The third-quarter financial reporting season kicked off last week, and early results are hinting that the cable advertising market may be starting to bounce back.
While domestic ad sales were down for most programmers — Discovery Communications was the lone gainer — those declines were better than the previous quarter, which fueled some optimism about the remainder of the year.
Viacom was first out of the blocks, reporting its third-quarter results last Tuesday, and though revenue was down 3% to $3.3 billion in the period, operating income rose 14% to $784 million in the period, driven mostly by its Media Networks and Filmed Entertainment divisions.
Revenue at Media Networks, which includes MTV, Nickelodeon and Comedy Central, was flat, but operating income increased 2%.
Domestic advertising revenue was down 4% in the period, an improvement over the 6% decline in the second quarter. Viacom CEO Philippe Dauman said on a conference call with analysts that there are continued signs that the ad market is improving.
“Over the course of the third quarter, we started to see the negative economic trends that we all have been dealing with begin to attenuate,” Dauman said, adding that while the road is expected to be bumpy, the moves that Viacom has made in the past to keep costs in line has the media giant moving in the right direction.
Discovery Communications kept its hitting streak alive in the period, reporting its third straight quarter of positive ad-revenue growth.
Domestic-advertising revenue was $261 million in the period, up 5% for Discovery.
For the period, Discovery reported total revenue of $854 million, a 1% increase over the prior year. Adjusted operating income before depreciation and amortization (AOIBDA, a measure of cash flow) increased 17% to $364 million in the period.
Free cash flow fell $170 million to $29 million in the period, mainly because of $89 million in cash taxes associated with the sale of a 50% interest in Discovery Kids and the timing of $59 million in additional tax payments related to prior periods.
On a conference call with analysts, Discovery CEO David Zaslav said the company has positioned itself to capture a larger share of the available ad dollars through ratings growth and holding back some inventory from the upfront. He said that the Discovery networks held back about 15% of their upfront inventory for the scatter market. Scatter pricing is up in the high-single digits to mid-teens percentages.
Zaslav pointed to networks like TLC, which went from the 15th-highest-rated ad supported network at the beginning of the year to the eighth-largest today, and Animal Planet, which reported 12% ratings growth in the third quarter, as examples.
“Visibility is relatively limited, but demand is much improved,” Zaslav said, adding that the networks expect to deliver ad revenue growth in 2010 as well.
Time Warner chairman and CEO Jeff Bewkes rounded out the week, reporting a 1% decline in ad sales at its cable networks, including CNN, TNT and Cartoon Network. That was better than the prior quarter — when ad revenue declined 3% — but worse than the same period last year, when advertising revenue increased 1%.
On a conference call with analysts, Bewkes said scatter-market pricing is up in the high single digits compared with the upfront. But the company expected a decline in ad sales in the fourth quarter, he said, mainly because of lower ratings at some networks (which he called “anomalies”) and deals cut in the summer when pricing was lower.
At News Corp., the main driver for a 41% increase in operating income during the fiscal first quarter was higher affiliate fees (up 18%), but management said that cable ad revenue was getting better. Although no exact figure was released, chairman Rupert Murdoch said on a conference call that though cable ad sales were down in the quarter, they were nowhere near the declines in broadcasting and appear to be pacing better in the fiscal second quarter.