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B’cast gain or pain?

Cable ad sales booming, locals lagging

NEW YORK — With much of Madison Avenue on vacation during the post-upfront August doldrums, investors and economic pundits are left trying to read the tea leaves of second-quarter earnings statements from a bullish broadcast sector.

The strength in cable network advertising and network upfront sales may be disguising weaknesses in local and spot ad spend.

Viacom, AOL Time Warner and Disney all posted healthy second-quarter ad spend gains from their national broadcast nets and top-rated cable nets and pointed to big gains on scatter pricing for the upcoming season — in part thanks to already tight inventory. But for prognosticators trying to divine some sense of future spending trends and the country’s overall economic health, the numbers once again deliver some get mixed messages, say analysts.

Local market concerns

According to a report by Lazard advertising analyst Mandana Hormozi, advertisers are taking a breather after the euphoria of a big upfront. While optimistic that national TV ad spend is on track for 2003 and taking share from other national ad mediums like magazines, she’s concerned that the local market is still struggling.

Her report notes that the Consumer Confidence Index, which is usually highly correlated with ad spend, was down seven points in July to 76.6 after remaining virtually unchanged in June. Also noteworthy looking to the third quarter is that fewer box office and DVD releases from Hollywood, the second-largest spender after the automotive industry, could dampen results. And while spending by the auto industry is still at historically high levels, it is essentially flat year over year.

“While 2004 is expected to be a strong year for advertising, with the Summer Olympics (on NBC) and a presidential election on tap, the ad market is facing a steep uphill battle in 2003,” Hormozi concluded.

Still, Lazard’s Hormozi isn’t entirely morose about the future. Among the good news indicators she noted:

  • Financial services advertising is coming back.

  • Large numbers of blockbuster pharmaceutical drugs are being introduced in 2004, which should give the networks a lift in the fourth quarter.

  • Retail, which has been slow this summer, may have to increase ad spend as inventory grows faster than sales.

  • A sold-out third quarter scatter market in cable and network should mean spillover for syndicated TV sales.

Overall ads forecast key

While the networks were touting impressive scatter price increases over the May upfront, the real barometer of pending ad strength is the overall forecast for broadcast ad dollars — national and local — says analyst Paul Kim.

“Looking across all dayparts across all the major networks, I’d say we’re going to see 8%-10% growth for 2003,” said Kim, who notes that national network spend, which is growing at a 10%-plus clip, is helping the big congloms offset slow-to-flat growth among the local stations. Local TV stations are much more exposed to the loss of political advertising this year compared with last and, according to one advertiser, big cable operators like Comcast could start to eat into some of the station TV ad sales.

In its last quarter, Comcast reported net ad revenue of $285 million for the quarter, a 17% jump over year ago thanks to a new focus on interconnecting its 21 million-home footprint to compete for regional and national spot advertising. In a spot TV market that is currently pacing barely 2%-3% up over last year, the gains experienced by cablers like Comcast could come at the expense of station sales.

Disney reported flat broadcast network revenues, though its profits were up thanks to lower programming costs. Its stations, however, reported pacings up 10% over last year.

Conversely, Viacom, which is enjoying booming cable network growth (20%-plus) and high single digits at CBS network, managed only 4% ad spend growth among its station group (excluding the acquisition of KCAL).