Uncertainty Building for TV Advertising Market: Bloomberg

The traditional TV ecosystem “is under duress,” said Bloomberg Intelligence analyst Geetha Ranganathan in a Thursday report, citing advertiser pullbacks and affiliate-fee pressure from cord cutting. Profits are "being crushed" by rising streaming content costs, she said. Bloomberg believes “the worst is over for the streaming story,” as Netflix had “better-than-expected” Q3 subscriber gains and Q4 guidance and could get a user growth boost with the upcoming ad tier. Still, she said, “there’s no question that gains have slowed compared with the heady growth during the pandemic.” Disney+ will benefit from better content, new market launches and a lower priced ad-supported tier toward year-end, she noted, and Paramount+ will benefit from new geographic launches. On the downside, revenue at ad-based services such as Pluto, Tubi and Peacock could be at risk in an economic downturn, Ranganathan said. “The focus for media companies has now shifted to long-term earnings growth from user gains,” she said. Though the TV ad market has been bolstered by political ads and “robust price increases,” the long-term view “is bleak,” she said. TV ads have been “fairly resilient” so far, but “uncertainty is building.” The ad market has shown some signs of softening, but price increases averaged 8%-9%, she said, citing industry executives. Netflix's and Disney’s ad-supported tiers could divert spending away from traditional TV longer term, she said. TV advertising “will be the first casualty” if there’s a recession, Ranganathan said, if consumers cut back spending and cord cutting accelerates. Affiliate-fee gains, stable in 2002, could be threatened in 2023, “especially as more marquee content shifts outside the linear ecosystem.” Sports rights moving to streaming services are a risk to the traditional pay-TV bundle, said the analyst, citing Amazon’s deal for Thursday Night Football, “which could potentially fan the flames of cord-cutting.” NFL Sunday Ticket is also rumored to eventually go to streaming, and digital could also be a major component of the new NBA deal, she said.