Cable Nets’ Results Tell Varied Tales

Time Warner Nets Weathering Storm; Viacom Hit Harder

By Jon Lafayette

Some cable networks already are feeling the effects of the grim economy in their ad-revenue figures, but several media companies’ recent second-quarter earnings reports indicate the ad market is not raising—or lowering—all ships in the same way.

Last week, Time Warner reported very strong results for Turner Broadcasting. Time Warner CEO Jeffrey L. Bewkes characterized Turner’s performance as being at the top of the cable network industry, registering an 11% increase in ad sales and a strong performance in the upfront.
Time Warner said it felt “very good” about how sales were pacing, and that cancellation of ad contracts appeared to be normal following the upfront.

Turner’s networks include TNT, TBS, Cartoon Network and CNN.

That contrasted with an earlier report by Viacom that showed second-quarter domestic ad revenue up just 1%. Viacom CEO Philippe Dauman said ad spending softened significantly during the second quarter, and that the situation had continued into the third quarter.

“Midway through the second quarter, scatter volume dropped off,” he said, adding that some retailers, automakers and consumer goods companies pulled back on spending.

He said it was difficult to predict whether that softness would continue.

Analyst Richard Greenfield of Pali Capital called the ad-growth numbers encouraging, noting that of nine cable companies reporting earnings, only two had single-digit increases.

In addition to Time Warner, Cablevision, News Corp., Crown Media, Walt Disney Co. and Outdoor Channel reported increases ranging from 11% to 29% for their cable network operations.

“While we expect growth to slow modestly for the group in Q3, we still expect solid advertising growth, with a strong upfront leading to a re-acceleration in growth in calendar Q4 ’08,” Mr. Greenfield said.

Joining Viacom with slower growth was Comcast, which said its networks racked up organic increases in the “high single digits,” according to Pali.

During Viacom’s conference call, Mr. Dauman said ad dollars have been moving from cable to broadcast, but most of those dollars were seeking older viewers, rather than the younger ones targeted by most of Viacom’s networks. Comcast networks E! and Style also target viewers on the younger end of the spectrum, possibly accounting for the slower growth there.

Crown Media CEO Henry Schleiff said during a second-quarter earnings call last week that he was confident Hallmark Channel’s ad revenue would continue to grow, but added, “We’re not immune from the broader trends affecting the economy.” He warned analysts that the rest of the year’s increases might not measure up to the 17% to 22% pace the network registered in the first half of the year.

As an emerging network, Hallmark Channel has been growing at a faster pace than long-established networks such as TNT or MTV.

In the upfront, for example, Mr. Schleiff said Hallmark saw a 22% increase in sales volume to $116 million. Ad prices were up 7% on a cost-per-thousand basis, at the high end of the 3% to 7% range for the industry as a whole.

Mr. Schleiff said he expected the impact of an ad-market slowdown at Hallmark to be “less dramatic than some of the media and network space has seen.”

One reason for that is the older, baby-boomer audience attracted to Hallmark programming.
Unlike the younger viewers who watch Viacom channels such as MTV, Comedy Central or VH1, Hallmark viewers are not migrating away from television to other forms of entertainment, Mr. Schleiff said.

“I am not unhappy not to have the double whammy of the economy and an appeal to a younger audience,” he said.

No one can predict when the economy will make its cyclical rebound, he added, but Crown is happy with the viewers it has. “Our audience will continue to grow,” he said.