Rising tide of auto ad spending to lift all media


Numerous media companies have been reporting an upturn in auto advertising, reversing a severe decline during the national recession. The analysts at Wells Fargo Securities say this could be good news for pretty much all types of traditional media outlets.

“With auto advertising on the rise, there is potential upside to estimates for most traditional media,” said the research report by senior analyst Marci Ryvicker and associate analyst Timothy Schlock. “With auto being one of the largest ad categories in the United States, its y-ear-over-year growth or decline tends to be significant,” they noted.

“ We see five catalysts in 2010 that could drive first half 2010 growth in this meaningful category: 1) Toyota’s recent ad campaign, which has been scheduled for 3/2 through 4/5 but may likely be extended; 2) the piggy-backing of other automakers, particularly GM, Ford, Chrysler and Hyundai, which together comprised ~52% of ’09 auto unit sales vs. Toyota at ~17%; 3) GM’s reinstatement of 661 dealerships (out of a total of 1,100 closed in mid-2009); 4) easy prior year comparisons (auto advertising was down roughly 50% in H1 2009); and 5) the Olympics, which has historically been an advertising ‘haven’ for auto makers. While all traditional media are likely to benefit, we view TV broadcasters as having the most potential upside to estimates, followed by radio, then local cable and lastly outdoor,” the analysts told clients.

TV looks to be the biggest beneficiary. “It is no surprise that the TV broadcasters have been the most bullish of all trad’l media given the Super Bowl, Olympics and political, which have tightened inventory and rates. With the stocks already up 38% YTD (vs. the S&P 500, +2%), we believe that expectations are high, and rightly so. As auto comprised ~15% of broadcast ad rev. in ’09 vs. historical levels of ~25%, we believe there is still room for potential upside,” they wrote. How much upside? “We anticipate that incremental auto ad spend could result in several hundred basis points of add’l top line growth – for the TV broadcasters, a rising tide lifts all boats,” Ryvicker and Schlock said. [100 basis points = 1 percentage point]

CBS Corporation could be the biggest winner. “With Toyota its largest advertiser, CBS is likely to see the most benefit from Toyota’s recent ad campaign. We estimate that Toyota comprises roughly 1.5% of CBS’ total revenue and roughly 2.5% of total ad dollars,” the analysts said. So, they think there could be “modest upside” to their current estimated that CBS Corp. will see revenues rise 5% in 2010.

How does radio play into this? “Radio’s benefit could be two-fold. 1) Radio should be a direct beneficiary from the increase in auto advertising, which comprised ~9% of ad rev. in ’09 vs. historical levels of ~15%. 2) We also expect radio to be an indirect beneficiary as auto is pushed off of television due to heavy political spending, especially after the recent Supreme Court ruling,” the Wells Fargo analysts said.

They also see some lesser gains from auto ad spend improvement for local cable, since advertising is a smaller part of total revenues for the MSOs, and for outdoor advertising, which has less exposure to auto advertising than other traditional media.