Good morning,
In last Thursday’s Daily Update about Facebook’s earnings, I highlighted VP of Finance Susan Li’s answer in the company’s follow-up call with investors, specifically the line that “there is definitely an impact [of ATT], although I don’t think we’ve quantified that.” That was a surprising assertion given that Facebook kept saying that revene was in-line with their expectations; in fact, I misunderstood Li: according to the company Facebook hasn’t quantified ATT’s impact publically. The extra word would have helped, although I probably should have figured it out.
On to the update:
Olympic Ratings
From Bloomberg:
Since the opening ceremony of the Olympics last week, NBC has been busy negotiating with anxious advertisers, offering ways to make up for the games’ steep drop in viewers, people familiar with the matter say. Haggling over “make-goods” isn’t unusual in TV. But the discussions show that NBC’s ambitious Olympics effort from Tokyo is drawing a smaller audience than the broadcaster or advertisers expected. With the coverage nearing its halfway point, average nightly viewership through Tuesday was down 42% from the 2016 Summer Games across all of NBC’s outlets.
A decline through the second week threatens to eat into the revenue that NBCUniversal counts on to cover expenses and turn a profit from the games. The company, part of Comcast Corp., sold more than $1.25 billion in commercials for this year’s Olympics, a record. It’s paying about $1.1 billion for the broadcast rights.
NBC is facing a tough hand with these Olympics. First off, the Olympics are happening in the wrong year. That’s a bit of a problem! Second, Asia is the toughest part of the world as far as time zones go; some morning events can be televised in prime time in the U.S., but everything else happens in the middle of the night or early morning, taking away from the lure of live TV. Third, the lack of fans makes for a worse televised experience, even as lots of Americans, after a year-and-a-half of being stuck inside, probably want to do anything else other than sit in front of a TV.
In truth, though, NBC’s biggest problem is the secular decline in TV generally; from the Hollywood Reporter:
Through the first week of the Summer Olympics, NBCUniversal’s primetime audience has fallen precipitously — by almost 42 percent — compared to the last summer games in 2016. Given the way viewership linear TV has cratered in the past five years, however, that shouldn’t come as much of a surprise. In fact, the declines for the Olympics aren’t much different than those for broadcast TV as a whole over the past half decade.
Through seven nights, the Summer Olympics are averaging 17.5 million primetime viewers — including 19.5 million on Thursday, the second highest mark so far, for a night featuring taped coverage of Sunisa Lee’s gold medal in the women’s gymnastics all around. The primetime total includes NBC, several of NBCU’s cable outlets and streaming properties (NBCOlympics.com, the NBC Sports app and Peacock). Over the same period in 2016, NBC’s coverage from Rio de Janeiro averaged a little more than 30 million viewers…
But the Olympics’ audience hasn’t shrunk any more than broadcast TV as a whole. For the 2015-16 TV season, the average primetime network show averaged about 7.18 million viewers, including a week of delayed viewing. Thirty-five series (excluding sports pre- and post-game shows) averaged better than 10 million viewers. In the just completed 2020-21 season, the average audience for a primetime network series was 4.4 million — a decline of 39 percent, only three points lower than the dip for the Olympics thus far. Only eight series broke the 10 million viewer mark for the season.
Jeff Shell, the CEO of NBCUniversal, said on Comcast’s earnings call that the Olympics would still be profitable. That noted, I thought the entirety of the answer was interesting:
It’s impossible to understate the importance of the Olympics to NBCUniversal. It’s not really financially. It’s more operationally across the company. We have 4,000 people literally working on it. Brian and I were in Tokyo. I came back and saw our team in Connecticut. You have people, this is their life work. You go from room to room. You have experts on surfing and volleyball and gymnastics. And it’s an operation that would be very difficult to replicate the talent and the experience that our team brings to it, and they show it every night in NBC. And then of course, the Olympics are the perfect property to show the strength of our platform across not only NBCUniversal, but Comcast and Xfinity and Sky.
So the Olympics, obviously, as you said, Jessica, we had a little bit of bad luck. There was a drumbeat of negativity. We got moved a year and no spectators. And that has resulted a little bit in linear ratings being probably less than we expected. But the flip side of that is the digital strength has kind of offset that. So when you look at what’s happening with Peacock, that’s directly related to the Olympics.
So net-net, with all this bad luck, we’re going to be profitable on the Olympics, which we’re very happy with, and we’re very happy with the product. And then if you watch every night, you’ll see we use this as a firehose to promote everything else we’re doing at the company, not just across NBCUniversal but also Comcast. So the Olympics, I think we’re very pleased with the Olympics and very proud of our team and got a ways to go here.
One certainly gets the sense that that profit margin is going to be a rather thin one; investors generally aren’t impressed that a company is spending billions of dollars on something just because it means a lot to the company, so it seems odd that that is the leading justification for doing just that.
