Moody’s Investors Service has taken note of the relationship between automobile sales and the importance of the auto ad segment to traditional media outlets. In a new report, Moody’s says rising auto sales should translate into ad revenue gains across a range of media.
Here is the summary from Moody’s:
Year-over-year percentage growth in advertising revenue among most of the major traditional media could be in the high single digits this year, says Moody’s Investors Service in a new report. Helping the rebound will be the winter Olympics, what promises to be a heated political season, as well as indications that auto sales in the U.S. have shown some recovery in recent months.
Moody’s expects these levels of ad growth in radio, broadcast TV, cable systems and outdoor advertising. Although the renewed spending should help them, Moody’s continues to expect newspapers to face another year of declining revenues.
In the large, top-20 markets, ad spending growth could surge into the low double-digits in percentage terms during 2010, says Moody’s. In 2009, total advertising revenues fell over 10%, the greatest single year decline since World War II. Broadcasters, outdoor advertising companies and newspapers saw ad revenue declines by much as 25%.
Because virtually all media companies made outsized cost cuts in 2009, the operating leverage on higher revenues should be significant, says Moody’s, with as much as 90% of the new ad-sale proceeds converting to EBITDA.
“This could boost average EBITDA for the companies by low-teen to high-teen double-digit levels and reduce leverage for all four hard hit media segments—radio, TV, cable, and outdoor– by the same percentages, and not a moment too soon for many rated debt issuers,” says Moody’s Senior Vice President Neil Begley.
Begley points to a meaningful increase in automobile sales so far this year as the most important of several indicators of that advertising spending will increase this year. Auto sales have risen 9.9% year-to-date and 13.3% in February. Auto is by far the single largest advertising category, which means that no real recovery can occur without a rebound in auto sales.
“Clearly, the easy year-over-year comparisons contribute to the risk that the year-to-date recovery in auto sales is overstated, but it is a timely and much-needed recovery nonetheless,” says Begley. “These trends bode well as we enter into the spring selling season where auto sales typically pick up.”
A longer, more detailed analysis is available to Moody’s subscribers with the title: “Auto Sales Suggest a Rebound in U.S. Advertising Spending This Year.”