The close of the election season also means the end of the extensive advertising that has saturated the airwaves for months. The major media companies are probably wishing it could go on a bit longer, if only to help their bottom lines.The economic downturn has cut into advertising budgets of many a company, and analysts expect that to be reflected when Time Warner Inc. reports earnings Wednesday and Walt Disney Co. releases its results Thursday.
Advertising is hardly the only source of revenue for these companies, as it accounts for less than 25% of revenue at each of these media giants, but the decline is expected to be substantial.
Jason Helfstein, analyst at Oppenheimer & Co., compared the current advertising environment to historically poor periods for advertising, such as in 1961, 1970 and 1991. He now expects a 3.2% decline in advertising in 2008 and a 5.8% decline in 2009. This was evident in Viacom Inc.'s quarterly results when the company posted earnings after the close of trading Monday.
At Viacom, world-wide advertising revenue fell 2% and U.S. advertising declined 3% in the third quarter. The company's stock has struggled in 2008 and is down 49% for the year to date. The shares gained 7.5% on the day Tuesday.
The company's struggles are likely to be repeated at Time Warner and Disney, says Laura Martin, senior media analyst at Soleil Securities.
"We should expect to see similar numbers when Time Warner reports for their cable networks, and with Disney ... we have ABC Family and other advertising vehicles, like ABC, where we expect to see weakness," she says.
If anything, Disney may be more vulnerable to current advertising trends. Ms. Martin notes that local advertising has been weaker than national advertising, which would affect the local affiliates of ABC, as opposed to the cable stations run by Time Warner. On the other hand, Disney's giant cable property, ESPN, gets most of its revenue from fees paid by cable operators that carry the station.
Disney was expected to earn 49 cents a share for the third quarter, according to the analyst consensus from Thomson Reuters, on revenue of $9.34 billion. It earned 42 cents a share in the year-earlier period on revenue of $8.93 billion.
Time Warner was expected to earn 27 cents a share on $11.9 billion in revenue for the quarter, according to Thomson Reuters, compared with 24 cents on $11.68 billion in revenue a year earlier.
The decline in ad revenue can be linked to the fortunes of the consumers who advertisers are trying to reach. Among the biggest advertisers are auto companies and purveyors of consumer electronics, the kind of discretionary purchases that people are staying away from now.
Investors have noticed: Shares of Disney are down 19% for the year so far, while Time Warner's are down 34%.
