Media and Entertainment: Advertising & Broadcasting
February 13, 2009
James Dix
(213) 688-4315
james.dix@wedbush.com
Sken Huang
(213) 688-4503
sken.huang@wedbush.com
Weekly Media Mix: 4Q08 Preview – Lowering Estimates and Target Prices, as Prospects for
Advertising Turn Shift to Later in 2009
• Top takeaways: 1) outdoor advertising revenue pacing down ~10%, with little sign than 2Q better than 1Q, although
visibility lower than average, 2) expect low single digit percentage outdoor opex declines in 2009, as site lease
renegotiations gain traction, 3) HTV’s preannouncement on Thursday and reports from other TV operators suggest
core TV station advertising pacing down over 20% in 1Q, and 4) leverage issues likely to move CBS to cut dividend
and EVC to trip covenants – we still expect EVC to negotiate an amendment.
• HTV cyclical and secular challenges accelerate in Q109 and into Q209. In the last two weeks, companies such as Disney
(DIS –unrated), General Electric (GE – unrated), Meredith Corp (MDP-unrated), News Corp. (NWS-unrated), Sinclair (SBGI –
unrated), and Viacom (VIA – unrated), have expressed that Q109 advertising revenues are pacing significantly below that of
last year. VIA reported that advertising trends are worsening. Also, a recent Wall Street Journal survey indicated that leading
economists now believe a 2H09 recovery is looking less likely vs. a survey taken in December.
• We lower our 2009 growth forecasts to down 14% from down 11% for TV stations and to down 7% from down 5% for
outdoor advertising. The recession has forced deeper cuts by retailers (which account for c.10% of advertising), and the
auto industry (which account for c.20%+ of TV advertising). This compounds the normal difficulty the industry – and HTV in
particular - faces growing in years after presidential elections. On the TV network side, it appears that advertisers are
increasingly exercising cancelation options on their upfront commitment, which will further pressure 2Q09 growth.
• We adjust our expectations to reflect our more pessimistic view of the near-term advertising environment. More
detailed discussions of our expectations follow the summaries below.
o CBS Corporation (CBS – HOLD): Lowering target price to $7.00 from $9.00, lowering estimates (to EBITDA to
$2,558m, -17%, from $2,610m, -15%, for 2008, and to $1,980m, -23%, from $2,200m, -16%, for 2009) – maintain
HOLD.
o Clear Channel Outdoor (CCO – HOLD): Lowering target price to $5.00 from $6.50, lowering estimates (to EBITDA of
$823m, -14%, from $849, -11%, for 2008 and to $627m, -24%, from $652m, -23%, for 2009) – maintain HOLD rating.
o Lamar Advertising (LAMR – HOLD): Lowering TP to $9.50 from $14.00, raising 2008 EBITDA estimate to $518m, -7%
from $507m, -9%, while cutting 2009 estimates (EBITDA to $441m, -13%, from $448m, -12%) – maintain HOLD rating.
o National CineMedia (NCMI – HOLD): No change to estimates or target price – see our note dated 1/30/09 for full
discussion of company’s 2009 outlook.
o Hearst-Argyle Television (HTV–HOLD): Lowering target price, to $4.50 from $6.30, and estimates (EBITDA to $212m,
-20%, from $225m, -15%, for 2008, and to $146m, -31%, from $151m, -33%, for 2009) – maintain HOLD rating.
o Entravision Communications (EVC – BUY): Lowering TP to $1.00 from $2.00, maintaining 2008 estimates (EBITDA
of $79m , -14%), lowering 2009 estimates (EBITDA to $66m, -16%, from $72m, -14%, for 2009) – maintain BUY rating.
• L.A. billboard Survey A shows 81% occupancy rate, essentially unchanged from last month, a sign that at least things
are not deteriorating further. Continuing our monthly surveys of the LA billboard market, the 81% occupancy (88% for
bulletins and 76% for posters) compares to 80% for Survey A last month. Although the stability is a slight positive, we note
than seasonally we would expect some improvement in occupancy in February over January (although less so in a warmerweather
market like Los Angeles).
• HTV was the best-performer this past week, +8.0% vs. S&P 500 -1.3%. For the week, our coverage universe was up 2.0%
vs. the S&P 500 down 1.3%.

ADVERTISING and BROADCASTING SECTOR OUTLOOK
• Checks indicate that U.S. billboard industry revenue is tracking down roughly 10% for 1Q and 2Q (limited visibility).
