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Flat ads sales harm Young

News sparks stock dive

NEW YORK — Young Broadcasting stock plunged 10% Wednesday after the TV station group warned that “industry weakness” in ad sales would reduce its June quarter earnings, reflecting sluggishness afflicting most independent TV broadcasters in recent weeks.

Young, which said its cash flow would drop 10%, compared with last year, saw its stock fall $4.12 to $37.75 in response. Young owns 12 stations, including six ABC affils and indie L.A. station KCAL.

Young did not elaborate on the cause of its slump, and execs did not return repeated phone calls. But analysts said most independent broadcasters, such as Hearst Argyle Television, Granite Broadcasting and Sinclair Broadcast Group, had warned that revenues would be flat to down in the second quarter.

While the major networks reported strong upfront advertising sales late last month, independent station groups that sell spot advertising are not enjoying similar growth.

“Its a combination of the competitive threat posed by cable and, to a lesser extent, posed by radio,” said Salomon Smith Barney analyst Paul Sweeney, adding that the local stations are also being affected by the expansion of startup weblets like UPN, WB and Pax TV.

As the weblets introduce additional nights of programming, more advertising inventory is added to the market, which hurts the station groups.

Merrill Lynch analyst Jessica Reif Cohen said in a recent report that the new networks and cable were particularly hurting national spot advertising, which accounts for about half of total TV station advertising.

“Cable television’s national spot advertising is up 30% thus far in 1999,” Reif Cohen noted.

Sweeney said the softness in national spot advertising was forcing the local station groups to focus more on selling local spots.

Young appears to be worst affected so far. Schroder & Co. analyst Niraj Gupta said he had been expecting 6% revenue growth for the quarter but was now estimating 2%-3% lower revenue. He had predicted broadcast cash flow — before interest, taxes, depreciation and amortization — of about $40 million but cut that estimate to $34 million in the wake of Wednesday’s profit warning.

Young’s performance is exacerbated by a widespread weakness in the L.A. broadcast ad market, hurting both radio and TV, analysts say. Gupta noted that while KCAL had outperformed the market last month, June was expected to be a “disaster for KCAL and the L.A. market in general.”

Of the other independent groups, Hearst Argyle told analysts its ad sales were looking “flat to down” in the second quarter, while Granite’s revenue was flat, said Salomon’s Sweeney. Sinclair was also seeing flat revenue growth, he added. None of the three broadcasters returned calls seeking comment.

The weakness hurts some of the network O&O groups to varying degrees. CBS’ station group is believed to be outperforming the rest of the industry, driven by CBS CEO Mel Karmazin’s extremely aggressive management style.

Many of the problems affecting TV broadcast groups have been apparent for the past year, though analysts are hopeful business will improve toward the end of this year as millennium advertising is expected to kick in and political advertising should start to have an impact.