Analysts worry about ad slowdown


Even with a big political year on the horizon, two Wall Street analysts have cut their 2008 estimates for broadcasting stocks, citing concerns about advertiser pullbacks.

“Local advertising appears to be in the midst of recessionary trends,” said Bank of America’s Jonathan Jacoby as he issued a slew of estimate reductions for the radio companies that he covers. Rather than 1% growth for overall radio revenues in 2008, he is now expecting a 1% decline. From 2009 and beyond, he is projecting annual growth of around 1%. “Our channel checks indicate a weak local ad environment for local advertising mediums – buyers noting pressure as the weakening housing market ‘spills-over’ into other parts of the local economy,” Jacoby wrote in a note to clients. He cut 2008 revenue estimates by an average 2% or so for CBS, Clear channel, Ditadel, Cox Radio, Emmis, Entercom and Radio One. Although Jacoby’s estimate reductions yesterday were for public radio companies, he noted that similar pressures are affecting TV, newspapers and outdoor. “The local ad recession is also being felt a local television stations. For example, while Belo recently noted that political is helping Q4 2007, it still expects its TV station revenues to be down in the low-to-mid single digit range in Q4, when excluding political,” Jacoby noted.

“With no economic recovery in sight coupled with the one-two punch of i) a slowdown in overall ad expenditures and ii) the reallocation of ad dollars to new media, we revised our long term and terminal revenue growth assumptions for our broadcast and outdoor companies,” Wachovia’s Marci Ryvicker said in her latest research report. Her outlook for radio is particularly dire, but she also lowered estimates for TV and outdoor. “We previously believed that radio would some day show some tip line growth, but after 24 consecutive months of revising our estimates downward, we now believe that 0% is more realistic (and potentially the best case) scenario long term,” she wrote. In fact, the main reason she sees 2008 as flat for radio after a decline this year is non-spot revenue, including Internet and other digital revenue streams for radio stations, along with political.

Of course, political will be a big deal for TV in 2008, so Ryvicker has not reduced her TV stock price projections as drastically as for radio. She is sticking with her view that TV revenues will be up 5.5% in 2008, with local up 4%, national spot 10%, syndication 3%, network 3% and TV Internet revenues 50%. But looking ahead to the tough comps in 2009, she has lowered her stock price projections for the TV groups that she covers, although she still sees upside potential for two diversified media companies, CBS and Entravision.