Analysts: Ad Momentum Should Increase

A robust first quarter and stronger
upfront are encouraging analysts that follow
publicly traded cable networks to predict the
advertising market’s strong momentum will
continue into the second quarter.

Cable networks reported strong advertising
growth in the first quarter, with most showing
double-digit gains in domestic ad revenue,
building on momentum gained in 2010.

Morgan Stanley media analyst Ben Swinburne
said the unexpected strength of the first
quarter — he said in a research note that national
cable-network ad revenue grew 20% to
22%, in large part because of sports networks’
performance in the period — should continue
into the second quarter. Ad revenue at ESPN
was up 43% in the period, mainly because of
its coverage of the college football Bowl Championship
Series. But even when the BCS was
backed out, ESPN’s ad revenue was up a staggering
23% in the quarter.

“In 2Q11, national TV-advertising growth
should continue to benefit from higher upfront
pricing, while scatter pricing is running
15% to 25% above the upfront, on average,”
Swinburne wrote. “On the subscription-revenue
front, affiliate revenues grew [about] 10%
year over year in 1Q, highlighting the ability of
content owners to drive non-ad monetization.”

Swinburne wrote that strong scatter pricing
is expected to drive second-quarter ad-revenue
growth, with ESPN and Turner Broadcasting
System expected to see lower sequential growth
due to the timing of sporting events.

At ESPN, Swinburne expects ad pacings
to be up in the single digits in the fiscal third
quarter, mainly because of unfavorable comparisons
to last year, when the network aired
World Cup soccer matches.

But Swinburne remained optimistic, adding
that he has an “overweight” rating on
Disney, Scripps Networks Interactive, and
CBS, adding all three “own substantial and
high-growth TV assets.”

For Scripps, which had a 13% boost in ad
revenue in the first quarter, Swinburne expects
ad sales to rise 13.6%, to $376.1 million
in the second quarter, and total revenue to
rise 3%, to $531.7 million.

Miller Tabak media analyst David Joyce revised
his estimates for Time Warner Inc., noting
that Turner Broadcasting System would see
a slight deceleration in ad revenue because of
its joint deal with CBS to carry the NCAA Men’s
College Basketball Tournament. This year’s
tourney was the first under a 10-year, $10 billion
joint venture between CBS and Time Warner’s
Turner Sports to cover the tournament.

Joyce was equally bullish on Disney, expecting
single-digit pacings for ESPN.