower margin. Sports is certainly a lower margin activity.
I’m seeing more of Rentrak all the time. It’s picking up a lot of business, especially on the local side. Will it be able to bump Nielsen out of any of the media sectors?
I don’t think so. There is more of a horse race in the smaller markets where the stations may have very few clients who care about using Nielsen data. But if you have a group with stations in the top 25 markets, it will never happen. They cannot operate without it and any claims to doing so are just downright … well, they are disingenuous. They may buy Rentrak if it can be used as an effective sales tool, but that’s all.