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Media
Networks Bet on Scatter &
Against the Snuggie
TV scatter market improving: Our above
consensus ’10 estimates, in light of the recently
concluded TV upfront negotiations, require that scatter
pricing rise 5-15% depending on the network. We see
this as increasingly probable. The ‘08/’09 scatter market
was down 10%+, beaten up by a tough ad environment
and a negative mix shift to direct response advertising
such as the “Snuggie” (direct response pricing can be as
much as a 50% discount to traditional advertising). The
nascent ad recovery, confirmed by data-points gathered
this week, and a mix shift away from direct response as
traditional advertisers come back, make a strong scatter
improvement likely, in our view. Our OW media names
trade at a 14-15x ’10 P/E. Recent data-points and our
GDP regression analysis suggest upside to estimates.
Upfront results increase scatter exposure, 3Q
scatter strong: Broadly speaking, total upfront dollars
came in down roughly ~17% YoY, although
revenue/commercial sold at the broadcast networks was
better than expected (with CBS leading at flat YoY) while
cable was slightly worse. More importantly, however, is
that all networks utilized a similar strategy, which was to
sell less inventory and try to limit price declines. The
impact will be felt in the scatter market, which will
represent 10-25% more of total commercial inventory
sold this season than in prior years. Anecdotal evidence
suggests 3Q scatter improved over 2Q and is up as
much as 10% above last year’s upfront for the better
performing nets. The recent improvement has carried
over even in the sports market (ESPN at DIS), which
had been an underperformer in 2Q09 results.
Reiterate Attractive Industry View: We remain
positive on Media, betting on both the benefit of a
cyclically driven earnings recovery and multiple
expansion from the relatively strong secular position of
TV networks. With TV upfront negotiations largely
behind us, and the new broadcast TV season coming up
in a few weeks, this note analyzes the implications of
both on our coverage universe.
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