In another way, though, it is as honest an answer as you could hope for. The truth is that NBC is and will continue doing the Olympics because what else is the company going to do? At least the Olympics — along with other slumping sports events like the NBA Finals or World Series — has the largest share of the shrinking land mass that is broadcast TV, which means it remains the most attractive options for brands that are predicated on reaching as many people as possible (and the best way to promote what remains of the rest of NBC’s schedule). For now anyways.
Google Earnings
From the Wall Street Journal:
Google’s parent company flexed its digital dominance, reporting its highest quarter ever for sales and profit behind a gusher of online advertising from businesses vying for customers across reopened economies. The robust results showcased how Google has emerged stronger from a Covid-19 pandemic that accelerated e-commerce purchases, online food orders and streaming video consumption. The burst in digital activity led companies to pour marketing dollars into ads across Google search, Maps and YouTube, underscoring the pre-eminence of its products.
Alphabet Inc. reported second-quarter revenue of $61.88 billion, an increase of 62% from a year earlier, when its unassailable ad business tumbled as the coronavirus crippled the economy. Profit more than doubled to $18.53 billion, with per-share earnings surpassing analysts’ expectations.
62% growth is an absolutely bonkers number for a company the size of Google, but it is, at least at first glance, tempered by the fact that Google was hit pretty hard by COVID’s impact on categories like Travel. It’s better to look at two year growth rates…and ok, Google revenue was up 55%, which is absolutely bonkers! That’s the highest two-year growth rate in nine years, which is when mobile advertising really started to take hold.
Google has a lot going in its favor: first, there are the same factors that are affecting everyone in digital, including the secular shift to digital advertising and the pull forward of COVID. Google, though, has two additional factors moving in its favor, for which Google itself deserves credit.
The first one goes back to last April and Google’s revamping of Google Shopping to make listings free. In a vacuum one might think this would hurt revenue — how can you make more money by giving away for free what you previously charged for? That, though, presumes a market is static. In reality increasing the supply of shopping listings improves the overall product, increasing usage, which increases the value of promoted listings that are shown to the user first. This move super-charged the secular impact of COVID; Chief Business Officer Philipp Schindler noted that “retail was, again, by far, the largest contributor to the year-on-year growth of our Ads business.”
The shift was also important in terms of getting ahead of Apple’s iOS 14 changes; Google, like Facebook, is now focused on not just advertising but conversion as well. Schindler said in his opening remarks:
We’re continuing to build an open ecosystem that benefits both users and merchants. Last year we removed financial barriers with free product listings and zero commission fees. This year we’re removing integration barriers. With Shopify, WooCommerce, GoDaddy and Square, merchants can now onboard and show their products across Google for free. And our Shopping Graph is using AI to connect these products to the people who want them, with over 24 billion listings from millions of merchants across the web.
Google also, like Facebook, has more room to maneuver in terms of managing iOS 14 thanks to how it sells ads:
These examples also underscore the value of AI and automation in a world that’s changing fast. We know today that more than 80% of our advertisers use automated bidding. Using ML, our ads products are more efficiently connecting businesses with their customers – taking the guesswork out of getting the right message, at the right time, to the right customers – all in a privacy-first way. And Performance Max, our newest AI-powered campaign, is now in beta. It lets brands buy ads from a single campaign across all Google properties – helping drive more online sales, more leads and/or more Store Visits. Early results for participating advertisers are great.
And then there’s YouTube.
YouTube and Brand Advertising
A big part of YouTube’s growth in recent years has been the growth of direct response ads; the big problem for companies like NBC, though, and the good news for Google, is that YouTube is starting to make major in-roads into attracting the pot of gold at the end of the TV rainbow — brand advertising. First, CFO Ruth Porat reported that “YouTube advertising revenues of $7.0 billion, were up 84%, driven by brand, followed by direct response.” This was Schindler’s explanation for that brand growth:
Let’s move to YouTube, which had a great quarter with strong growth in both brand and direct response…First, brand. YouTube is helping advertisers reach audiences they can’t find anywhere else. According to Nielsen’s Total Ad Ratings Reach reporting, from Q4 ‘18 to Q4 ‘20, on average, 70% of YouTube’s reach was delivered to an audience not reached by the advertiser’s TV media. In other words, YouTube’s reach is becoming increasingly incremental to TV, and this audience dynamic is a huge win for brands. In fact, Nielsen found that US advertisers who shifted just 20% of spend from TV to YouTube generated a 25% increase to their total campaign reach within their target audience, while lowering their cost per reach point by almost 20%. These combined effects of improved reach and efficiency are helping advertisers get the most out of their brand investments.
These numbers, to be clear, are based on surveys — the biggest driver of YouTube’s improved brand numbers is almost certainly the COVID bounceback. At the same time, look again at those Olympics numbers. Sports may still be the linchpin of brand advertising, but that pin sure feels like it is about to pop, and YouTube is better placed than just about anyone to pick up the slack.
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