ANALYSIS: Free-to-air television advertising in the time of the coronavirus

Chris Pash
By Chris Pash | 23 March 2020
 

The near future for free-to-air television advertising revenues in Australia is obscured by the frenzy of coronavirus panic and scarce historical reference points.

The crisis is unprecedented and it's difficult to foresee all the changes it will bring about. However, analysts are starting to say the impact, on an already weakened advertising market, will be greater than the GFC.

And the benefits to TV of social distancing (no going out where other congregate) and widespread working from home measures may be overstated, according to some analysts.

The replacement of cancelled or postponed star sporting events, such as Ten's formula one grand prix in melbourne and Seven's AFL, with regular programming is a sure way to put ad revenue budgets into the negative.

News bulletins have seen a lift in viewers as people seek the latest on the spread of the coronavirus.

But will this translate into advertising dollars?

The biggest influencing factor is the damage to the economy -- lost jobs (20,000 sent home by Qantas, service industry casual workers out in the cold), lower consumer spend, crumbling business confidence -- and the knock-on for advertising.

And the consensus view of the advertising market as a whole can, at best, be described as cautious, as evidenced by media companies withdrawing full year revenue guidance given just a month ago.

The coronavirus is escalating and forecasts of the impact change day-to-day and it’s difficult to find upside in the media, except for the streaming media players, news bulletins and some news websites reporting a sharp rise in audiences.

Among those withdrawing guidance, the uncertainty around the coronavirus was cited by Nine Entertainment when it last week ditched its reasonable, in an already weak advertising market, flat full year earnings forecast.

So far the year has been tracking to plan for Nine. In the first three months of the calendar year, Nine’s FTA (free-to-air) ad revenues were broadly in line with expectations, flat on the same period last year.

But what happens next is unclear. “... the forward ad market is becoming increasingly difficult to reliably predict," the company told the ASX.

Market analysts are trying to look around this lack of “visibility” in the final quarter of the financial year, the three months to June which starts in just over a week.

Among them, investment bank Credit Suisse is now forecasting an 11% fall in FTA ad revenue for the 12 months to June. Previously the investment bank was estimating a drop of 6%. Others had been expecting a drop of about 7%.

This new number implies a year-on-year fall of 25% in the June quarter, reflecting the restrictions put in place to avoid the spread of COVID-19 and the subsequent impact on ad spend.

At the moment, Credit Suisse predicts this weakness will continue into the 2021 financial year with estimates now running at a 4% fall in the Metro TV ad market. Previously the estimated fall was just 1.5%.

“While the expected declines are higher than those we saw during the GFC (TV ad market was down 9% in the 2009 calendar  year), the financial year 2020 impact is also exacerbated by structural factors,” the Credit Suisse analysts write in a note to clients.”

The analysts don’t expect the same pace of recovery as that post GFC. However, the historic data supports a forecast of a lift in market revenue in the 2022 financial year.

At Morningstar, senior equity analyst Brian Han says pandemic's ultimate impact is unchartered territory in terms of duration and size of impact.

“Some may argue the ‘stay-at-home’ economy benefits free-to-air TV viewing and hence advertising,” he says.

“However, that narrative loses effect in this age of streaming alternatives, not to mention the evaporating marketer confidence, meaning increasing advertisements on screen consisting of ‘makegoods’ and bonus spots for existing clients.”

Morningstar is now estimating the free-to-air TV advertising market to be down 8.5% this financial year to June, from down 7% previously. The forecast for the next financial year starting in July is a 2% fall, from 2% growth previously.

In February, Nine was forecasting a drop of around 5% in the six months to June and Macquarie was estimating that Metro free- to- air TV would be down by about 7% in the first half.

 

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