TV networks' squabble for share not ad dollars causing zero growth

Nicola Riches
By Nicola Riches | 22 April 2015

Citigroup Australia has delivered another blow to the beleaguered Free-To-Air (FTA) TV market, unveiling a report this morning showing the sector’s advertising growth is heading for zero.

It suggests that local TV networks - Seven, Ten and Nine – are guilty of creating what could be deemed a vulnerable market place by chasing revenue share, as opposed to advertising dollars.

“(The TV networks) squabble for revenue share (not absolute ad growth) which arguably compounded some of the structural issues, and made it easier for agencies to cut their client advertising budgets on TV,” it boldly claims.

It compares the ailing Australian FTA market with the equivalent European market, which has recently returned to growth. “For two years now we (Citi Research) have been waiting for the FTA TV broadcasters return to advertising growth something that’s been playing out across major TV markets in Europe,” it says.

Citi media analyst, Justin Diddams, who authored the report, concludes that although TV isn’t dying – a claim the banking group has been bold enough to make in the past – “it’s getting tougher to deliver growth.”

Financial expectations suggest that FTA will experience 0% growth (from +2%) during the medium term, and significantly, that FTA audiences will decline by 2% year on year for the next three years.

Citi points the finger at three main market disruptions causing the stunt in growth: the explosion of subscription-on-demand TV operators – namely Netflix; the uptake in paid-for TV – more often Foxtel and Fetch, and the surge in viewing for online video.

“We estimate the penetration of pay TV subscriptions (via set-top-boxes) reaching 37% by 2017 (from 31% today),” citing a boost by the combination of Foxtel, which lowered its subscription price to $25 a month at the back end of last year, and Optus’ renewed marketing push for Fetch TV.

According to Diddams, Australians are already spending $7 billion a year on content, with $3bn of that going towards Pay TV.

“What we’re seeing now is that if you provide content to people the way they want it, they’re willing to consume it,” he told AdNews.

Meanwhile, it makes reference to the fact that Netflix was 25% of internet traffic on iiNet network in April 2015 (according to the company’s CTO). “That’s bigger than expected,” Diddams claims, also making reference to the fact that if Netflix uptake rates are similar to the US it could attract three million users in a matter of months.

The news will not come as any great shock many of those working in the ad industries but it is likely to further compound the issue, with brands and advertisers losing further faith in the medium.

“Citi is being pretty smart,” Saatchi & Saatchi executive planning director Jason Lonsdale told AdNews, while drawing attention to a report published by Harvard Business Scool in mid-January which says consumers are devoting less attention to ads on FTA.

The number of people watching commercial FTA TV in metro areas dropped by 6% year on year, according to OzTAM analysis unveiled last week.

Furthermore, Nielsen figures for 2014, issued only last week in AdNews' print version, showed that the country’s top 10 advertisers spent four per cent less on metro TV in 2014 compared with the year previous.

The top 10 advertisers forked out $473 million last year on metro TV, according to Nielsen statistics. And while the retail sector continues to be its biggest fan, spend was completely flat, coming in at zero per cent. Retail invested $717m in 2014, compared to $719 in 2013. The next biggest advertiser – Motor Vehicles – spent an extra, marginal, three per cent taking its total investment to $339m.

The phenomenal growth in online video too is likely to compund FTA's issues further. "This is not just a result of the introduction of Netflix, Stand and Presto but fragmentation of how people consume video," said Ben Willee, general manager and media director for Melbourne boutique agency Spinach. 

Research conducted by Authentic Entertainment/Vevo on the Australian over-the-top (OTT)/online video landscape confirmed that up to 86% of the population (16-24 years-old) are now using those video services regularly.

“The phenomenal growth we have witnessed with Vevo in mobile online video and the growth we will witness in connected TV viewing, combined with the increase in subscription-video-on-demand service offerings, all point towards even greater audience fragmentation,” Authentic Entertainment strategy and marketing director Jonathan Hopkins told AdNews.

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