U.S. Advertising Outlook 2009
FORECAST REDUCTION
Bracing for a Tough Year
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In this report, we provide an update on the U.S. advertising market heading
into 2009, using both a top down and bottoms up methodology, as well as
channel checks with industry contacts.
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Based on our work, we are reducing our 2009 US ad forecast to -8% vs. -4%
previously and well under industry and Wall Street consensus of -5%. Our
revision reflects slower economic growth and ad spending’s historical 750 bp
underperformance vs. nominal GDP during past recessions since 1960.
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We also update our growth (or lack thereof) forecasts for individual mediums
(i.e., TV, print, outdoor, online, etc.) and analyze the outlook for key ad
categories such as retail, auto, and financials, which collectively make up
one third of U.S. ad spend.
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Our analysis of specific ad mediums takes into account 3 main factors:
secular usage trends, accountability & efficiency, and exposure to autos,
retail, and financial categories.
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On this basis, we expect online search and cable TV to outperform, while
print and radio are expected to fare below average given declining
audiences, antiquated measurement, and, in the case of print, higher than
average CPMs.
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In light of our reduced expectations for the U.S. ad market, we are
decreasing our FY09 EPS estimates for News Corp., Time Warner, Viacom,
Yahoo! (all rated Neutral) and for Outperform-rated Walt Disney by 11% on
average. We note that our 2009 EPS estimates are furthest below
consensus for Viacom. We remain comfortable with our estimates for
Google (rated Outperform), which we lowered on December 11, 2008.
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Assuming a fiscal stimulus package and recent monetary initiatives take hold
and spur an economic recovery in 2010, ad spending should bottom in 2009.
However, we remind investors that ad spending is late cycle and tends to
underperform nominal GDP for several years following a recession as
advertisers wait for convincing signs of a recovery before aggressively
reinvesting in ad spending.

U.S. Ad Outlook 2009
Bracing for a Tough Year: Overview
In this report, we provide an update on the state of the U.S. advertising market heading
into 2009. More specifically, we are lowering our domestic ad outlook for 2009 based on
our top down and bottoms up methodology. We also discuss the growth profile for
individual mediums (i.e., TV, print, outdoor, online, etc.) and provide commentary on
category specific spending (i.e., retail, auto, etc.). In light of our reduced advertising
projections, we are also lowering 2009 estimates for the vast majority of the media
companies in our coverage universe.
Top Down Analysis
We begin our analysis with a top down view as advertising is highly correlated with the
economy and is dependent on the health of corporate profits (99% correlation between
nominal GDP and advertising). Not surprisingly, in light of the current economic conditions
and weak holiday 2008 sales, we think growth in advertising spending will remain under
pressure.