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Media giants are still getting hammered by TV ad market declines

The advertising environment doesn't seem to be improving for legacy media companies.

On average, media networks — whose parent companies include Disney (DIS), Paramount Global (PARA), Warner Bros. Discovery (WBD), Comcast (CMCSA), and others — posted another 12% decline in revenue from linear ads during Q3 after reporting a 13% decline in Q2, according to a new note from Macquarie.

Companies warned that negative trend will likely continue in the current quarter. For instance, Warner Bros. Discovery stock plummeted last week after it noted ongoing weakness in the ad market, saying it could impact visibility for 2024.

CFO Gunnar Wiedenfels said on the company's post-earnings conference call that 2024 "will have its share of complexity, particularly as it relates to the possibility of continued sluggish ad trends."

Analysts and media executives alike had expected a better TV ad market in the second half of the year, which ultimately did not pan out as ad buyers remain under pressure.

"All media networks face a dragging linear ad market and all but Warner Bros. Discovery have big sports cost step-ups this fall, which offset any positivity from direct-to-consumer turning the corner to profitability," Macquarie analyst Tim Nollen wrote in a recent note to clients. "Linear TV ads continue to decline amid little sign of ad market recovery; at least it isn't getting worse."

Nollen said he anticipates another overall 12% linear ad market decline in the current quarter, as cord-cutting trends hammer traditional television businesses.

"Cord cutting continues its steady downward trend of just under 10% year-over-year decline for the last three quarters," he explained. "Total pay TV subscribers in our tracked group is down to 40.2 million, a loss of more than 1 million subscribers in Q3 alone."

Ad spend outside traditional TV shows different story

Macquarie analyst Tim Nollen anticipates another overall 12% linear ad market decline in the current quarter, as cord-cutting trends hammer traditional television businesses.
Macquarie analyst Tim Nollen anticipates another overall 12% linear ad market decline in the current quarter, as cord-cutting trends hammer traditional television businesses. (Mytruestory Photography via Getty Images) (Mytruestory Photography via Getty Images)

It's a much different story with direct-to-consumer (DTC) services, which posted 29% average ad revenue growth thanks to new advertising tiers introduced by Netflix (NFLX) and Disney.

"DTC has been gaining traction as cord cutting has continued," Nollen said. "All the media networks' platforms reported solid growth in their paid streaming subscriptions in Q3."

Tech giants like Google parent company Alphabet (GOOG, GOOGL) and Meta (META) also saw renewed strength in digital advertising.

Alphabet's advertising business reported $59.7 billion in revenue in the prior quarter, beating consensus estimates of $58.9 billion and well ahead of the $54.5 billion from the year-ago period.

Meta saw a similar pop with its Q3 advertising revenue coming in at $33.64 billion, compared to the $32.94 billion analysts had expected and the $27.34 billion seen in Q3 2022. The parent company of Instagram and Facebook also beat on ad impressions estimates, reporting an increase of 31% year over year, versus the expected 29.6%.

Even companies like satellite radio giant SiriusXM (SIRI) and audio streaming service Pandora saw improved advertising markets despite both shedding subscribers in its latest quarter.

Overall, the first half of 2023 saw non-linear TV ad sales — which include advertising video on-demand platforms, connected TV, and free ad-supported services, or FAST formats — grow by 7%, according to a recent report from media investment and intelligence company Magna Global. Podcasting advertising jumped by 14% while digital out-of-home advertising rose by 9%.

"The ad revenues of traditional media owners continue to stagnate or decline despite the growth of their digital formats," the report said. "But so far, the attractiveness of these new formats for consumers and advertising is just mitigating, not offsetting, the long-term decline of traditional linear formats in audience and ad sales."

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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