America’s TV networks and movie studios are facing another tough period as advertisers refuse to commit to big spends. The GE subsidiary, NBC Universal (NBCU) reported disappointing second quarter earnings on Friday and GE management cut their expectations for the rest of the year.
NBC was the first major US TV network to report (through the quarterly report of its parent, General Electric) second quarter results. It followed Gannett, the country’s biggest newspaper group (and a TV station owner) which reported its second quarter figures two days earlier. Gannett said its TV revenues were down 19.7% in the second quarter and broadcasting revenues were $US153 million in the quarter compared to $US192.6 million in the same quarter a year ago, a decrease of 20.6%.
NBC will be hit by the absence of last summer’s Beijing Olympics and its revenues and profits from the current quarter, and political advertising from the next two quarters (from 2008’s US Presidential and Congressional elections).
Management tried to suggest that they could see some encouraging developments in the ad markets, but that’s overly optimistic. The networks are cutting ad rates because advertisers won’t commit. NBC, like other networks, have been unable to pre-sell as much advertising ahead of the start of the 2009-10 season in six weeks or so time (the so-called upfront selling season).
Normally the networks sell around 80% of their TV ad inventory to big media buying groups ahead of the start of the new season, but US reports say they’ve been forced to retain much of their unsold ad time to try and sell as the season unfolds. That’ll put the US TV market on a similar footing to Australia’s, especially now with the market in both countries “soft and short”, with advertisers not committing until the last moment and driving down rates.
According to US advertising media: ABC, CBS and Fox last week cut ad rates by 1% to 3% in an attempt to get advertisers interested. Ad Age said some advertisers say they want twice that price rollback; NBC reportedly is offering mid-to-high single digit unit price cuts to encourage advertisers to also spend money on its cable networks as well as the Free To Air channel.
While GE surprised with a bigger than expected 17% fall in revenues in the second quarter, NBC’s were off 9% to $US3.6 billion. But that included the Universal film and theme parks business. Network ad revenues were down sharply, according to US analysts, and earnings dropped 41%, after a 40% plus fall in the first quarter.
GE’s chief financial officer Keith Sherin told a phone conference with analysts that the upfront ad selling season at its NBC broadcast network has been “slow,” and the company plans to hold onto more inventory than usual heading into the new TV season. Other top media companies, including Walt Disney Co, Viacom Inc, CBS Corp and News Corp, will post second quarter results over the coming weeks, with investors watching whether predictions executives made three months ago that spending had steadied prove true.
Reuters reported that NBC Universal Chief Executive Jeff Zucker told staff in a memo after the parent’s results were released, that the company is “seeing signs of life in local and national advertising” and is hopeful it will witness “better earnings growth in the second half of the year.”
But he added: “The negatives are the same ones that are dragging down the results of every media company: Advertisers are skittish about the economy and marketing budgets are easy targets.”
He also said consumers continued to scale back on discretionary purchases, hurting sales of NBC Universal’s DVDs and visits to its theme parks. The latest quarter’s results were also hit by a write-down of its ION Media stake and a limited number of DVD releases.
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