Analyst Pessimistic on Ad Spending

Jan 9, 2009  •  Post A Comment

Credit Suisse on Friday released a more pessimistic forecast for advertising spending in 2009 and lowered its earnings estimates for several major media companies.
Analyst Spencer Wang put the firm’s new forecast at an 8% decline, compared to its previous estimate of a 4% drop. He said the consensus view on Wall Street is that media spending will fall 5% for the year.
Mr. Wang expects broadcast TV to drop by 8.6% in 2009, compared to the previous forecast of a 6.2% decline.
“We believe weaker trends are beginning to emerge in the current scatter market, which has been described to us as ‘cautious’ for 1Q, in terms of advertiser spending,” Mr. Wang said in his report.
“Although several media executives have indicated that scatter pricing is running flattish with upfront pricing, we believe that scatter pricing is likely down year over year as scatter pricing was very strong last year (e.g., up double digits). Therefore, we would not be surprised if scatter pricing is down year over year (i.e., scatter vs. scatter). In addition, our industry contacts suggest that overall scatter activity, i.e., volume is low.”
Cable TV will post a small 0.3% loss, compared to the 1.8% increase previously expected, the analyst says.
“We see advertisers allocating a greater portion of their ad budget to cable and away from broadcast given greater targetability and generally lower CPMs,” Mr. Wang said. “Still, with overall demand in advertising declining, we do not expect cable networks to be immune.”
In light of the new forecast, Credit Suisse lowered its earnings estimates for News Crop., Time Warner, Viacom, Yahoo and Walt Disney Co.
When will things get better?
“Assuming a fiscal stimulus package and recent monetary initiatives take hold and spur an economic recovery in 2010, ad spending should bottom in 2009,” Mr. Wang wrote. However, we remind investors that ad spending is late cycle and tends to underperform nominal GDP for several years following a recession as advertisers wait for convincing signs of a recovery before aggressively reinvesting in ad spending.


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