Insight Analysis: Media Healthcheck – May 2002
In the words of Merrill Lynch analyst Lauren Rich Fine, an advertising recovery is ‘brewing’, but it is only ‘percolating’ slowly. This seems to be the general opinion of analysts and media companies alike during May. A similar picture of a slow, but palpable upturn in the media economy appears to be taking place in both the US and the UK, as well as across the rest of Europe.
Merrill Lynch says that it has heard conflicting news from media companies, “with Viacom in the US being extremely bullish, and TF1 and ProSieben in Europe being cautious and stating that there is still no visibility and that the market is still very short term.”
Company financial results have also pointed to signs of a turnaround, but virtually all have maintained that visibility is too poor to call a definitive and continued recovery in the market.
Many media companies continue to post ad revenue gains or are close to a positive turn. The ad agencies, however, are lagging, as is typically the case accordingly to analysts; it will take a heightened level of corporate confidence to start ordering new ads or to launch new products that require new ad campaigns, says Merrill.
UK The advertising and public relations market place remains ‘very weak’ according to a trading statement from Chime Communications posted at the beginning of the month. Chime says that both it and its international competitors have witnessed more severe weakness in the UK and the rest of Europe than elsewhere in the world. H2 is expected to be better than H1.
Advance bookings for ITV are up 2% in July, according to industry sources cited by analysts at Merrill Lynch, who had themselves forecast a 2% decline. Granada is expected to be up 5%, taking the majority market share. “This is a very positive surprise, given that July is the first clean month after the football World Cup,” says the broker.
Further optimism came as Lehman Brothers upgraded its full year ITV ad growth forecasts from the previous -8.0% to -6.0%, with positive performances expected in both Q3 and Q4 (see Lehman Upgrades ITV Ad Forecasts Following Carlton Results). Previously the broker had expected a positive growth in Q3, followed by a return to decline in Q4. It is leaving the 2003 forecast of 4.0% growth in ITV ad revenue unchanged.
Meanwhile, RAB UK commercial radio revenue figures for Q1 2002 show spend rising by 0.5% on a year earlier (see Positive Signs For Commerical Radio Revenue In 2002). This is the first positive gain following three successive declining quarters. Growth within the motor sector and amongst major national advertisers provided a boost.
Current radio trading in the UK remains uncertain despite a degree of stabilisation in the advertising decline, according to analysts at Merrill Lynch. Trading appears erratic on a monthly basis with no definitive pick up.
“March was very strong (possibly boosted by an early Easter) while April was poor (the inverse of March?). May and June appear better though few are brave enough to call the turn as yet,” said analysts. However, recent results from Capital Radio, GWR and EMAP have all pointed toward a slowing in momentum of the decline. Accordingly, Merrill Lynch is forecasting a recovery in H2; Q3 is still uncertain but Q4 should bounce strongly due to very easy comparables. Overall 2002 revenues are expected to be to be flat; 2003 is forecast to show growth of 5-7%.
The UK’s cinema industry saw admissions dip in April, but the CAA is confident that the industry is on course to achieve end of year admissions of 174.0 million. Christine Costello, vice-president of the CAA, said: “Current figures put cinema in a very strong position to deliver excellent value to advertisers in 2002. We are confident that this trend will continue throughout this year.”
The Daily Mail & General Trust said that generally the advertising market remains volatile and consistent improvement is still awaited. “We still see no reason for any substantial improvement in advertising revenues over the rest of 2002 and have planned on that basis,” it said in a trading statement.
Europe Europe’s largest newspaper publisher, Axel Springer, said that there is still no visible end to the current slump in advertising spend. Springer’s CEO, Mathias DÃÂśpfner, said it is the biggest crisis to hit print media since the Second World War. The company’s ad revenues declined by around 9% in the first four months of 2002.
US US all media advertising spend saw a very slight increase in Q1 2002, according to CMR. Revenue increased by just 0.4% over the same period last year, although it is the first year on year rise since Q1 2001 (see Slight US Advertising Rise In Q1, Signs Of Further Slow Recovery). CMR said that ad spending is steadily coming out of its slumber and is showing some signs of recovery for the year. Comparable preliminary forecasts from Nielsen Monitor-Plus put Q1 2002 adspend up 1.8%.
Early in the month Jack Myers Report published revised and slightly more positive US forecasts both for the autumn upfront and for the calendar years 2002 and 2003 (see Myers Upgrades US Ad Forecasts Following Promising Upfronts). However, Myers today published some further revised figures, which show a slightly lower spend than had previously been forecast (see 2002 US Media Spend To Be Flat, Say Revised Myers Forecasts).
Nevertheless, the upfront TV sales markets in the US have exceeded even the most bullish expectations, in what seems to be indicative of a returning confidence from advertisers.
Revenue from magazine newsstand sales in the US fell by 1.2% to $4.4 billion in 2001, according to Harrington Associates. In 2001 unit sales dropped by 6.5% to 1.5 billion and have fallen by 28% overall since 1996, said a Wall Street Journal report. The paper describes the US magazine industry as being in a ‘parlous’ state, with sales dropping off, subscriptions hit by rising postal charges, in addition to the broad advertising recession affecting all media.
Newspapers, meanwhile, suffered predominantly flat or declining circulation in the last six months, according to ABC data. Average daily circulation for the 820 titles on the audit declined by 0.6% across the period. Whilst New York papers were boosted by a heightened interest in news following the 11 September attacks, the broader industry did not feel this benefit; some titles suffered from a decline in business travel readers as a result of the attacks.
US radio advertising revenue grew by 1% in March 2002, according to the RAB there. The radio sector is outperforming other media and is leading the way out of the economic slump, according to the Bureau (see US Radio Advertising Revenue Nudges Up 1% In March).
Merrill Lynch concurs, saying that US radio trading appears to have definitively turned already. Its US analysts now forecast US increases of 4-6% in Q2 2002 and 7-9% in Q3. For 2002 as a whole it is forecasting sales growth of 4-5%.