Americans may be fond of the Web, but they are still in love with their TV sets – and so are the advertisers who want to reach them.
Big media companies are riding a rebound in TV ad spending. This week, Viacom Inc. and Time Warner Inc. both reported that their cable TV channels saw improvements in advertising revenue. CBS Corp. saw a similar rebound at its local television stations. News Corp. saw growth on both sides.
The companies’ results this week offer one encouraging data point for economic prognosticators. It means businesses have the money to spend on commercial time again. And they are more confident that consumers will have the money to respond to their ads at shopping malls and car dealerships.
Media executives say the rebound can keep rolling into 2011.
That’s in part because prices for a large chunk of commercial time this year had already been locked in more than a year ago during the so-called “upfront” period, when advertisers bid on commercial time for the upcoming television season. Rates were down sharply then because of the recession.
After September, higher rates from this year’s upfronts should kick in and be reflected in company results.
“We completed a much stronger upfront than we experienced a year ago,” Viacom CEO Philippe Dauman said Thursday. “This establishes a stronger base for our next fiscal year.”
Still, ad spending is sensitive to the broader economy, which has been flashing mixed signals.
“We’ve seen a wave of spending come back into the marketplace,” said Steve Farella, CEO of the independent media agency TargetCast tcm. But he added, “there’s a lot of money and a lot of clients who are still cautiously optimistic about 2010. I’m not sure this recovery is on a solid footing yet.”
For Viacom, which is controlled by 87-year-old billionaire Sumner Redstone, the increase in spending has led to a full year of rising profits. Th e company said second-quarter net income increased 52 percent to $420 million, or 69 cents per share, from $277 million, or 46 cents per share, a year ago.
The results out Thursday were tempered by weak DVD sales and weren’t enough to lift the company’s stock. Viacom shares slipped 32 cents, or nearly 1 percent, to close Thursday at $33.70.
Overall revenue was flat at $3.3 billion, slightly bellow the average forecast from analysts of $3.4 billion. The revenue shortfall came mainly from a 10 percent drop in film revenue, led by a 43 percent drop in home entertainment. DVD sales are suffering from still-sluggish consumer spending and the growing availability of television and movies on the Web.
Still, revenue climbed 6 percent to $2.09 billion at Viacom’s cable channels, which include BET, MTV, Comedy Central and Nickelodeon. Operating income at the cable unit, which also includes the subscription HBO channels, climbed 14 percent to $789 million.
Viacom’s U.S. ad revenue climbed 4 percent in the second quarter compared with last year after a 1 percent rise in the first three months of the year.
Those results came a day after Time Warner Inc., which owns CNN, TNT and other channels, posted a 14 percent jump in cable ad revenue.
Even broadcast TV, which has been losing overall market share to cable competitors for years, is showing some resilience. CBS Corp. said this week its local broadcast unit saw a 17 percent increase in ad sales.
Local Fox television stations owned by News Corp. saw a 29 percent jump in ad revenue, while its U.S. cable channels such as Fox News saw ad revenue grow 11 percent.
Last week, Comcast Corp. said revenue from local ads shown on its cable channels grew 23 percent during the quarter.
Still, even as the rising tide lifts overall TV ad spending, this week also came with reminders that advertising can be an unstable source of revenue in a downturn.
Along with ad revenue, Viacom’s cable channels get a second stream of money from fees that it charges cable providers. That second leg – one that broadcasters haven’t traditionally enjoyed – has helped soften the blow of the recession. While ad rates fluctuate, fees are locked in by multiyear contracts.
The superiority of that business model is reflected in Viacom’s share price, which has outperformed CBS since Viacom split with the broadcast giant in January 2006.
Viacom shares have lost more than 18 percent of their value since then, thanks in part to the stock market turmoil of the past few years. CBS shares, meanwhile, have lost more than 40 percent.
Looking to sure up their business models, CBS and other broadcasters have been pushing to tap fees from cable and satellite TV providers over the past few years as well. CBS Chief Les Moonves has been leading the charge on that front, and the company announced a 10-year deal this week to lock in fees from Comcast, the biggest U.S. cable provider.
Updated: What Recent Earnings Reports Have Revealed About Ad & Entertainment SpendingHere are updated highlights of recent quarterly earnings reports from selected entertainment, media and advertising companies and what they say about the state of spending on advertising:
July 15: Google Inc. says that during the second quarter, marketers were willing to pay more for the online ads that generate virtually all of Google’s income, and people are clicking on the commercial messages more frequently. Those trends provide another indication that more companies and shoppers are feeling a little better about the economy.
