Wible's Weekly - C-7, Programmatic, OTT and More. Janney/MediaEntertainment

Upfront Updates – C7 is making inroads as the currency for advertising deals, as media buyer GroupM is striking agreements with broadcaster on a C7 basis during this upfront. It is unclear whether a higher C7 rating (vs C3) will translate into significant benefits for networks as we believe advertisers may adjust CPMs to (partially) offset the ratings increase to maintain their ROI. We are somewhat concerned about the tepid 4%-8% upfront CPM increases which is less than prior years, per recent press reports, while management commentary on the ad environment (including scatter) has not been positive either. A standout is advertising for the 2015 Super Bowl on NBC, which is reportedly seeing a 12.5% increase in the price per 30-second spot (to $4.5 million). NBC ratings recovery and upfront CPMs suggest they are likely to post better ad growth (ex Olympics) than the other broadcast competitors.

ISP Shame – OTT providers are using rankings to focus attention on the role of broadband providers play in delivering a quality streaming service. GOOG and NFLX are now ranking ISPs on video quality/speed and the latter has even resorted to calling out specific providers (e.g. VZ) to their customers in real-time as the reason for buffering or other quality issues. GOOG has gone as far as to create a new web module that allows consumers to benchmark their local ISP competition. This is one small part of a bigger net neutrality debate as the online companies vigorously oppose any efforts by ISPs/MVPDs to discriminate traffic or to charge publishers for quality of service.

Programmatic Video Advertising – According to comScore, US video ad networks generated 42.8 billion desktop ad views in 1Q14 (+119% YOY). This compares to an 85% increase in ad minutes and a 39% increase in audience, suggesting that ad loads are increasing while ad length is declining. Growth is benefiting from increased demand for programmatic video ad inventory, improved targeting, and campaign management tools. More granular data and control over targeting demographics and websites is leading some large brand advertisers/agencies to increase their spend across ad networks. GOOG's recently announced programmatic video marketplace for premium inventory using its DoubleClick platform brings in yet another player to drive further growth.

Ad Forecast – US advertising revenues are expected to increase from $206 billion in 2013 to $247 billion by 2018 (3.7% CAGR), according to forecasts by PwC. TV remains the largest segment and will grow to $77.7 billion (4.3% CAGR) through 2018 - in part driven by online revenues from broadcasters. Internet advertising will be closing in at $65.9 billion by 2018 (9.0% CAGR) - in part driven by strong mobile and video ad growth. Slower growth ad segments include Music (+2.8%), Film (+2.4%), and Radio (+1.2%), while Newspaper is expected to decline 5.8%.

E3 Catalyst? – E3 starts on June 10 and may be an important catalyst for the gaming industry as new next gen software titles are needed to monetize phenomenal early hardware adoption. We have seen accelerated hardware sales since the launch of 8th gen consoles in November but still lack enough next gen software sales to offset prior gen weakness. The industry should benefit from MSFT's Xbox One price cut while the early sales data for Ubisoft's Watch Dogs is encouraging (breaking company records for sales in the first 24-hours and first week) and points to strong underlying demand for good titles.

Tony Wible can be reached at twible@janney.com.

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