Olympics Leave No Gold in Q3 Advertising Forecast

Media companies expecting a rebound in fourth quarter

Media companies discussing
their second-quarter earnings
have been making it pretty clear
that the third quarter will be a rough one as
far as advertising sales growth.

Most are blaming their tough sledding on the
Olympics sucking up demand
for ad dollars even as it draws
record-setting audiences,
rather than overall demand.
Nevertheless, some analysts remain
concerned that a sluggish
economy and a crisis-prone
worldwide banking system
might have a negative impact
on the scatter market.

On a more hopeful note,
media company executives are
saying they expect things to be
better beginning in the fourth
quarter, when higher prices
from a decent upfront market start to kick in.

Earnings season for the programmers kicked
off with Crown Media, which has been on a
streak of double-digit quarterly advertising
revenue increases. But during Crown’s secondquarter
call with analysts, CEO Bill Abbott said,
“There’s no question that third quarter is softer
than we would like.” Abbott, a former ad sales
executive, cited the Olympics, the economy
and even the elections as possible reasons why
Crown was having third-quarter sales issues.

Discovery Communications noted its own
third-quarter challenges in maintaining strong
ad sales growth. But CEO David Zaslav insisted
that “we’re not seeing any softness in the market.
The market remains strong.” Instead, Discovery
pinned low third-quarter expectations on softness
at some of its larger networks caused by a
programming cycle that’s left the channel with
limited premiere hours. The Olympics were also
cited as a factor, although it
was hard to quantify its effect.

In a report, analyst Michael
Nathanson of Nomura Securities
wrote that Discovery’s
U.S. ad growth is expected
to be in the “mid-single-digit
range due to both negative
Olympic scatter impact and
softer initial Q3 ratings. Note
that economic weakness was
not cited as a swing factor—
we remain worried though.”
In a similar vein, John Janedis
of UBS headed a section
of his report “3Q Cable Ad Guidance Disappointing—
Is It the Olympics Or the Market?”

Discovery said ad sales will rebound in the
fourth quarter, though it declined to attach a
number to that. “We had a very good upfront,”
Zaslav said, with mid-to-high-single digit
price increases and the highest dollar volume
in company history. New programming will
be coming on line in the fall, he added. “So
we feel very good about fourth quarter and I
think you can expect to see some strong numbers
on the advertising side, assuming that the
market stays as is,” Zaslav said.

Time Warner asserted that demand in the Q3
scatter market was a little slow due to money
being diverted to the Games. CFO John Martin
said on Time Warner’s earnings call that with
this result—and some other unique factors—the
company was not expecting to report positive
growth in ad revenue in the quarter.

In addition to soft scatter, Time Warner’s third
quarter will be impacted by international units
in India and Turkey that have been shut down
and will no longer be generating revenue.

Following the Time Warner call, analyst
Anthony DiClemente of Barclays Capital said
he revised his forecast for Time Warner and
now expects advertising revenue to be down
2% in the third quarter. He had previously
predicted a 6% increase.

Martin said Time Warner had several reasons
to expect that fourth quarter ad revenue
would rebound, starting with Major League
Baseball playoff games on Turner Broadcasting.

“We also expect growth to be stronger in
the fourth quarter, as we’ll benefit from additional
NBA games on TNT, the 2012 presidential
election, expectations of improved
overall ratings at our other networks in general,
some easier comparisons and the expectation
of a much stronger scatter market once
the Olympics are over,” Martin said.

Barclays Capital’s DiClemente said he is expecting
Turner to post a healthy 8% increase
in ad revenue in the fourth quarter.

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