TV advertisers are being unexpectedly tight-fisted.
Wall Street and TV networks had been banking on an improving economy this year to help drive demand. But the annual "upfront" advertising market, when marketers place their orders for commercial spots for the coming year, was unexpectedly weak.
Broadcast networks ABC, CBS and Fox collectively booked $600 million less this summer than during last year's market, according to estimates by network executives and analysts.
Cable network executives also struggled to find buyers for their commercial time.
Analysts have speculated on various causes, citing the migration of advertising dollars to the Internet and a retrenchment by two major advertisers. Others might be on the sidelines gambling that prices will be lower later in the year.
"The broadcast networks took the biggest hit, but cable networks also had trouble getting to their goal," said Ed Papazian, president of Media Dynamics Inc., which has analyzed the TV ad market for more than 30 years. "The marketplace is down; advertisers are being more cautious."
New Jersey based Media Dynamics estimated that broadcast and cable networks accepted $18.1 billion in prime-time commitments during this summer's upfront market, a 6% decline from last year's total of $19.3 billion. The annual auction held in June and July is called the upfront because advertisers place their orders in advance of the new fall season.
Declining ratings at Fox, ABC and cable channels TBS, TNT and MTV contributed to the lower hauls. A Cowen & Co. media analyst Wednesday downgraded stocks of 21st Century Fox, Time Warner Inc. and Viacom Inc., in part, because of declining ratings.
"Advertising trends clearly worsened in the second quarter," Cowen media analyst Doug Creutz wrote in his research report. "While we do not necessarily believe recent softness signals the start of something more serious, our caution level has increased."
Not everybody took it on the chin during the upfront market.
NBC increased its haul for next season by $750 million, NBCUniversal Chief Executive Steve Burke said during parent company Comcast's earnings call Tuesday. The peacock network came roaring back to life during the just-ended TV season after a decade in the ratings cellar. NBC was able to hike its ad rates 8% during the upfront market, Burke said.
Two major sporting events — the Sochi Winter Olympics in February and this summer's FIFA World Cup in Brazil — also soaked up more than $1.5 billion in advertising dollars this year, leaving fewer dollars in the upfront market.
NBCUniversal took in $1.1 billion in ad revenue for its broadcasts of the Olympics. Advertisers sometimes adjust their budgets to save money following a big expenditure, such as the Olympics.
For example, Spanish-language Univision Communications, which took in $174 million in ad revenue for its World Cup broadcasts, said that it expects third-quarter advertising to be lower than its second quarter because some advertisers spent big on the World Cup — and that money has to come from somewhere.
Media Dynamics' Papazian said major sporting events, including the World Cup, wouldn't entirely account for the current softness.
In a nutshell, he said, "this year, the demand was low."
Randy Falco, another 30-year veteran of TV advertising and chief executive of Univision, agreed.
"Advertisers see they have more options now than they ever have had in the past," Falco said.
Univision and its main Spanish-language competitor, Telemundo, have been picking up ad dollars as marketers increasingly target Latino viewers. Univision has bulked up its advertising roster with 95 new brands, Falco said. The media company has commanded healthy rate increases for its commercial time.
Local TV stations also are expecting a bump from political advertising during this year's campaign season, which should help the major media companies that own broadcast networks, cable channels and TV stations.
But auto giant General Motors and product company Procter & Gamble — two of the TV industry's largest advertisers — committed tens of millions of dollars less in this year's market, according to network executives. GM's pull-back largely hurt the broadcast networks, while cable channels missed the P&G money.
But Wall Street analysts are wondering whether a longer-term trend is emerging. They have been watching to see whether Internet companies are beginning to take market share from TV networks. Facebook on Wednesday reported $2.68 billion in advertising revenue during the second quarter, a 67% increase from 2013.
Last year, digital platforms — including Internet search engines and Internet display advertising — captured $43 billion in advertising, according to research firm EMarketer. This year, the digital advertising market is expected to top $50 billion and, by 2016, reach $66.5 billion — eclipsing TV advertising.
"There is some shift to digital," NBCUniversal's Burke told analysts. "But we don't think that is the majority factor here."
That's because expenditures for Internet video still are relatively small: nearly $6 billion this year, according to EMarketer. The Internet video market simply isn't big enough "to sweep a lot of dollars off the table," Falco said, adding that marketers increasingly are demanding spots on media companies' digital platforms.
"Advertisers want digital to be a part of the sale," Falco said. "There's a lot of business to be done there."
Another factor could be the complicated way TV networks sell their commercial spots. While more than three-quarters of television time is sold during the summer upfront market, networks typically hold back 20% of their inventory to sell throughout the year. Networks must reserve some commercial spots to use to compensate advertisers if ratings for individual shows fall short of the network's guarantees.
Some advertisers bought fewer spots because they are gambling that ad prices would be lower later in the year, Burke said.