Cautious Optimism Despite Tough Quarter
Q1 Reports Show MSO Ad Sales Hit Hard
by K.C. Neel -- Multichannel News, 5/12/2009 4:59:10 PM
Network executives may be seeing light at the end of the tunnel when it comes to ad sales, but cable operators' latest quarterly results prove they have a long way to go before ad sales begin to rebound.
Indeed, ad sales for publicly held MSOs were dismal in the first quarter and executives don't anticipate relief coming anytime soon. Comcast chief financial officer Michael Angelakis told investors and analysts during the company's quarterly earnings call that the advertising environment remains troublesome.
The nation's largest cable operator posted a 25% decline in ad-sales revenue to $262 million in the first quarter. Ad sales for the company's programming networks fell 8% from the year ago totals.
"We continue to see weakness in key advertising categories, including autos, financials and housing-related sectors," Angelakis told analysts. "Our programming division, which has been performing well, reported a 1% decline in revenue and a 2% decline in operating cash flow as a result of an 8% decrease in advertising revenue in the first quarter. It is important to note that cable advertising revenue accounts for 3% of cable revenue and total advertising revenue accounts for approximately 5% of our total consolidated revenue.
"As I mentioned before, our local-cable advertising business continues to be challenged ... and, unfortunately, we are not seeing any signs of an advertising recovery at this time."
Other MSOs' ad sales also suffered during the first quarter. At Cablevision Systems, revenue from cable operations grew just 4.8% in the first three months of 2009. The company posted a 21% decline in advertising revenue to $19 million, but chief operating officer Tom Rutledge told analysts that broadcasters are having a harder time selling ads than Cablevision and suggested that the cable company's share of spending is rising.
Cablevision said it plans to expand its slate of advanced-advertising options this summer to include addressable targeting, VOD-integrated "telescoping" of commercial content and direct-commerce applications.
Charter Communications reported a 6.3% hike in revenue for the first quarter but ad sales were down 19% to $54 million.
At the same time, Time Warner Cable posted a 26% decline in first-quarter ad sales to $145 million. The company said sales in almost every category were off during the first three months of the year, compared to a year ago.
On the programming front, network executives said they believe ad sales are beginning to improve, though numbers remain weak. Sales at ESPN were off, but numbers at ABC Family rose from the same period a year ago.
Ad sales for Scripps Networks' Food Network and HGTV fell 4.6%, to $225 million.
"Our Q2 advertising will continue to reflect the general state of the economy, but we are seeing promising signs that the market is stabilizing," Scripps CEO Ken Lowe said in a statement. "This should lead to an improved advertising picture for us in the back half of the year."
Discovery Communications' domestic advertising sales revenue increased 2% as a result of higher pricing and increased ratings, partially offset by lower cash sellouts due to softness in the economy, the company said.
Viacom CEO Philippe Dauman told analysts on a conference call late last month that sharp declines in the advertising market are beginning to level off. He wasn't breaking out the champagne, though: the company's first-quarter results included a 9% drop in domestic ad sales - the third consecutive ad revenue decline for Viacom.
"We have seen the environment stabilize; we are seeing people enter the market," Dauman told analysts. "We are seeing more robustness as we head into the next few months and the upfront season. As far as prognosticating what that will mean on the pace of ad sales for the full quarter into the year, we just don't want to be in a position to make that projection. We have seen over the past few weeks signs that are encouraging."
News Corp. chairman Rupert Murdoch told analysts earlier this month that the worst of the economic meltdown is over.
Operating income at the TV division dropped 99% to just $4 million due to ongoing advertising weakness at the company's owned-and-operated TV stations, the absence of eight stations that were sold last July, lower ratings at Fox, the presence in the year-ago quarter of Super Bowl XLII, and lower programming costs in the prior year due to the Writer's Guild of America strike.
Fox's revenue fell to $1.28 billion from $1.8 billion. But revenue at the cable networks rose 30% to $429 million on increased advertising rates and license fees for Fox News Channel, Big Ten Network and the Fox International Channels.Networks Hint At Ad-Sales Rebound
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