For anyone tracking the poor health of the media industry, this week may provide more tough diagnoses. Disney, Time Warner and News Corp. host earnings calls, and the ad market is likely to shed light on who may take quarterly upfront ad dollars off the table.
Disney reports its first quarter on Feb. 3, Time Warner weighs in with full-year and fourth-quarter results the next day, and News Corp. discusses its fiscal second quarter on Feb. 5. Viacom and CBS Corp. come later this month.
And expectations are not high. Pali Research's Rich Greenfield downgraded News Corp. from a buy to a sell last week, predicting losses at TV stations, book publishing and at Dow Jones. “Our fear is that News Corp. is so committed to its existing businesses that it will be willing to sustain businesses that slip into negative profitability for the year,” he said. He also reduced estimates for CBS Corp. on the poor outlook for TV stations.
Miller Tabak analyst David Joyce already reduced Disney's media networks segment revenue estimates by 2% to $4.07 billion. Last week, Bernstein Research downgraded CBS Corp., saying it was expecting only more bad news: “Local advertising trends continue to shock us with unimaginable rates of decline.”
Debt rating agency Standard & Poor's also recently warned that CBS was on the cusp of being downgraded, and other executives say the company's most likely move to reassure the market would be to cut its shareholder dividend.
“Investors are waiting on the conference calls to try to get a sense of the national [advertising] piece. Will it hang in there or fall off a cliff?” wondered Barclays Capital entertainment analyst Anthony DiClemente.
Netflix said it signed up 700,000 new customers last quarter, and that “millions” of subscribers were now streaming its movies via the Web. But even that may be bad news for some, as DiClemente thinks that could have a negative impact on major content owners' traditional business models—largely their DVD sales.
“Cost cutting must become more of a priority for not only media's ad-supported businesses, but also filmed entertainment divisions,” he says. Already the main media conglomerates have announced close to 3,500 layoffs in the past two months.
But the news may not be all bad. Rino Scanzoni, chief investment officer at GroupM, the largest media buyer in the market, thinks advertiser cancellations of upfront buys won't be as bad as expected: “You can probably bet it will be 10%-12 % this year, in that range. Normal is 8%-9%. I don't think it's going to be anywhere near disastrous for the networks.”
For now, broadcast network prices are stable. “The supply is way down, and that's keeping pricing up,” says Ira Berger, director of national broadcasting at the Richards Group. “There's not much demand for scatter but what there is, is probably doing OK. Inventory is probably going to pay back advertisers for not making ratings, so they've got less to sell.”
The winners and losers will likely be identified by month-end. DiClemente is penciling broadcast revenue estimates at $38.3 billion for 2009, a 13% decline over last year, while cable network revenue will drop only 3% to $25.8 billion.
A Morgan Stanley year-on-year analysis of January live-only ratings shows the top 40 cable networks increased viewership overall by 3.5% in the key advertiser demographic of 18-49-year-olds, while broadcast ratings are down 8% in the same category. Among the cable companies, Time Warner's stable fared best, up 9% thanks to strong performances from CNN, TBS and TNT, while Viacom dropped the most, down 7%.