Moody’s Investors Service has changed its Industry Sector Outlook for the US Broadcast TV sector to “stable” from “negative.” The credit ratings firm said the new outlook expresses Moody’s expectations for the fundamental credit conditions in the industry over the next 12 to 18 months.
The outlook change incorporates Moody’s view that broadcast revenue declines will moderate in the second half of 2009 and that growth will resume in 2010, supported by political advertising and a mild recovery in advertising markets.
Moody’s analysts now say the boost from political advertising should provide local TV broadcasters additional time to realize a return of core advertising demand as their local economies heal. Furthermore, “given the combination of fixed costs inherent in the business plus cost cutting initiatives undertaken during the downturn, the majority of the revenue lift will likely fall through to EBITDA,” said Moody’s analyst Karen Berckmann. The stable outlook indicates that Moody’s does not expect business conditions for the broadcasters to materially improve or worsen.
Positive indicators, the Moody’s update said, include the improving trend in consumer confidence, which rose to a better than expected 73.5 in September, marking the highest point since January 2008. The increase could portend firmer consumer expenditures, and expectations for higher consumer spending typically lead advertisers to boost their marketing budgets. In Moody’s view, while not growing significantly, advertising budgets are beginning to open up and have ceased declining.
“Nevertheless, multiple constraints will likely hinder the return of more meaningful near-term growth, and some downside risks remain. Moody’s does not anticipate a return to job creation prior to the second half of 2010. Additionally, TV broadcasters rely heavily on local advertising, which will likely lag national advertising in terms of recovery. Auto advertising, which comprises a significant portion of revenue for most broadcasters, will also remain a pressure point as vehicle sales in 2010 are expected to remain far below historical levels,” Moody’s said.
“Furthermore, the stable outlook does not necessarily presage positive ratings actions; indeed, the potential for further negative actions remains, particularly given lingering liquidity concerns at the lower end of the ratings scale. Covenant challenges will likely continue for many of these issuers, and access to the credit markets remains uncertain,” the ratings agency noted. Some companies have achieved covenant relief, Moody’s said, but added that the amendments might require companies to return to lenders for another round of negotiations.
RBR-TVBR observation: This is what we’ve been hearing from people in the industry for a while now. It is nice to see that analysts looking in from the outside now share that view.
We’re not yet into the good times. But the bad times appear to be ending.