Barclays has forecast its expectations for ad volume booked ahead of the 2010/2011 TV season. While the annual TV upfront season should be viewed as only one indicator of the health of the broader ad market, based on season-to-date ratings and current pricing in the scatter market, Barclays expects broadcast TV upfront dollar volume for the big 4 broadcast nets (ABC, CBS, FOX, and NBC) to increase 20% YOY to $8.26 billion.
Growth drivers include 1) improved confidence of U.S. corporations in the economic backdrop, 2) strength in key verticals like automotive, 3) a “de-risking” for buyers looking to lock in pricing, 4) higher network inventory sellout levels YOY, and 5) high-single-digit increases in CPM pricing.
They believe broadcast TV should outperform cable in growth of dollar volume YOY, though any narrowing of the pricing gap between broadcast and cable would bode well for cable on a relative basis.
“While fundamentals such as scatter and upfront pricing sounds strong YOY, we are beginning to find it difficult to identify the incremental buyer of media stocks at current valuations,” said the Barclays report.
Three themes were identified:
1) Automotive Ad Strength a Powerful Driver: The U.S. ad industry lost a total of $3.5B of automotive ad dollars in 2009 vs. 2008. The return of these ad dollars could substantially drive upfront volume, especially for networks with heavy sports content. Car sales have continued to improve steadily as driven by attractive financing offers; SAAR typically correlates well with auto advertising.
2) Upfront Prices Usually Key Off Scatter Prices: Scatter pricing is currently averaging 15%-25% higher than last season’s upfront pricing levels. We believe upfront pricing will likely weigh in at some discount to those increases, and we expect actual CPM pricing increases to come out in the high-single-digit range as opposed to double-digit increases.
3) Buyers Hoping to Lock it In: Both pricing and volume are likely to see robust Y/Y increases in our view, as corporate America locks in prices for some portion of their 2010/2011 ad spend. As increased demand is manifested in both pricing and volume, the compounded effect on upfront dollar volume is great, driving our +20% YOY estimate for dollar volume.
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