Moody’s sees ad slump moderating


Year-over-year revenue gains could return for US television groups in the second half of 2010, says Moody’s Investors Service, which sees some moderation in the ad slump beginning in the second half of 2009. But the improvement won’t come quickly enough to keep more broadcasters from credit defaults.

The report summary from Moody’s is pretty clear-cut:

Although U.S. local television advertising remains mired in a severe slump, broadcast companies should see ad-revenue declines moderate in the second half of 2009, says Moody’s Investors Service in a new report.

Year-on-year revenue growth could return in the second half of 2010, but it is unlikely to forestall defaults and potential covenant breaches for several broadcast-TV station owners and operators that are facing significant strains on liquidity, says Moody’s.

“There have already been several defaults in the sector in the past year, and we think there is a high probability of more in the months ahead,” says Moody’s Analyst Karen Berckmann.

The ratings agency maintains that the broadcast station industry’s revenue will decline 15% to 20% this year. “We anticipate continued pressure on cash flow and financial metrics because TV broadcasters derive their revenue almost solely from cyclical advertising and have nearly exhausted their limited capacity to cut costs,” says Berckmann.

An upward revision of the currently negative industry outlook to stable would require stabilization in monthly data on job losses and core advertising spending, Moody’s says.

Ratings are already low in the sector, with many likely to go lower absent meaningful improvements in ad spending and the U.S. economy, says the report. Elevated leverage, liquidity concerns and large amounts of debt maturing at several companies over the next several years could result in more ratings downgrades, particularly if ad spending does not improve.