Comments by radio group heads of a challenging ad environment during the third quarter are reinforced in the latest guidance from Pivotal Media Group. The research firm has lowered its total ad forecast for 2017 from 4.4% growth to 4.1% growth while sticking with the 4-5% growth range it has anticipated for much of the year.
Q3 advertising grew “slightly slower” than in Q2, rising 4.1% year-over-year, minus political and national Olympics-related advertising. “Our ‘feel’ of the market is that year-over-year growth is similar or perhaps slightly softer in 4Q17,” Pivotal analyst Brian Wieser says, with 4.0% growth forecast for the final quarter. Looking ahead to 2018, Pivotal calls for total ad dollars to increase 3.0%.
Pivotal’s numbers are based on its analysis of U.S.-based advertising revenues from public companies.
Compared to other traditional media – TV in particular is experiencing “key challenges” – radio’s Q3 trend was “more muted,” Wieser says, estimating that radio revenues were down 2% during the quarter. That’s a far cry from year-over-year declines in the teens for magazines and newspapers and a combined drop of 4% for local and national TV. Outdoor, on the other hand, was up 1%.
Pivotal’s radio guidance suggests network and satellite radio gained ground in third quarter while local radio dipped modestly. Combined network and satellite radio revenues grew 5% to $317 million and are on track to increase 3.5% in the fourth quarter to $321.1 million. Pivotal’s full-year 2017 outlook for network and satellite radio is for 2.1% growth to $1.22 billion accounting for 1.7% of total national advertising.
Local radio, which accounts for a far greater share of the local ad pie – 22.4% in Q3, per Pivotal – dipped 3.0% to $3.22 billion in Q3. Q4, traditionally radio’s strongest quarter, will put $3.24 billion on the books for a 3.4% year-over-year decline. For the full year, Pivotal calls for local radio billings to dip 3.1% to $12.42 billion.
That said, Pivotal’s estimates for local radio do not include radio’s digital or off-air revenue, which are two growing areas for most broadcasters that are helping offset declines in on-air advertising.
Television “fared relatively poorly” during the quarter, Wieser says, with national TV declining 2% and local TV, which includes broadcast and cable, tumbling 6% for a combined drop of 4%. That caused TV’s ad share to decline from 31% to 29%. Digital advertising continued its hot streak, up by around 21% in the quarter, pushing its share from 37% to 43% of total advertising. Pivotal’s digital outlook includes “all kinds” of digital channels, including spending associated with traditional TV. Excluding digital video sold by national TV networks and Hulu, the share change “was more like 36% to 41%,” Wieser says.
But it’s not spending shifts by like-for-like advertisers from traditional TV into digital media that’s causing changes in the ad pie. Instead Wieser says most of the share shifts are due to a change in the companies driving growth in ad spending. “The large brands who dominate TV are generally weak at the present time, generally constraining total budget increases to low single digits or otherwise reducing them, and with few increasing spending on digital by more than single digits,” Wieser says. So while TV may be losing some budget share from these advertisers, it’s likely only one percentage point a year. “As we think the trends which have driven those changes are unlikely to abate soon, we think that national TV advertising is positioned to continue with low single digit declines,” Wieser says. Local TV faces other hurdles, he adds, as “regionally constrained marketers either lose revenue share (and consequently reduce advertising budgets) to nationally-oriented ones, or as nationally-oriented advertisers reduce media budget allocations to regionally-specified territories.”
The main driver for digital ad growth is spending by e-commerce brands, app developers and businesses who “are generally too small to efficiently use television,” Wieser says.