NEW YORK (Reuters) - The message from media companies is coming through loud and clear: TV advertising is back.
Only a few big media companies have reported earnings for the first three months of the year -- Viacom and Discovery Communications Inc among them -- but the results show money streaming back into national television campaigns. U.S. ad sales skyrocketed 11 percent at Viacom.
Similar trends are expected to underpin the results of big media companies reporting this week, including News Corp, Time Warner Inc, CBS Corp and Comcast Corp, owner of a majority stake in NBC Universal.
Encouraged by signs that companies are spending more to promote cell phones, insurance plans, soda and jeans, investors have pushed up the Standard & Poor’s Media index nearly 18 percent this year. CBS, the most sensitive to the ad market, is up a hearty 33 percent.
“It is a strong ad marketplace, another indication that the economy is getting stronger and that marketing budgets have gotten higher,” said Brad Adgate, an analyst at advertising and marketing firm Horizon Media.
TV executives, who have survived the dismal ad recession, can be forgiven for celebrating. Not only are they able to announce stellar quarterly earnings, but they find themselves in the driver’s seat heading into the most crucial period of the year for ad sales.
It is an annual stretch known as the upfront market, the period each May when the networks introduce their new prime-time schedule and begin negotiations for the majority of their advertising inventory. At stake for the four major broadcast networks -- ABC, Fox, NBC, and CBS -- is an estimated $8.5 billion to $9 billion in commitments.
The big four broadcast networks could see prices jump by 10 percent in this year’s upfront over those of a year ago, analysts, advertising buyers and TV executives predicted, saying it would be the first double-digit increase in recent memory.
Some of that, of course, depends on whether the networks can come up with hits for the 2011-12 TV season.
“Beyond genre, what we are looking for on the broadcast side is some buzzy shows,” said David Scardino, entertainment specialist at media agency RPA. “Ones that would re-energize audiences and get people talking.”
Price increases of any sort were unthinkable as recently as 2009, when chief marketing officers saw their budgets cut to the bone. Advertisers spent 10 percent to 15 percent less money in that year’s upfront, and critics declared the death of the broadcast business model.
Since the U.S. economy began its slow march back, such predictions have looked overly dire. Advertising spending has climbed steadily higher -- at about 3 percent a year -- and television has emerged as of the surprise leaders.
“For an established media, it’s kind of remarkable,” said Kris Magel, Director of National Broadcast for Initiative, a division of Interpublic Group of Cos Inc. He points out that unlike TV, radio and newspapers have yet to show they can win back advertisers.
The advantage for TV is the size of its audience. Even though broadcast TV ratings are down, overall viewership for TV continues to grow when cable is taken into account.
What is more, TV advertising seems to work well in conjunction with digital advertising -- the fastest growing area of media.
“Advertisers are realizing that digital and TV work together better than they did separately,” Magel said.
In other words, social media may not be the broadcast TV-killer that many feared. But a clutch of other threats still exists, starting with online video services such as Netflix, which is signing up customers by the bucketful.
Add to that a rocky housing market, stubbornly high unemployment numbers and rising commodity prices, which limit the amount businesses can spend in other areas, including marketing.
There is also mounting evidence that Japanese automakers have cut down on their marketing spending following the March earthquake and tsunami, not to mention worries that the National Football League season will be undone by labor strife.
But advertisers may be wary of playing hardball during May’s bargaining sessions. Anyone who needed to buy last minute commercial times this winter faced prices that were 30 percent to 40 percent higher than the going rate in last year’s upfront -- a reminder of the risks of not locking up long-term deals.
Reporting by Paul Thomasch, editing by Gerald E. McCormick