Advertisers should not write off TV just because Wall Street is bearish

Earlier this month, we had two major writedowns from US broadcasters of the value of their network assets. Warner Bros Discovery and Paramount combined wrote off $15bn (￡11.4bn) of value from their balance sheets to take into account the structural problems facing their broadcasting businesses.

WBD chief executive David Zaslav noted that: "It's fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today, and this impairment acknowledges this."

This downbeat message was reflected in the advertising revenues for its networks business, which was down 9% on a FX neutral basis for calendar Q2. Paramount posted a Q2 advertising decline of 11% in its TV Media business, due to the fall off in linear TV business.

This downbeat message was not, however, reflected in the performance of European broadcasters.

While England may not have got the result they wanted at Euro 2024, ITV certainly did. When it reported its H1 financial results last month, the broadcaster reported that its total advertising revenues had grown 17% in Q2 and 10% in H1, ahead of its previous guidance, helped by the Euros and perennial favourite Love Island.

The message of a recovery, after a weak 2023, has been the theme?from the European broadcasters more generally in the results?season.

Atresmedia in Spain recorded a 9.5% increase in its "audiovisual" (mainly TV) advertising revenues while M6 in France reported a 7.5% increase in TV advertising revenues even as some (such as ProSieben) reported H1 growth, without even showing the Euros.?

However, while the advertising performances of broadcasters in the two geographies tends to be different, the view of investors – and, may I add, many in advertising – is that the US declines are the direction of travel and that European broadcasters will "inevitably" follow the same path.?

It is a view with which I disagree and that also does not take into account the fundamental differences in the nature of the two geographies.?

Europe is different from America

The North American traditional broadcasting market is indeed under structural stress. The traditional TV market had more than 90% of the overall TV market, and broadcasters relied on. This was not only for audiences, but also retransmission revenues, in other words a fee for carrying the network. But this is collapsing as households move to the far less expensive streaming services.

Traditional cable and broadcaster services have barely half of the audience time, as consumers have not only switched to streamers but also other alternatives such as YouTube. Because of the rapid shifts in audience patterns, advertisers are deciding that they need to switch their advertising money as well.?

The European market though is different. Pay-TV penetration was always much lower than the US (about 55% even in the highest penetrated markets such as the UK), was at a much lower cost, and focused on sports and movies.

European audiences tended to prefer domestic content in most of the major markets (even the UK, which does not have the same language barrier as the US). And it is noticeable that streaming penetration levels are also lower than those of the US (about 65% in a market such as the UK versus more than 85% in the US). Traditional broadcasters still dominate the most watched programmes schedules, and as the Euros and Olympics have shown, audiences still crave live sports (which NBC Universal has also found in the US market).?

Put simply, the UK – and Europe more generally – is not the United States, and should not be treated as such. That is not to say the European broadcasting ecosystem does not face challenges in way of falling linear audiences, particularly amongst the youth, But its advertising-based streaming services are helping to both plug the gap and, potentially, tap new sources of budgets.

Overall, the broadcasters are doing a decent job of transforming their business models.?

I will end on a military analogy, given I have waxed in a previous column about how studying for a Masters in War Studies can provide some unexpected foresights into what happens in media.

The fate of armies in retreat is usually determined by the speed and nature of that retreat. When it happens rapidly and in confusion, the end is usually a rout.?However, when it is done more slowly and in a more organised fashion, then not only does it become far less damaging but it can set the scene for a successful counter-attack.

The US broadcasters, to varying degrees, risk being the former. I would argue the European broadcasters are more the latter.?

As usual, this is not investment advice.