Worries about the broader impact of the sub-prime mortgage crisis are top-of-mind on Wall Street. But just how widespread will the fallout be? We get this assessment from Lehman Brothers broadcasting analyst Anthony DiClemente: "In our view, the reality in the U.S. economy right now is that anyone that does business with mortgage brokers, banks big and small, real estate agents, home insurance companies, home builders, or home furnishings businesses is at a distinct risk of a tangible slowdown in their business. For Newspapers, Outdoor and Radio, we note that the real estate, insurance and financial services categories aggregated represent 15%, 16% and 11% of total ad spend, respectively. We believe the impact of the current economic concerns is exacerbated for local media platforms already facing fragmentation as more media platforms vie for consumer attention and advertising dollars, as well as the underlying secular shift in advertising towards more national campaigns driven by increasing nationalization of domestic brands.
Specifically, we examine:
1) the shift in advertising towards national and the impact of that trend on various media platforms;
2) the supply chain of local advertisers and how it may be impacted by the current climate; and
3) the exposure of our broadcasting universe to these trends. We conclude that the stocks most levered to these trends are those companies with significant local ad revenue, and little large market or large geographic presence, especially those with markets in the southeast and out west — areas that have seen a significant contraction in the housing market. As a result, we remain on the sidelines with our radio broadcasters and outdoor advertising companies and instead would favor more diversified, defensible businesses that are levered to national advertising and recurring revenue."