For media companies, both analogue and digital, advertising bookings generally remain the largest share of revenues. And while there’s a lot to be said for structural changes in the media, the last three years have been unusually lousy for ad sales.
The ad market grew just 1.1% last year. That followed two more years of belt-tightening -- ad spend increased 1.2% in 2011 and declined 1.3% in 2012.
Online ads are growing strongly -- sales jumped an estimated 16.9% last year and, depending on how you measure it, either recently became or will become the largest single source of ads this year. But that hasn’t boosted the ad market overall -- it's just meant more of a squeeze for established players. As Fusion Strategy analyst Steve Allen told Crikey
: "Everyone’s just struggled for the past three years."
But a sliver of hope has recently peaked over the horizon. Australian ad agencies booked 7.2% more ads in December -- the best result January 2011 if you exclude political advertising -- and most analysts predict the good times will continue. Goldman Sachs, Fusion Strategy, and this week's industry-leading
Starcom MediaVest’s Media Futures all predict ad growth will be above 2.5% this year, spurred on by a recovery in consumer spending.
Digital advertising will get the biggest boost, but it also bodes well for free-to-air television networks. Goldman Sachs, whose forecasts are generally seen as conservative, has singled out the free-to-air sector as being the major beneficiary of the lift among established media. It expects ad spend on FTA television to grow 3.4% in 2014, with growth accelerating in 2015.
Starcom's survey -- not a forecast, technically, but informed by briefings with ad booking executives -- is even more optimistic on free-to-air, predicting 4% growth.
The improving mindset of consumers is the big factor. High consumer sentiment -- or even better, high consumer spend -- lifts ad buys. And television is still in the best position to capitalise.
"If you want to reach 15-20% of the audience all at once, there’s only two mediums that can supply that at a moment’s notice. You can get aired during My Kitchen Rules
, or in a major newspaper,” Allen said. A lot of fast-moving consumer goods companies still want mass audiences, so they want to advertise on big, high-rating programs.
That’s why Seven, which just beat out Nine in the crucial 16-54 demographic last year, has a lot going for it. Goldman Sachs has a "buy" rating on owner Seven West Media, and is hopeful about recently listed Nine's
But the investment bank's analysts aren't buying Ten's optimism. That network -- which could be acquired by News Corporation
if the "two out of three" rule is abolished by the Abbott government -- recorded a ratings share increase of 13.5%
thanks to the Big Bash cricket league in the first weeks of the year. Analysts like Roger Colman of CCZ Equities expect it to do well this year. But Goldman Sachs still has it as a "sell", despite expecting it to book more ads this year. Analysts Christian Guerra, Adam Alexander and Jacqueline Thai wrote:
"We believe Ten's relatively lower ratings performance partly impedes its ability to leverage the benefits of the improving free-to-air TV market. We believe Ten's new management team will drive a near-term improvement in Network Ten's revenue share ... However, we expect improvement from there to be more subdued."