Analyst Sees Bigger Drop in 4Q Advertising Revenue

Nathanson lowers earnings estimates for most media stocks
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The fourth quarter was rougher than expected for national TV advertising, according to one top analyst, who is cutting his earnings estimates for most of the media companies he covers.

Michael Nathanson of MoffettNathanson Research says he now sees national U.S. TV advertising revenues down 1.4% in the fourth quarter, compared with his previous estimate of down 0.3%.

He says the ad weakness results from a combination of "terrible ratings trends, weak scatter volume and pricing, plus lower upfront CPM inflation."

"While some might point to commentary about 10 strong days of scatter in January as signs of life in advertising, it is hard to ignore the past 365 data points," Nathanson says, adding that the weak results come despite the highest level of auto sales since 2005.

The broadcast networks' ad revenue will be down 1.5%  to $5.683 billion in the fourth quarter, according to Nathanson, with NBC and CBS showing gains, while ABC and Fox decline.

Among the cable nets, ad revenue will be down 1.4% to $10.335 billion. The Walking Dead powered AMC to a 15% gain and sports and the Simpsons helped 21st Century Fox to a 5% gain.

But other than Scripps, the other cable programmers will be flat to down, with Viacom registering the biggest drop at 6%, according to Nathanson.

Combined with weak domestic box office results, weak home entertainment spending, and a massive spike in the U.S. dollar, Nathanson is lowering fourth quarter earnings estimates for all of the TV companies he covers except for Walt Disney Co., Scripps Networks Interactive and Netflix.

Nathanson has cut his earnings per share outlook for CBS by 13% to 75 cents a share, Discovery by 11% to 42 cents a share, Time Warner by 8% to 93 cents a share, AMC Networks by 5% to $1.02 a share, Viacom by 4% to $1.27 a share and 21st Century Fox by 2% to 43 cents a share.

Nathanson continues to rate Disney as a buy, along with Fox and Viacom, despite the downward earnings estimates.

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