Action: The 2009/2010 TV upfront has (finally) concluded with broadcast
and cable networks seeing an estimated 22% decline and 12% year over
year decline, respectively, in upfront sales. This year’s upfront will impact the
first 3 quarters of 2010 and as a result, in this report, we provide a detailed
analysis of the national TV advertising outlook for 2010.
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Differentiation: Overall, our work indicates that TV scatter pricing should be
up ~5% vs. upfront pricing and flattish y/y. Combined with upfront results, we
project -5.7% in broadcast advertising and muted 2.7% growth for cable.
This reinforces our view that advertising, like past cycles, will lag a economic
rebound, resulting in a U-shaped recovery. As such, the Street may be overestimating
the vigor of a rebound in ad spend and earnings in 2010.
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Stock Calls: Based on our forecast, we are trimming our ’10 EPS estimates
by 1%-2% for our entertainment universe. Among individual stocks, we rate
Disney Outperform. Despite only a modest earnings recovery in 2010, we
are comfortable recommending DIS “through the cycle” given the high
quality nature of its assets. We also are positively disposed towards TWX
where we see limited earnings risk.
On the other hand, our 2010 EPS estimate for Neutral-rated Viacom is 4%-
5% below consensus as we expect soft ratings to result in below average
cable ad growth. We also expect a re-acceleration in programming spend in
2010 for Viacom, which may limit margin improvement in 2010.