A period of advertising spend decline should not be justification for investors to turn their backs on healthy, major media companies, according to Jack Myers, chief economist of Myers Reports.
Reiterating a point that he has stressed a few times recently (see
Forecasts), Myers today called for investors to recognise the ongoing value of major media groups, claiming that a few years of flat advertising should not be enough to devalue an entire company.
These leading media companies “will be at the forefront of industry expansion” following the advertising and economic recovery – now expected late 2002 and throughout 2003, says Myers.
US media company advertising revenues in 1998 totalled $173.7 billion and current projections for 2001 media ad revenues are $191.5 billion, says the article. If Myers’ own worst case spending scenarios for 2002 emerge, then spending will decline 7.4% to $177.3 billion – more or less flat on 1998.
“Are so much of these companies’ futures dependent on growth that the investment community cannot support them in a flat economy? Are forecasts that show ad spending declines from year-to-year camouflaging the inherent and underlying strength of the media industry?,” asks Jack Myers.
Acknowledging that the economic and advertising downturns are having an effect on media companies – with business weaknesses exposed, plans changed and staff reduced – Myers nevertheless claims that the most significant concern of the industry is not the decline in advertising spend. Rather, it is “the loss of confidence by the investment community in the continued viability of industry growth. The media industry is experiencing a healthy purging of dead weight – not a dramatic loss of inherent value,” he argues.
“The worst case scenario of $173 billion in ad revenues for all media remains sufficient to support the current industry infrastructure, including investments in new media and new advertiser services. Investors need to look beyond short-term ad spending reductions to the basic health of a leading industry, and begin recognising that its fundamentals remain sound and its future growth is assured.”
