Photograph by Jeffrey Coolidge—Getty Images
By Mathew Ingram
June 23, 2016

Media companies are busy drinking rosé and partying aboard yachts on the French Riviera this week, as part of the annual Cannes advertising festival. And they have plenty to celebrate—according to most estimates, sales have been better than ever at the so-called “upfront” advertising auctions, where media companies lock brands into long-term contracts.

So does that mean TV is back, and the rise of digital was just a paper tiger? Not quite.

There’s no question that spending in the TV advertising business looks fairly healthy at the moment, by almost every measurement out there. According to a recent survey by Standard Media Index, which tracks national ad spending on broadcast and cable, TV upfront sales rose by an average of 5% in May compared with last year—and cable on average saw a 10% rise in upfront revenues.

Even Viacom (VIAB) has seen better than expected results, despite being embroiled in a power struggle between CEO Philippe Dauman and controlling shareholder Sumner Redstone—and despite criticism for its lackluster stable of fading brands like Nickelodeon and Comedy Central. According to one recent report, the company expects its advertising revenue to climb by 10%, after only getting a 3% increase last year.

So what’s happening? Analysts say some of the rebound is a result of what happened last year, when large numbers of advertisers put less into the upfront market and kept more of their spending for what is called the short-term “scatter” market, where ads are bought on an as-needed basis.

Many wound up paying higher prices than they otherwise would have as a result of this strategy, which likely convinced some agencies to commit more cash to the up front auctions this year.

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Ironically, the ongoing woes of traditional television—the rise of cord-cutting behavior and a move to non-traditional streaming services—could also be helping networks and distributors in the short term. The fact that ratings have fallen for some mainstream channels means that the amount of advertising time has also fallen, and that constraint in supply has pushed prices up in some cases.

Some analysts, however, see this as being less a sign of health and more a sign of a market that is clinging to its traditional models and trying to ignore the disruption going on all around it. In a recent piece for MediaReDEF, TV industry analyst Matthew Ball said that the rebound in upfront prices and the trends driving it “more closely resemble a bubble than signs of resiliency.”

Jan Dawson of Jackdaw Research, meanwhile, wrote recently that the upfront market looks “less like a turnaround and more like a dead-cat bounce.”

The dead-cat metaphor seems to be a popular one (it is taken from the investment business, where traders who are skeptical about a stock’s rise will say that even a dead cat bounces a little when you drop it). In an essay on his site Stratechery.com, technology analyst Ben Thompson argues that the short-term rebound in ad spending for TV disguises a much more negative long-term trend.

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In a very real sense, Thompson says, TV networks and the consumer packaged-goods companies they rely on for the bulk of their advertising revenue are both being disrupted by the growing forces of digital. For TV channels it means cord-cutting and streaming services and fragmentation, and for CPG companies it means gradually losing power to all-digital retail and distribution players like Amazon (AMZN). Says Thompson:

TV advertisers are 20th century companies: Built for mass markets, not niches, for brick-and-mortar retailers, not e-commerce. These companies were built on TV, and TV was built on their advertisements, and while they are propping each other up for now, the decline of one will hasten the decline of the other

Some larger advertisers have talked about their dissatisfaction with digital channels, in part because of the difficulty of measuring actual engagement or viewing time in a way that compares to what they are used to from more traditional platforms such as television. Digital networks such as Facebook (FB) are also typically seen as being better for direct-response style advertising, not the consumer brand-building that packaged-goods companies tend to be interested in.

Thompson and others, however, argue that given the amount of resources Facebook is throwing into video, it is bound to solve these problems eventually, and doing so will make the platform—as well as other strong contenders such as Snapchat, which claims 10 billion video views a day—far more competitive when it comes to bidding for traditional consumer ad spending. And that could make future TV upfronts look considerably less optimistic than the current crop might indicate.

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