Is Greed, Fear Of Public Scrutiny Keeping Fox From Selling Out Its Super Bowl Ad Inventory?

Several media reports have said Twenty-First Century Fox Inc FOXA still has unsold ad inventory for this Sunday's Super Bowl, a negative development ahead of the company’s second-quarter results scheduled for release on February 6.

Ads And Consumer Engagement: Super Bowl LI

The Super Bowl is one of the key events for advertisers to target their consumers in addition to being an important source of revenue for broadcasters.

Survey's In

A survey from National Retail Federation shows that American consumers will spend an average of $75 for a total of $14.1 billion as an estimated 188.5 million watch the Atlanta Falcons face the New England Patriots in Super Bowl LI on February 5.

The survey shows that though viewership is about the same as last year's 188.9 million, the spending is down from an average of $82 and a total of $15.5 billion.

But, here comes the critical aspect of the survey, which found that 78 percent of viewers watch the commercials only for entertainment and 18 percent say they make them more aware of the advertiser's brand. This means, only 10 percent say the commercials influence them to purchase products (the key reason for brands to show ads).

Sixteen (16) percent say advertisers should save their money and pass the savings along to the consumers, and 10 percent say the commercials make the game last too long.

Did the NRF survey caught the advertisers eye? They might not want to spend much on a consumer who looks ads only for entertainment not for purchasing a product. Also, Fox is said to be pricey with its slots, making advertisers reluctant to put their dollars in. This could be one of the reasons for speculated excess ad inventory for Fox heading in to this Sunday game.

Analyst's Commentary

Loop Capital, which has a Hold rating on Fox stock, said this is a kind of surprise, as CBS Corporation CBS last year sold out its Super Bowl inventory halfway through the 2015 season.

“According to sources within the media buying community, certain brands are balking at the price ($5.0 million–$5.2 million per spot, depending on the quarter), while others just don't want to face the scrutiny now 'de riguer' with every ad,” analyst David Miller wrote in a note.

Miller said the potential unsold inventory suggests somewhat of a tipping point in Super Bowl advertising and expects the company to address the issue on Monday's call.

Meanwhile, for the second quarter, Miller expects Fox to report non-GAAP EPS of $0.48 on revenue of $7.74 billion versus consensus estimate of $0.49/$7.72 billion.

On the call, the analyst will seek additional color on the recent SKY PLC (ADR) SKYAY deal, especially in light of comments from CEO James Murdoch just 90 days ago that there is "no heightened appetite for any inorganic activities."

But now, Fox bid $14.1 billion (£11.25 billion) for the 60.86 percent of Sky that it didn't already own, and is acquiring assets at a sizeable premium which it had sold to Sky only two years ago.

However, Miller raised his price target by $1 to $29.

At last check, shares of Fox were down 0.51 percent to $31.