Will CBS have to increase retransmission and affiliation fees to make up for falling ad revenue? Source: CBS

In a classic case of ad dollars following eyeballs, it seems Madison Avenue is slowly moving away from traditional television advertising, presumably to allocate more ad spend to digital outlets, especially the growing mobile advertising segment.

After years of being able to count on strong and stable audience sizes from television, television audiences are now shrinking as more consumers no longer see the value in large, expensive pay-TV packages. For the recently completed third calendar quarter, Bloomberg-compiled analyst estimates predict that the pay-television industry will lose 280,000 to 360,000 subscribers.

This news was actually framed as a positive, considering the industry lost a massive 600,000 subscribers in the second quarter. However, when compared with last year's third-quarter losses of 189,000, according to SNL Kagan, the estimated figure is nearly 70% higher at the midpoint. And advertisers are starting to notice.

SMI points toward falling TV ad spend
According to ad-spend insight firm Standard Media Index, by way of Business Insider, total TV ad spend has dropped by 4% compared with the previous broadcast year. However, all television outlets are not the same: Local operators grew 3%, and the heavily watched cable TV subtype dropped only 1%. However, major broadcast networks such as CBS (NYSE:CBS) ABC, and NBC are experiencing a year-on-year ad-based drop of 7%.

For CBS, a company that was dependent on advertising for nearly 50% of its total revenue haul during the first half of 2015, this is apparent in its financial results. On a year-on-year basis, the first half of 2015 has produced 3.7% less ad-based revenue over last year's corresponding period.

During the second-half results, the company agreed with SMI that more of its ad-spend has transitioned to scatter-based marketing rather than upfront in both the broadcast and cable-TV markets. Long story short, upfront tends to be more expensive for advertisers but guarantees ad space -- scatter, on the other hand, is cheaper but gives no guarantees as to availability, as it is usually sold closer to the ad's airing. A shift to scatter-based marketing insinuates advertisers are less concerned with television marketing.

Better news for Disney's ESPN
On the other hand, the news isn't as bad for cable channels including The Walt Disney Company's (NYSE:DIS) ESPN. After renegotiating deals with the NBA and the NFL for huge price increases, the company is looking to cut as many as 350 jobs to partially compensate for the increased content costs.

And while Disney is a far-flung conglomerate, with many -- myself excluded -- looking for its movie studio to lead the path forward, the company is still led by its media-networks business. And while the company also owns other TV stations, including broadcaster ABC, ESPN is still the most-important channel for its most-important media-networks division.

There are two ways ESPN monetizes its cable network: subscriber fees and ad-based revenue. While SNL Kagan's estimate of ESPN's per-sub monthly cost, $6.55, has been widely reported in the media, ESPN would really like to grow advertising as well. And while a 1% decrease for cable-based ad-spend isn't encouraging, it certainly isn't the huge drop of 7% broadcasters are now facing.

In the end, however, this is another report that points toward a slow unraveling of the television business model. If ad dollars dry up, it's possible that networks attempt to recoup the lost revenue in the form of higher subscriber costs (read: cable bills). Subscribers should watch costs carefully. 

 

Jamal Carnette has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.