The near-5 million new Netflix subscribers reported this week (and taking its overall total to 100 million this coming weekend) is another indicator that ‘conventional’ advertising supported linear TV is under extreme pressures. Add in the drift of advertising from TV to online video, digital, social media and mobile, and there are plenty of elements in place for the perfect storm.
An equity research report from Deutsche Bank today admits that the “end of TV advertising” has been prematurely made many times in the past. “But a pattern is emerging over the past 9 months of traditional, “linear” TV failing to grow in line with improving consumer confidence and GDP trends. This is of particular concern now as our channel checks are showing unexpected weakness in European ad markets in Q2. Linear TV is not collapsing, but new campaigns are seeing a far larger share going to online video, social and mobile. A lower gearing to macro momentum removes the primary reason to own TV stocks. It makes the recovery trade in French & Spanish TV stocks particularly vulnerable.”
Deutsche Bank advises clients to sell their holdings in French networks TF1 and M6. “We downgrade TF1, M6 and Spain’s Antena 3 and Pro7Sat-1to ‘HOLD’.”
The bank’s note continues, saying: “We have conducted our regular channel checks with 9 advertising agencies on their TV advertising bookings in the past 3 weeks. We find that softer spend by their advertising clients is causing agencies to downgrade full-year forecasts across all major markets. Particularly surprising is the slowing in Germany after an already lacklustre 2016, the risks around French spending into the election period and continuing cuts in the UK despite a strong consumer backdrop.”
The bank admits that media buying forecasts can be volatile. “But over the past 6 months, the pattern of TV ad spend dislocating with macro measures has been growing. This has become more evident since the start of this year. Investors seem to have been put at ease by the headlines of P&G’s move away from Facebook, the YouTube boycott and concerns over online ad fraud & “bots”. But while digital has teething issues, the shift of eyeballs and ad spend is inexorable. Online advertising is now twice as large as TV in the UK and grew by 17 percent last year vs TV down 4 percent (IAB & Deutsche Bank estimates). Online is on track to overtake TV in the US this year. This spend has to come from somewhere. Official statistics on ad share, showing TV stable, are increasingly outdated, in our view.”