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US advertising slowdown looms over media companies


US advertising slowdown looms over media companies CBS, Viacom and Disney LOS ANGELES -- Earnings reports from three major media companies -- CBS Corp., The Walt Disney Co. and Viacom Inc. -- this week show the malaise in local ad markets beginning to spread to national cable and broadcast networks.

ll three companies so far have been able to weather the downturn with a mix of cost-cutting, higher affiliate revenues from cable and satellite partners, and resiliency in attendance at theaters and theme parks.

But analysts said CBS could start showing cracks soon because it gets the highest proportion of its revenue from advertising -- spending that companies tend to trim in an economic slowdown.

Disney's chief financial officer, Tom Staggs, warned that ad spending had worsened in the last few weeks, even at its ABC and ESPN networks, despite profits in the quarter ending in June narrowly beating Wall Street forecasts.

The network operators pointed to a positive "upfront" block ad selling session in May, which covers most of the coming fall's TV season, but the three companies had different outlooks on how spot TV ad sales in the so-called "scatter market" would fare.

"The real wild card question is how much do you believe in the scatter market into the fall and the winter?" said Global Crown Capital analyst Martin Pyykkonen. "We'll be tiptoeing through the tulips in the upcoming period."

The media conglomerates are affected to different degrees by the ad slowdown -- and most analysts believe CBS, with some two-thirds of its revenues from advertising, will be hit first and hardest.

Disney's exposure to ads is roughly 20 percent of revenue, while for Viacom, it's about a third.

Philippe Dauman, chief executive of Viacom, which owns MTV and Nickelodeon, told analysts Tuesday that "volume in a scatter market did soften during the second quarter, and this softness is continuing so far this quarter."

Viacom said its U.S. ad revenue grew just 1 percent, below its predictions of 3 percent to 4 percent growth made earlier in the quarter.

The poor outlook prompted Standard & Poor's analyst Tuna Amobi to cut his Viacom rating to "sell" from "hold."

"His comment that softness is continuing into the third quarter -- that worries us because that's always been the core of MTV revenues," Amobi said.

CBS said television ad revenues declined 6 percent in the quarter ended in June, while radio revenues decreased 10 percent.

CBS cut its forecast for adjusted operating earnings in 2008 and said it plans to sell 50 radio stations in mid-size markets a year after it sold 39 stations in smaller markets. It currently owns 140 radio stations and 29 TV stations.

However, CBS Chief Executive Officer Les Moonves said spot TV ad pricing "remains very strong" and he expected election ad spending would help offset the pullback from local advertisers.

"We expect big spending through convention season and all the way to election day," Moonves told a conference call with analysts Thursday.

The movie business proved to be a mixed bag for the companies, with Viacom's film revenues up 35 percent as its Paramount Pictures unit scored hits with "Iron Man," "Indiana Jones and the Kingdom of the Crystal Skull" and "Kung Fu Panda."

Disney's movie revenues plunged 19 percent as "The Chronicles of Narnia: Prince Caspian" has so far only pulled in half of the box office receipts that the company's "Pirates of the Caribbean: At World's End" did a year ago.

Next week, analysts will focus on how advertising trends have affected the earnings of News Corp., parent of Wall Street Journal publisher Dow Jones & Co. and owner of 27 Fox TV stations in the United States. Time Warner Inc., which owns the Time Inc. family of magazines and the cable networks Turner, TNT, TBS and HBO also reports its quarterly earnings next week.

Nearly half of News Corp.'s revenue is from advertising, while more than one-fourth of Time Warner's is, said Lehman Brothers analyst Anthony DiClemente.

"With the cyclical downturn in U.S., advertising is kind of rearing its head in a more direct way," DiClemente said. "Cyclical advertising trends are clearly one of the main concerns."




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