Cable Ad Growth Expected to Dip in Q4

NBA Lockout, Ratings Dispute Drive Down Revenue at Turner, Nick

By Mike Farrell -- Multichannel News, 2/6/2012 12:01:00 AM

Cable-network advertising revenue is expected to rise at a slower pace in the fourth quarter, bogged down by sports lockouts and ratings glitches at some networks, off-setting the double-digit increases of their peers.

Ad revenue in the period is expected to reach double-digits at AMC Networks (15%); Scripps Networks (14%) and Discovery Communications (15%), according to Morgan Stanley media analyst Ben Swinburne, while Time Warner Inc. and Viacom are expected to report growth in the low single digits.

Viacom was scheduled to report earnings on Feb. 2, followed by The Walt Disney Co. (Feb. 7); Time Warner Inc. and News Corp. (Feb. 8); SNI (Feb. 9); Discovery Communications (Feb. 16); and Liberty Media (Feb. 23).

Two top analysts covering the cable-networks sector — Swinburne and Miller Tabak’s David Joyce — anticipate that the slowdown that was evident in the first three quarters of the year will continue. Ad sales on average grew by 20% in the first quarter, dipping to 11% in the second quarter and 7% by the third quarter. Swinburne expects that cable advertising growth will dip slightly in the fourth quarter, to about 6%.

At the same time, affiliate-fee revenue is expected to remain stable. Swinburne predicts revenue from carriage fees will rise about 9% in the period, in line with the 8% to 10% growth in the prior three quarters.

Time Warner has been impacted by fewer National Basketball Association games — a lockout of players was resolved in December, resulting in a 66-game season, down from its traditional 82 — and should report ad-revenue growth of 1.6% to 2.5%, according to estimates. Viacom, which has blamed a glitch at ratings giant Nielsen for two straight months of low ratings at Nickelodeon, which Nielsen disputes, was expected to report ad sales growth in the 1% to 2% range.

With strong ratings from shows like The Walking Dead, AMC Networks is expected to grow ad revenue in the 10-15% range, according to the analysts. The network has stepped up spending for original content at its flagship AMC channel, a move that Swinburne called “the right strategy to compete in an increasingly crowded landscape.”

However, he added it could pressure margins, especially if the ad market slows.

SOARING AT SCRIPPS

Scripps Networks should continue to ride a ratings wave. Swinburne predicted ad sales will rise 14% in the period, while Joyce anticipated a 13% increase.

Scripps renewed about 25% of its carriage deals for Food Network and HGTV at the end of the year — presumably at favorable rates, according to Joyce. And the programmer has further upside potential. About half of the deals for its newest offering, the Travel Channel, expire at the end of 2012, with the rest coming due at the end of 2013, he wrote in a recent report.

At Disney, Swinburne expects that cable ad revenue will actually decline 3% in its fiscal 2012 first quarter ended Dec. 31, (most likely due to the impact of the NBA lockout on ESPN) although for the full fiscal year ad sales should rise 4.1%.

Joyce predicts that media networks revenue should rise 7.1% to $4.97 billion in the period, with segment operating income up 21.7 to $1.3 billion.

At News Corp., Fox News Channel — which recently crossed its 10th consecutive year atop the cable news ratings, is expected to fuel a 10% overall increase in ad revenue for the fiscal first quarter ended Dec. 31.