Good News, Sort of, on Advertising

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Although the two top cable programmers — The Walt Disney Co. and Viacom Inc. — reported declines in the first quarter, both said that they saw signs of recovery in the advertising market.

Viacom's first-quarter revenue was down 1 percent to $5.67 billion, and cash flow dropped 4 percent to $1.09 billion in the period.

But at its cable networks — including MTV: Music Television and Nickelodeon — performance was strong. Revenue was up 5 percent, to $1.03 billion, and cash flow increased by 12 percent, to $403.3 million.

Viacom president Mel Karmazin predicted in a conference call with analysts that the industry may have seen the worst of the ad slump, adding that Viacom's cash flow would grow by double digits in 2002.

"Going into the upfront, we're feeling pretty good. Advertisers are talking to us about pre-upfront deals and multi-year deals," Karmazin said. "That generally bodes well for where they're thinking."

Disney also beat analyst expectations for its fiscal second quarter, with revenue down 2 percent and operating income off 32 percent, mainly due to declines at its theme parks and ABC broadcast unit.

ABC had the biggest drop, reporting an $11 million operating loss in the quarter, compared to $167 million in operating income in the same period last year. At Disney's cable networks — such as ESPN and Disney Channel — revenue was relatively flat for the period at $906 million, compared to $904 million a year ago. Operating income fell 5 percent to $320 million.

In a conference call with analysts, Disney chairman Michael Eisner said that solving the problems at ABC is a top priority, but added that the company's cable properties remain strong. Eisner said nearly 45 percent of all sports-TV viewing in the U.S. is attributable to ESPN, ESPN2 or ABC Sports. ESPN leads all other sports programmers, with 25 percent of all sports viewing in the country.

Disney president Bob Iger also praised the cable networks, especially recent acquisition ABC Family, which he said is showing strong ratings growth in key demographics.

Iger also was cautiously optimistic about the advertising upfront, which he said is showing signs of strength.

"The upfront outlook is generally upbeat," Iger said on the call. "ESPN and other cable properties are showing positive signs. There are more dollars in the marketplace."

But when pressed by an analyst as to whether that new strength would cause ABC to hold back inventory, Iger tempered his enthusiasm.

"The upfront is showing early signs of marketplace strength, but it's difficult to tell how strong," Iger said. "From a ratings standpoint, [ABC] is not in a particularly strong position.

"We feel good about the developments and we will try to hold pricing as best as we possibly can. I'm reasonably sure we'll see CPMs in the single digits."

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