Although we expect improvement in 2H, we lower our 2009 billboard industry revenue estimate to down 7% from down
5%. Our 2009 revenue growth estimates go to down 7% from down 5% for LAMR and to down 7% from down 6% for CCO.
o In 1Q rates are down ~10% for some operators, on bulletins as well as posters. We believe that there is more ratecutting
than usual in this recession. That said, we believe that operators are trying to hold rates on their better
locations at the risk of lower occupancies – and overall occupancies are down year-over-year.
o Some operators confirm, unsurprisingly, that 1Q pacings are as negative as they have ever seen. Even some larger
outdoor advertisers are cutting the number of displays they buy in a market by half.
o One positive: some operators are seeing a pick-up in business inquiries over the past few months, including some
from advertisers that have not traditionally used much outdoor advertising.
o We expect greater-than-normal opex declines in 2009, as outdoor operators seek to renegotiate lower site lease
costs. LAMR indicated on its 3Q08 earnings call that it was pursuing this strategy. We expect outdoor operator opex
to be down more in 1H09 than 2H09, on the assumption that expense-cutting did not begin in earnest until 2H08.
o Some operators lean to offering discounted rates on displays in rural areas and so-called ‘directional’ displays (which
indicate the location of the advertiser). This rate-cutting allows operators to save on the expense of
changing/removing the advertising copy in the near-term and to maintain a relationship with the advertiser for the
long-term. The risk is that this will slow the eventual recovery, as customers push back against a return to prerecession
rates. We could be more likely to see rates hold and occupancies drop in cities than along highways.
o Some operators are moving to offer shorter-term buys of digital displays. Although this boosts demand by allowing
new advertisers to experiment with outdoor for less out-of-pocket cost, it puts more pressure on the sales force to
maintain occupancies.
o Digital billboard prices continue to fall as Asian and European manufacturers enter the market.
• Reducing 2009 TV station industry revenue growth to -14% vs. -11% previously. In our last Weekly Media Mix, we hinted that
our 2009 television station estimate of -11% would likely fall as auto ad spending has significantly deteriorated (auto advertising
makes up at least 20% of overall TV ad spending). Hearst-Argyle (HTV – HOLD) pre-announced negatively on Thursday after the
close, confirming our negative bias. Thus, we are reducing our 2009 TV station industry revenue estimate to -14%.
• Lowering 2009 cable network revenue growth estimate to down 1% from flat. Viacom (VIA – unrated), operator of the MTV
Networks among others, said on its Thursday morning earnings call that advertising revenue growth would get worse before it got
better. It appears that upfront cancellations are increasing slightly for 2Q.
• Lowering 2009 cinema advertising revenue growth estimate to +1% from +4%. We are incrementally more cautious about
the likely magnitude of industry-wide revenue growth in light of NCMI’s outlook on January 29. We still expect cinema to be one of
the few advertising media to post positive growth this year, however. By comparison, we expect overall online advertising
(including search) to be up 4% in 2009.
• DTV transition delayed until June 12, although approximately one-third of all TV stations will still turn off analog signals
on the original February 17th deadline. CBS and larger broadcasting operators have committed to transmitting both analog and
digital signals until the new deadline. We expect EVC to wait until the new deadline as the extension will allow more time for
households in the U.S. border markets to apply for and receive the $40 digital receiver coupons. We estimate that EVC could lose
up to 5% of revenues to Mexican programming transmitted over the air from Mexican-based stations.
• Valuations coming down on lower operating estimates and higher discount rates. We detail our lower operating estimates in
the company-specific sections of this note. We note that, as tracked by Bloomberg, over the past month, the risk-free rate has
risen to 2.7% from 2.2% and the equity risk premium has risen to 8.5% from 6.9%, resulting in higher discount rates in our
discounted cash flow analyses, and lower resulting valuations.
• Investors looking for stocks most leveraged to a 2H ad recovery - no change to our sector theses that it is too early to call
trough of advertising cycle.
o Highly leveraged names could benefit more from a recovery, if it comes in time to avert major debt restructuring,
suggesting that investors could warm in particular to LAMR (6.0x 2009E total debt/EBITDA), EVC (4.8x), and HTV (4.0x).
Catalysts for a shift in sentiment include improved leverage, such as through debt repurchases at a discount, and positive
changes in revenue trends, which have been particularly disappointing at the local level thus far this year.
o In our opinion, the U.S. economy will be in recession until 2H09. The Wall Street Journal’s tracking survey of economist
sentiment now has U.S. GDP growth down 0.9% in 2009, vs. flat at the time of our initiation in January. 1Q TV and radio
pacings continue to be worse than our full-year expectations, and we hear few signs that 2Q is pacing better than 1Q.