Fourth-quarter reporting season for media companies is kicking off in the next few weeks, and some analysts are predicting constricted ad growth amid ratings woes.
Jefferies analyst John Janedis said that “while the scatter market remains relatively steady, we believe that ongoing supply issues translated to a modest sequential decline in advertising growth vs. the third quarter.
“We believe that ongoing weakness in ratings remained a key headwind to ad growth in 4Q. We lowered our domestic cable ad growth estimates for AMCX (-8% from -6%), after doing so for VIAB and FOXA last week. For the group, we now expect overall cable ad growth will decline 2% (from flat in 3Q). For the broadcast networks, we recently lowered ad growth for CBS (flat from +2%), and FOX (-13% from -9%). Although the scatter market remains solid, with CPMs in the M/HSD above the upfront, we believe that ongoing supply issues will translate to flat to slightly negative ad growth in 1Q (ex. Olympics),” wrote Janedis in a research note.
UBS analyst John Hodulik shared Janedis’ view on supply issues.
“In total we now expect U.S. national broadcast and cable networks core advertising revenues to decline ~4% yoy in total vs. the 2% decline in 3Q17. While mgmt. will likely note strong scatter pricing, we continue to believe this is primarily driven by supply constraints rather than advertiser demand. We expect broadcast networks to be hit particularly hard in 4Q (UBSe 5% core decline) as NFL ratings trends worsened in the back half of the season. We expect cable networks to decline 3% yoy with Discovery the only network group to grow U.S. advertising in 4Q17,” wrote Hodulik in a research note.
Both analysts agreed that media consolidation would continue to be a big focus heading into 2018.
“Despite the uncertainty cast by AT&T/TWX, we expect M&A to remain a focus with the potential for further media deals. We recently updated our merger model to include CBS & VIAB, VZ & CBS and VZ & CBS/VIAB. Our new models reflect the estimated impact of tax reform offet by increased investment in new initiatives,” wrote Hodulik.
“In our view, 4Q results are unlikely to change the narrative on viewership declines, subscriber losses, and ongoing fundamental concerns. However, we believe that industry consolidation, which began in earnest in 2017, will continue to be a key issue to watch in 2018 as many players want to add scale,” wrote Janedis.