Entertainment media companies are reporting record upfront sales this year, locking in billions in advertising commitments months in advance of their newest shows.
But when it comes to advertisers buying ad inventory as they go, it’s a different story.
The scatter market—i.e., all the ad inventory on TV and streaming platforms not bought during the upfronts—is slowing down. According to the Standard Media Index, scatter market investment in the second quarter of 2022 declined 15% compared to a year prior.
In recent weeks, executives across the industry have warned investors of rocky waters ahead.
“It’s true that there are some challenges in the scatter market and in digital, and that really is, as you would guess, driven by the state of the macroeconomic environment,” Paramount CEO Bob Bakish told investors earlier this month.
NBCUniversal, which just a month ago was celebrating its highest grossing upfront since it was acquired by Comcast, was experiencing a “choppy” advertising market and lower year over year scatter sales, CEO Jeff Shell told investors in late July. Meanwhile, Roku, which reported a record $1 billion in upfront ad sales, released a letter to shareholders acknowledging that advertisers were “significantly” curtailing spend in the scatter market.
“We are seeing advertisers worried about a possible recession, and so we’re seeing them reduce their spend in places that are easy for them to turn off and turn back on,” Roku CEO Anthony Wood told investors late last month when it reported lower-than-expected Q2 revenue growth. “The scatter market, which is an important source of ad revenue for Roku—it’s an easy market for advertisers to turn off and turn back on.”
Slowdown ahead
Upfront buys make up the majority of ad sales, with marketers allocating 75% of their ad budgets to upfront commitments in the most recent quarter, according to SMI. But the scatter market is still big business. In past years, scatter has comprised as much as one-quarter of broadcast sales and one-third of cable sales, SMI previously reported.
The pullback coincides with varying economic signals that have had some marketers bracing for a possible downturn. An Advertiser Perceptions survey released last month found advertisers were dialing back on media channels traditionally aimed at brand-building and broader awareness plays, including TV. Nearly half of all marketers surveyed said they had paused some connected TV spending, with 44% pausing digital video and 42% pausing linear-TV spend, according to that survey.
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The effects are uneven across advertising sectors. Roku, NBCUniversal, and Paramount executives all said segments like automotive dialed back TV spend, in part due to a lack of inventory and supply-chain issues. CPGs also spent less due to inflation, Paramount’s Bakish said.
That means some of the same companies that have previously bragged about big commitments are now slashing ad revenue projections. At Warner Bros. Discovery, which announced that it had locked down almost $6 billion in this year’s upfront as a newly combined company, was seeing “softer demand in the scatter market,” CFO Gunnar Wiedenfels said earlier this month. That softer demand is expected to contribute to a decline in global ad sales by as much as the “low double digits” in the upcoming quarter, he said.
Not all media companies are feeling the same scatter-related sting. At Fox Corp., which was able to lock down considerable scatter pricing increases a year ago, the scatter market this year is characteristically quiet, but pricing is up in the low double digits, CEO Lachlan Murdoch told investors. Demand for programmatic advertising, which comprises about 10% of Fox Corp.’s advertising business, has slowed, affecting platforms like free streamer Tubi, Murdoch said.
And at Disney, CFO Christine McCarthy said scatter pacing across streaming, sports, and broadcast was “solid,” defying other company trends.
Turn it around
At companies where the scatter slowdown is hitting hard, executives are eager to paint the slowdown as temporary. Paramount’s Bakish said the economic reasons for advertiser pullbacks “aren’t long-term issues—they’re short-term challenges we’ve got to just work through.”
Roku, meanwhile, was keen on investors focusing on the long-term trends rather than the short-term headwinds.
“While downturns are difficult, it’s important to keep in mind that temporary economic cycles do not change the significant long-term opportunity in TV streaming,” Wood said.