UBS issued a depressing forecast for News Corp.'s upcoming quarterly earnings today. In a note, entertainment analyst, Michael Morris, suggests that Fox network ad sales will be down by 20% in the latest quarter while ad sales at the stations will be down by 45%. That forecast suggests a greater ad sales pullback then in the previous quarter. However Fox saw contributions from its Super Bowl broadcast in the same period last year and News Corp. owned sold eight of its TV stations.
News Corp. reports its fiscal third quarter - calendar first quarter 2009 - on May 6. Already NBC Universal recorded a 45% drop in profit as a result of asset write-downs and one-off expenses. CBS and Disney are expected to have a similarly tough time.
Morris wrote, "We expect television advertising deteriorated further in fiscal third quarter 2009. We forecast a 20% decline in Fox Network revenue to $776 million and a 45% decline in local affiliate broadcast revenue to $343 million." The analyst added that lower advertising would result in a loss of $40 million for the network and a 70% decline to $70 million in income at stations.
News Corp.'s cable unit is projected to have better news with UBS forecasting a 22% growth in affiliate fees, though a 4% ad sales decline is projected. While no-one expected first quarter to show any upticks, the market is looking for any signs of stabilization in the advertising market. Today at least, the wider economic picture looks better with Dow Jones, Nasdaq and the S&P 500 all showing gains this morning.
Separately, UBS released its projection for the television upfront. Morris thinks the total dollar haul will be $6.7 billion, down from $8.9 billion in 2008. Other estimates had last year's upfront landing at $9.2 billion. He suggests cancellations of advertising commitments in the second quarter have accelerated to between 15-20%. That coupled with lower ratings across the broadcast networks will play into a soft upfront market.
The first quarter earnings season which gets into full swing the first week of May is unlikely to help bolster sales executives' confidence. While cable sales executives say they expect money to move from broadcast into their sector, even they admit privately that a flat upfront would be "a pipe dream," at this stage.