Britain’s television executives usually approach the Christmas period full of festive cheer, as companies and brands spend millions to run seasonal adverts on their channels.
Not this year. Fuelled by the economic uncertainty caused by Britain’s vote to leave the EU, TV advertising revenues are set to stall — ending six consecutive years of record growth.
According to several people in the TV and advertising industry, revenues for the three months to the end of September were down 1 per cent year on year. And with many advertisers having fixed their Christmas budgets for the next six weeks, forecasts for the final quarter of the year are even worse: executives and analysts predict an annual drop of between 5 per cent and 6 per cent.
Should that prove accurate, analysts say 2016 will end up flat or even slightly down on the £5bn spent on TV advertising in 2015 — signalling the worst full-year performance in the UK since 2009, when companies pulled money from the ad market following the financial crisis.
“Last year was probably one of the strongest growth years in a long time and everyone budgeted for positive things to keep happening,” explains Darren Childs, chief executive of UKTV, which operates channels including Dave and Gold and accounts for 10 per cent of Britain’s commercial TV market.
“The first half of the year stayed true to that trend, but then Brexit happened and the brakes went on,” he says. “A lot of spend got put on hold and, in the back two quarters of this year, we’ve seen the market go into a negative position.”
He thinks a Christmas recovery is unlikely. “Unless there is a huge influx of late money, the market will be down for the year. And there isn’t a lot of time for that [money] to materialise.”
All UK broadcasters are feeling the pinch. Sky said earlier this month that advertising revenues at its UK division were down 3 per cent year-on-year. Channel 4’s sales director Jonathan Allan also said he was expecting a “challenging fourth quarter”.
But it is ITV, the UK’s biggest commercial broadcaster by revenue, that is likely to be hit the hardest. In July, the channel forecast that after a summer boost from the European football championships the advertising market would start to slow in September. All of the advertising industry will therefore be watching when ITV releases its trading update for the third quarter of the year on November 10 — and looking for signs of further deterioration.
Analysts at Jefferies are already predicting a fall in revenue of more than 8 per cent for the final three months of 2016 while a note from Credit Suisse says media buyers have lowered forecasts for the fourth quarter to a fall of nearly 9 per cent.
ITV will argue that any comparison with last autumn is unfair, as it enjoyed a significant advertising boost from broadcasting exclusive coverage of the 2015 Rugby World Cup. The broadcaster will also take heart from its growing UK audience share which is up 3.4 per cent year so far this year to 15.4 per cent.
Nevertheless, a steep drop will only add to the pressure on Adam Crozier, ITV’s chief executive, following the broadcaster’s failed attempt to buy Peppa Pig owner Entertainment One. ITV’s £1bn bid for the Canadian film and TV distributor was intended to bolster its production arm and reduce its reliance on advertising revenues, which still account for half of its total earnings.
With revenues under pressure, ITV last week announced that it would cut more than 100 jobs as part of a £25m cost reduction programme for 2017.
“At a time of political and economic uncertainty in our key markets, it’s important that we are in the strongest possible position to continue to invest in our strategy and to meet any challenges and opportunities ahead,” the group said last week, while acknowledging the worries over advertising.
Advertising clients’ uncertainty has also hit ITV’s shares — they fell sharply in the aftermath of the UK’s vote for Brexit, losing 20 per cent on the day after the referendum. They had recovered some of that lost ground by the start of September but have been on the slide again since then.
However, while Brexit uncertainty is causing a number of industries to be more cautious over ad spending — notably retailers, financial groups and travel companies — some industry insiders believe other factors are at play.
“The fact is less people are watching linear TV,” says Phil Georgiadis, chairman of Blue 449, a media buying agency. “More and more people are watching on catch up and that is affecting audiences.”
Despite concerns over online advertising fraud and reporting transparency, a report this year from PwC predicted that digital advertising revenues in the US would surpass TV for the first time in 2017.
Others argue that claims of a structural shift are overblown. They point to evidence that the decline in TV advertising is part of a wider fall in marketing spend — across all media.
Print advertising is expected to be down 15-20 per cent this year, according to analysts Enders, while a report from the Institute of Practitioners in Advertising (IPA) has also revealed a slight drop in mobile advertising in the past three months.
In such a difficult climate Peter Field, a marketing consultant, suggests TV is still the most effective way for advertisers to make an impact. “There is no evidence TV is dying or is yesterday’s medium,” he said. “It remains in rude health.”
For less-than-festive British TV executives, though, the question is whether the dismal end to 2016 is a blip — or part of a longer-term Brexit-related decline.
“The real thing that bothers me is that Brexit is going to take several years to work through,” says Toby Syfret, an analyst with Enders. “That means prolonged uncertainty and that could be a real problem. We have just not been in this territory before.”
Get alerts on Advertising when a new story is published