The surprise in Seven West Media’s latest profit results was not the dip in television advertising revenue but the slowing in growth of BVOD.
Market analysts had expected a drop and that’s what happened. Seven West Media revenue fell 3% to $1.488 billion in the year to June as the television market was battered by economic winds.
A sharp slowdown in BVOD ad market growth, to +6% in the 2023 financial year from +47% the year before, was the eye opener.
Double digit growth had been expected for BVOD, a market now estimated at $460 million against a linear TV pool of $3.7 billion.
A key question has been whether BVOD advertising can grow fast enough to offset the structural decline of linear free-to-air TV.
According to numbers released by industry body ThinkTV, metropolitan free-to-air, regional free-to-air and Broadcast Video on Demand (BVOD) excluding SBS, fell 7.9% to $3.6 billion for the year to June.
BVOD, or catchup, has been a big growth area, with consumers turning to streaming to watch live events, such as sport, and to watch their favourite programs when they want.
Over at Nine Entertainment, that media group expects BVOD market to be growing in low double digits for the September quarter.
Analysts at investment bank Morgan Stanley forecast linear TV advertising revenue to fall 8%-10% in the current calendar year.
They expect leakage from linear TV to other media sectors, and they judge this to be about $300 million.
“In our view, BVOD does not have the scale to replace this,” the analysts write in a note to clients
Some of the leakage could go to streaming media platforms now in the advertising business, such as Netflix, Disney+ and Australia’s Binge.
So far that’s small. The big hole in the bucket is to other media.
Cathy O’Connor, the CEO at outdoor specialist oOh!media, touched on this when releasing her company’s results, a 7% jump in revenue to $296.6 million for the half year to June.
Is outdoor pulling ad spend from TV?
“The SMI (Standard Media Index) trend (for outdoor) to June at 15% growth year-on-year compares to television which is back 15% and radio back 8%,” says O’Connor.
She says the free-to-air television market is three times the size of the out-of home-market.
“A little bit of disruption goes a long way there,” she says.
Back to Seven West Media. The general market view is that the company is a well run media group.
However, the analysts at Morgan Stanley think something may have changed.
“Either the cyclical slowdown across all TV ad spend has had a more detrimental impact on BVOD than expected, or is the slowdown structural, has the BVOD ad market reached maturity well before anyone expected?” they write in a note to clients.
“The challenge is, in our view, even if BVOD growth re-accelerates back up from current +6%, up to say +10% or +15% for the next several years ... we calculate this will be insufficient to offset the anticipated falls in Linear TV advertising.”
They estimate that the BVOD market would actually have to grow at an annual compound growth rate of +80% to +100% CAGR for the next five years to be able to offset forecast linear TV ad revenue losses of -10% a year.
“In our view, that is highly unlikely to occur,” say the analysts.
The above scenario could be wrong if the economy returns to stronger growth, total ad spend rises and linear TV is down by a smaller amount of 1% to 3% in calendar 2023 and beyond.
“And/or the BVOD market growth rates could accelerate with further investment in content and technology to attract larger audiences,” say the analysts at Morgan Stanley.
“And/or SWM could capture a significantly higher revenue share in both in linear TV and its BVOD businesses.”
Media analyst Steve Allen, Pearman's director of strategy and research, isn’t as pessimistic about FTA TV revenue, especially metro.
“We think TV is going through a moment in time, which we think should end in the next 6-12 months,” he says.
“TV is still arguably one of the most powerful communicators, plus it has sheer impact and reach capability in its armoury, by program, and both daily and weekly.
“The recent Matildas telecast ratings successes demonstrates it is far from in strong decline.
“The past three years have been highly disruptive. Some normalcy is likely to return, and marketers return to seek sheer impact and cut through.”
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