Television company stocks have been on the rise even though Wall Street does not like what it’s hearing from Madison Avenue.
A new report from Credit Suisse analyst Michael Senno sees slowing ad growth that lags overall post-recession economic gains. He sees only modest ad increases this year, including low single-digit gains in the upfront for both broadcast and cable.
“Media stock prices and multiples continue to soar despite a mixed ad market that is dampening growth in a key revenue stream,” Senno says.
In a survey of ad buyers, Senno says he finds the ad market stable but tepid, with scatter pricing up mid-to high single-digits versus the upfront, but up only low single-digits versus a year ago.
“Ad buyer feedback indicates TV advertising remains stable, but growth is decelerating and the overall market appears mixed, Senno says.
The buyers surveyed see CBS registering ad sales growth of 1.8% in 2013, the most of the broadcasters, with NBC’s sales down 1.5% for the year. On the cable side, buyers report a mixed bag, with ESPN sales growing 2.8% to lead the category. Scripps Networks is the only other cable company expected to show more than 2% growth. Senno’s survey predicts a tough year for Viacom with Nickelodeon down 0.6% and MTV down 0.2%. It also has Fox News down 3%.
Senno says the ad buyers he surveyed point to a “modest” 2013-14 TV upfront, with volume up 3% and pricing up 4% on a cost per thousand viewers (CPM) basis. The survey has CBS leading the broadcasters with a 5% increase in pricing and 3% increase in volume. Cable on average is expected to have 4% increases in both pricing and volume and syndication is seen earning a 2% increase in syndication, but flat in volume.
“We believe total volume could be hampered by the current ratings issues resulting in lower viewership guarantees,” Senno says. “We expect more upside from NBC given the 2013/14 ratings growth and our belief that new management will aggressively pursue CPM increases after lagging peers the past few years.”
The buyers say there’s about a 50-50 chance the industry’s ad buying currency will shift from the current C3 to the C7 favored by broadcasters.
Senno says the conditions make Viacom and Discovery a risky bet given recent run-ups in their stocks and high relative dependence on ad revenues.
He says he prefers Disney and Time Warner. He also likes News Corp., which he says is driving solid affiliate fee and retransmission fee growth, but says those factors are already priced into its stock.