Analyst Sees Weak 2Q Ad Revenues

As earnings season approaches, one analyst sees mostly gloom for the big media companies because of a weak performance in the advertising market.

In a new report entitled "Redefining Tepid," Michael Nathanson of MoffettNathanson Research says he expects second-quarter national ad spending to be down between 2% and 3%.

"While last year's lower upfront base and a tepid scatter market are contributing factors, the key culprit continues to be steep declines in linear grow ratings point," he said. "After a tepid start to the year, the 2Q ad market ended up in a slightly weaker place. Given all signs pointing to another challenged upfront, we believe that marketers are holding off committing to TV to buy in a scatter market that has been cooling for some time now."

Nathanson calculates that second quarter C3 ratings points among adults 18 to 49 were down 8%, with broadcast down 4% and cable down 9%.

The best performers were ABC, which was up 10%, and AMC, Scripps Networks, Discovery and Time Warner, whose declines were only in the single digits. Underperformers were NBC and Fox on broadcast and the cable networks owned by NBCU and Viacom.

As if the advertising news wasn't bad enough, Nathanson plans to listen to second quarter earnings calls for signs of slowdown in affiliate fees.

"We believe that the next wave of negative revisions for the sector could manifest itself in a slowdown in affiliate fees," he said. "We will also be looking out for some details on the spring's mass launch of OTT platforms (e.g. Sling TV, PlaysStation Vue, HBO Now, CBS All Access, Showtime All Access.)"

In the meantime, Nathanson is increasing his second quarter earnings estimate for Time Warner because of a better performance by Warner Brothers, but he is dropping his earnings estimates for Viacom, Scripps and CBS because of the weaker ad outlook.