Advertisers Ride the Brakes: Sharp Drops in TV Spending Make Media Companies Vulnerable

Media giants spent most of 2023 looking for signs of a turnaround in advertising spending after several years of a soft market. Despite some rosy predictions, they’re still searching.

The situation could force vulnerable companies to consider merger-and-acquisition options as the content marketplace realigns around streaming economics, which generally are not as lucrative as linear TV ad margins.

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At the beginning of 2023, executives were hoping to get past the pain. “2023 will also be an important year with respect to advertising, where we’re looking forward to an improvement in the market in the back half of the year,” Paramount Global CEO Bob Bakish told investors in February. The ad market “is going to stay weak for the first half of this year, then recover,” Jeff Shell declared in January, before he was ousted as NBCUniversal CEO for sexual misconduct three months later.

Warner Bros. Discovery saw TV advertising fall 13% in the third quarter of 2023, to $1.71 billion. Paramount Global registered a 14% dip in the same category, to the same figure, while NBCU logged a decline of 8.4% to $1.91 billion. Disney noted “a decrease in advertising revenue” at ABC and its local TV stations and “a modest increase in advertising revenue” at ESPN and around its other sports programming. Even Fox, which relies more directly on sports, saw its overall ad revenue fall by 1.6%.

These results challenge the conventional wisdom that TV advertising will grow even with declining ratings because major advertisers can’t resist the power of the medium’s mass-market reach. Many observers were surprised to see the double-digit drops at Paramount Global and WB Discovery, both of which are heavily dependent on big bucks from ads to bolster the bottom line.

“It’s becoming increasingly clear now that much like 2023, 2024 will have its share of complexity, particularly as it relates to the possibility of continued sluggish advertising trends,” Gunnar Wiedenfels, WB Discovery’s chief financial officer, said in November. “We don’t see when this is going  to turn.”

It’s no secret that advertisers have been tighter with their dollars due to fears of a recession. They’re also grappling with the disruption created by viewers moving from live linear TV to on-demand streaming platforms. “A lot of advertisers are still showing budgetary caution,” says Katie Klein, chief investment officer at Omnicom Group’s PHD media buying agency.

Observers say the steepness of the Q3 decline has been a factor in Paramount Global chair Shari Redstone’s decision to consider whether the time has come for her to sell the family empire.

To be sure, 2023 had plenty of unusual headwinds that also dented sales, like the Hollywood labor strikes that crimped production of movies and TV shows, which prompted entertainment giants to cut their own marketing expenditures. The strike by United Auto Workers, too, meant that big spenders including General Motors and Ford had to pull back on marketing. Spikes in mortgage rates kept big insurance and financial-services companies from tapping into home-buying. Tech giants have also cut ad spending in recent months, according to media buyers. When the outlook is unclear, it’s easier for advertisers to commit to digital media, which can often be bought in real time according to algorithms that define consumer audiences. Much of TV needs to be purchased months in advance of actual business plans.

But don’t count TV out yet. “I do believe you will see a return to spending in some of the traditional linear channels,” says David Sederbaum, executive VP and head of video investment at ad giant Dentsu. “But make no mistake,” he warns. The average viewer’s preference for streaming is “real and persistent and permanent, and the availability of content like sports on streaming platforms will only continue to grow.”

Hollywood’s Dilemma

Traditional TV is in steady decline, but entertainment giants still rely on revenue from linear channels

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