Permanent damage. That’s how Wall Street sees the impact of coronavirus-related disruptions to the media and entertainment marketplace.
The scope of the economic losses is still hard to measure. Analysts are predicting a steep 19%-20% immediate drop in TV advertising revenue in the second quarter and a drop of more than 10% for the full year. The ad categories expected to lead the decline are among the most crucial for TV sales: travel, retail and automotive.
Wall Streeters see the largest media conglomerates facing on average an 11% hit to revenues and a 19% plunge in earnings before interest, taxes, depreciation and amortization over the 2020-2022 period, according to a new report by Cowen & Co. Amid these forecasts, it’s no surprise that Disney and Comcast tapped the debt markets during the past week to raise some quick cash, to the tune of $6 billion for Disney and $4 billion for Comcast.
Disney, ViacomCBS and Fox Corp. have been highlighted as among the most at risk because of their exposure to advertising and in Disney’s case, its theme parks and resort businesses. ViacomCBS is under scrutiny because the company has an unfortunate mix of a high level of debt at a time when the free cash flow needed to service that leverage could be pinched.
Wells Fargo Securities analyst Steven Cahall projected Disney, Fox and ViacomCBS could take as much as a 20%-30% hit in EBITDA. Fox Corp. is highly dependent on advertising across Fox News, Fox Sports and the Fox Broadcasting Co. networks.
The biggest immediate problem for TV will be the sudden downturn in advertising spending. Cahall sees a “reset” coming during an “advertising recession” from which marketers will force TV networks to accept a lower overall rate for spots, given that prices have climbed steadily even as ratings have shrunk for more than a decade. Wells Fargo previously estimated total U.S. TV ad spending in 2019 of $59.4 billion.
The immediate loss of sports programming from the wave of league shutdowns and postponements will also take a heavy toll as sports drives the highest advertising rates on TV. He predicts networks will see sports TV pricing fall some 20% from what networks were expecting to take in.
“We think around half of marketers are significantly exposed to a cyclical downturn, so looking to save money. With no sports on, this is the stars aligning for the upfronts to deliver lower CPMs — especially Broadcast/Sports. We don’t think this will improve later on with the economy,” Cahall wrote.
John Blackledge, of Cowen & Co., sees total U.S. advertising spending for 2020 across all media dropping 11% from 2019, to $212 billion, which is a 17% decline from the firm’s previous growth forecast of $256 billion.
“We expect U.S. advertising spend to rise 6-7% annually in ’22-’25, but don’t expect a significant step-up in any given year, hence somewhat permanent damage from COVID-19 event,” Blackledge wrote.
Among the entertainment players best-positioned to weather the storm is Amazon, which is seeing “holiday-like demand” for its retail business as the second quarter dawns, he wrote.