New report highlights best recessionary performers

Michael Rudberg, head of media and entertainment at Ernst & Young, said: “The primary structural challenges faced by the media sector include the migration online and viewer fragmentation.

“These trends were not as prevalent in previous recessions and will be amplified in the current downturn as consumers increasingly turn to the web for free content and advertisers increasingly demand measurable return on investment for their reduced advertising spend.”

Cable, pay television and B2B publishers will be the best recessionary performers thanks to their low exposure to advertising and a large subscriber base, said Ernst & Young, along with B2B publishers and large media agencies, which thanks to “the consolidation process that has been going on for over 20 years has made the industry stronger, more diverse and geographically broader”.

Luca Mastrodonato, media analyst at Ernst & Young, said: “Unlike the previous two downturns, this one does not follow an advertising spend boom. In 2007, advertising spend as a percentage of GDP was at its lowest level since 1993. As a result, advertisers will be quicker to increase advertising spend during the recovery this time round.

“With advertising rates expected to fall throughout 2009 many advertisers will see some traditional platforms (eg TV) as good value for money when the recovery does happen to help them push their brands back into the market.”

Whilst television has been one of the first areas to feel the impact of the recession, it is also likely to benefit from the recovery ahead of the curve, said Ernst & Young. Regional newspapers, which generate half of their revenues from print classifieds, which are already suffering from the migration online, will find the recovery more challenging.

It added that national newspapers and consumer magazines are also likely to suffer as both will be exposed to the advertising downturn and the slowdown in consumer spending. Although certain titles will be able to offset the pressure by increasing cover prices, this will not be an option for all titles as readers move online for free content.

Online advertising, meanwhile, is estimated to have reached approximately a fifth of all UK advertising spend in 2008, the highest penetration in Europe, and will almost certainly overtake television as the largest advertising medium in 2009.

Mastrodonato added: “Although each online format will experience different challenges, the one common theme will be the shift of budgets from advertising focused on reach to more engaging and performance-based formats such as search, which is to increase this year. This shift will cause a decrease in CPM (cost-per-thousand) rates for basic banners which will impact publishers’ online revenues.”

Looking ahead, Rudberg said: “Current consensus estimates point towards a 0.2 percent decline in average operating margins for the FTSE all-share media companies in 2009. Given that the previous two recessions saw the average operating margins for the main UK listed media companies decline by 3% and 4% in 1991 and 2001 respectively, it would seem that the sector is holding up well.

“That said, we expect the worst economic conditions in the UK in 60 years and the multiplier effect to bring down bottom line expectations during the first half of 2009.”

There has however been some good news from the Advertising Association, which recently released a forecast which claimed that advertising expenditure in the UK could grow by as much as 52% in real terms (after allowing for inflation) over the ten-year period to 2020 (see UK adspend could grow 52% in period to 2020).

In December, meanwhile, GroupM predicted that total UK advertising spend would fall by nearly 6% year on year in 2009, the worst of any developed country (see UK ad spend to fall nearly 6% in 2009).