July 16: Gannett Co., the largest U.S. newspaper publisher, shows signs it’s moving closer to ending a 3 1/2-year slump in print advertising, though it still didn’t feel confident enough to predict when the biggest part of its business will begin to grow again. The decline in print ad revenue narrowed in the second quarter to 6 percent.
General Electric Co. says NBC’s broadcast operation is benefiting from continued recovery in the local ad market, with percentage growth for sales in the double digits.
July 20: Yahoo Inc. says revenue in the second quarter looked fairly strong until June, when several large advertisers suddenly reduced their spending. Still, sales of display advertising rose 19 percent in the quarter compared with a year ago, even as the company’s search advertising revenue fell 8 percent.
Omnicom Group Inc., which owns marketing agencies, reports a 4.2 percent rise in quarterly net income, reflecting an uptick in spending on marketing and advertising. Overall revenue was up 5.9 percent and U.S. revenue increased 7.4 percent.
July 22: The New York Times Co. posts its first quarterly revenue growth since 2007. The company managed to keep ad revenue flat in the second quarter, as a 21 percent jump in digital ad sales offset a 6 percent decline in print.
Microsoft Corp. says advertisements placed alongside search results on its Bing site helped its online ad bu siness increase revenue by 19 percent.
July 26: DreamWorks Animation SKG Inc. says net income slipped 6 percent as rising costs and charges offset increased revenue. “Shrek Forever After,” the latest in the animated series, generated $51.8 million in revenue during the second quarter, and “How to Train Your Dragon” contributed $33.4 million. DreamWorks says growth should pick up in the second half of the year as DVDs of both movies hit stores.
July 27: Comcast Corp. says revenue for local ads shown on its cable channels grew 23 percent during the quarter, led by automotive, though all categories are up in double-digit percentages.
IAC/InterActiveCorp says revenue climbed nearly 19 percent, much of it because of growth in the company’s core search business, which includes the search engine Ask.com. Revenue comes primarily from online advertising, and that has been improving after a slump in the online ad market plagued the business throughout most of last year.
July 28: McClatchy‘ reports ad revenue fell by its lowest rate in more than three years. The 8 percent decrease for the April-June period compared with last year marked the least erosion in McClatchy’s ad revenue since a 5 percent decline in the first three months of 2007 from the previous year’s quarter.
Interpublic Group of Cos., which owns advertising agencies, reports second-quarter result s above analyst estimates – the latest indication that companies are growing more comfortable spending on advertising as the economy recovers. However, CEO Michael I. Roth acknowledges that there are still “areas of uncertainty” in the worldwide economy.
August 3: CBS Corp. reports that local advertising revenue rose 17 percent, helping lift total ad sales for the company by 9 percent. Outdoor ad revenue from billboards rose 5 percent.
August 4: At Time Warner Inc.’s cable TV channels, which include CNN, TBS, the Cartoon Network and others, ad revenue was up by 14 percent. Even Time Warner’s magazines, which face a long-term threat from competition online for both readers and advertisers, saw a modest 4 percent increase in ad sales.
News Corp. reports that local television station advertising revenue grew 29 percent in the latest quarter because of strength in the automobile and telecom sectors. It says ad revenue at its domestic cable channels, including Fox News Channel, grew 11 percent. But ad revenue at social networking site MySpace fell.
AOL Inc. says second-quarter advertising revenue fell 27 percent – even faster than it did in the first three months of the year. But CEO Tim Armstrong says much of AOL’s decline stems from its efforts to get rid of ad products and operations that may be contributing to its revenue but not to its earnings.
Viacom Inc., which operates cable channels including BET, MTV, Comedy Central and Nickelodeon, says that both domestic and international ad revenue climbed 4 percent from the same quarter a year ago.
August 6: The Washington Post Co. reports a rebound in spending on television advertising. Revenue at the company’s six broadcast stations climbed 24 percent to $82.6 million as demand for commercial time picked up. Newspaper advertising declines have eased since the bottom of the recession. Still, the company’s flagship daily newspaper saw a 6 percent decline in pri nt ad sales.Among earnings reports coming up:
Aug. 10: The Walt Disney Co. says its ESPN cable channel saw better advertising rates and higher volume of sales. Ad revenue at the ABC television network was largely flat; although rates increased, the network sold fewer commercials and suffered from lower ratings. The company says revenue for its studio entertainment unit grew 30 percent to $1.6 billion in the latest period, thanks to strong worldwide box office receipts for “Toy Story 3,” “Alice in Wonderland” and “Iron Man 2” – the latter coming to Disney through its purchase of Marvel Entertainment on Dec. 31.
Source: The Associated Press
