Media companies court advertisers as spending shifts to digital

Media giants are making their annual presentations to advertisers this week against the backdrop of major industry disruption.

Hollywood's writer and actor strikes are over, meaning Upfronts will likely be star-studded again, big cost cuts have largely been in the rearview mirror, and streaming has fully embraced advertising models. Still, this year's Upfronts presentations come amid increased tumult in the industry.

“It seems like this is a moment, a moment in terms of what the next year, two years, will bring,” Warner Bros. Discovery CEO David Zaslav said during the company's earnings call last week. “I said a while ago that this is a generational disruption.”

These are the ones that will likely be topics of discussion during Upfronts week, whether on stage, in the audience, or in private.

Media companies just finished reporting their quarterly earnings, which showed that traditional television still lags behind streaming and digital when it comes to advertising revenue.

Traditional TV ad buying during Upfronts is expected to increase about 1% to $18.79 billion this year, according to eMarketer data. This is an improvement from last year, when it was down about 4% to $18.64 billion.

Meanwhile, digital advertising spending during the Upfronts and Newfronts, which take place a few weeks before traditional media events, is expected to increase nearly 32% to $16.45 billion this year, according to eMarketer.

There was an overall improvement in traditional TV advertising revenue last quarter, down 8% from almost 16% in the same quarter last year, according to a note from Macquarie senior media technology analyst Tim Nollen. Streaming advertising increased 22% across all media companies and now accounts for 18% of total advertising.

Technology companies included Break, roku, Google and microsoft each saw digital advertising revenue return last quarter. AND Netflix, Amazon and AlphabetAll YouTube channels have growth stories to tell advertisers.

“Netflix is ​​in many ways the gold standard when it comes to streaming,” Disney CEO Bob Iger said during the company's earnings call this month.

Netflix ended last quarter with about 270 million global subscribers, riding a wave of password-sharing freeloaders converted into paying customers over the past year.

The company has relied on its cheapest, ad-supported tier (at $6.99 a month in the U.S.) to convince price-conscious subscribers to pay monthly subscription fees. In January, just over a year after its launch, Netflix's ad-supported tier had more than 23 million monthly active users.

Amazon Prime Video debuted its advertising tier earlier this year. Amazon has spent billions on live sports rights (a coveted advertising commodity) in recent years, including paying about $1 billion a year to broadcast “Thursday Night Football,” one of the game packages in the entire the National Football League season. Amazon reported last month that its advertising revenue rose 24% in the first quarter to $11.8 billion.

YouTube's advertising revenue in the first quarter also rose more than 20% to $8.1 billion, beating analyst estimates. In February, YouTube became the most-watched streaming app for 12 consecutive months, according to Nielsen.

Amazon will hold its Upfront presentation on Tuesday in New York City, followed by Netflix and YouTube a day later.

The mood may not be so positive among some of the traditional media players.

national advertising for ComcastNBCUniversal held steady in the first quarter at around $2 billion, but streaming service Peacock was boosted by advertising revenue. NBCUniversal will kick off its week of upfronts on Monday at Radio City Music Hall.

disney reported a first-quarter decline in advertising revenue for its traditional cable networks and on Hulu, although ESPN's national advertising sales rose more than 20% in the quarter compared to a year earlier. Disney will make its presentation on Tuesday.

“The challenge, obviously, in the advertising market right now is that there is a lot more supply in the market, largely as a result of one of our competitors entering the advertising tier,” Disney CFO Hugh Johnston said. during this month's earnings conference call. “But that being said, I think overall we feel like we're in a better place than we were a year ago.”

Warner Bros. Discovery, which will make its presentation at Madison Square Garden on Wednesday, reported that revenue from traditional television advertising fell 11% in the latest quarter from a year earlier to about $2 billion. Streaming advertising revenue increased 70%, but the overall figure is much lower: just $175 million.

Warner Bros. Discovery and Disney announced last week that they would offer their streaming services (Max, Disney+ and Hulu) together, marking the first major streaming services package. The two companies, along with Fox, are also working on a sports streaming joint venture. It remains to be seen what other companies join the fight to bundle.

Sports remain the glue of the television package and continue to attract the largest audiences. And in the background of the conversations during Upfronts week is the future of NBA rights.

While Warner Bros. Discovery owns them until the end of the 2024-25 season, the next owner is currently being decided. NBCUniversal has emerged as an apparent leading contender, while Warner Bros. Discovery mulls whether to match NBC's offer.

The future of regional sports networks also remains unknown, with broadcasters slowly acquiring the rights to local games.

EMarketer senior analyst Ross Benes noted that for Warner Bros. Discovery to add value to its sports joint venture with Disney and Fox, it needs to retain its NBA rights.

“Without the NBA rights, WBD will become a weak third leg of the joint venture sports tricycle… If the NBA loses, many WBD customers will be left wondering what all the cost cutting was for,” he said.

Fox Corp., which holds its Upfront on Monday, said first-quarter advertising revenue declined compared to the previous quarter when it aired the Super Bowl on its broadcast network. CEO Lachlan Murdoch said on last week's earnings conference call that advertising trends are “clearly moving in the right direction” in early Upfront discussions, thanks in large part to Fox's sports slate .

Like last year, Paramount Global skipped holding an Upfront presentation this year. Instead, the media company held nine events starting in April in Los Angeles, Chicago and New York.

Although there was no big presentation at Carnegie Hall, the events included previews of upcoming content and featured celebrities such as Nicole Kidman, Demi Moore, Stephen Colbert, Tony Romo and others.

Paramount is dealing with an ongoing sale process and also currently does not have a singular CEO.

Disclosure: NBCUniversal is the parent company of CNBC.