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According to The Hollywood Reporter, the advertising market could be ready for an upswing. Michael Morris, an analyst at UBS, is making a connection between improved sales at retail stores and a robust environment for commercials and the like. His reasoning is sound: if retail businesses are doing better, then they might want want to take advantage of new cash levels to invest in marketing initiatives aimed at bringing in traffic.
Indeed, the advertising industry has been in the dumps. Any good news is welcome. Media entities such as Disney (NYSE: DIS), Time Warner (NYSE: TWX), Viacom (NYSE: VIA), CBS (NYSE: CBS), News Corp. (NASDAQ: NWS), and General Electric's (NYSE: GE) NBC Universal, are counting on increased opportunities to sell their respective inventories at better prices.
Broadcast networks such as ABC and Fox have been hit by challenges not only in advertising growth, but in an escalation of programming costs. Competition from cable channels has been tough, but that's okay in one sense, since the parents of all the big networks have exposure to cable. Viacom should do particularly well in an upturn. That media business owns youth-skewing assets MTV and Nickelodeon.
But should you buy on this news? Tough to say. To me, it's possible all of this has already been priced into the stocks. At least, one might come to that conclusion after noting the big moves that have taken place in these equities.
Another thing to consider is that all these companies have exposure to the movie business, an industry that is experiencing some pain over the bad outlook for the home video market. Studios can no longer count on that ancillary channel to justify huge budgets.
In the end, I wouldn't buy just on this one item. Advertising will improve over time, but costs of content production will remain a headwind, and the ugly state of the studio system has not been fully addressed. Make this advertising element only a part of your overall thesis when evaluating the media sector.
Disclosure: I own Disney, GE; positions can change without notice.
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Reader Comments (Page 1 of 1)
10-13-2009 @ 9:16AM
jim said...
Ok are people spending really? Is less worse going to be ok? Things are still bad on main street. Media companies might do a little better but not enough to warrant the stock prices!
CBS has way to much debt and old shows. Cables and internet are growing very fast!
Don't believe the hype!
10-13-2009 @ 11:12AM
Kent said...
Another good indicator that may have a connection with TV/cable media advertising is the newsprint media....your Sunday paper. I've noticed my local Sunday paper is becoming just as bulky as before. Only difference though is that the studios are more locked in with unchanged fixed costs from star-powered salaries than with the newsprint media advertising rates which have obviously declined in times of a recession.