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Cable Nets Brace for Soft Q2 Ad Growth

Analysts are bracing for another light quarter for advertising- revenue growth as cable networks begin to report earnings in the coming weeks.

ISI Group media analysts Vijay Jayant and David Joyce said they expect domestic ad growth to range from a 14% decline at AMC Networks to a 7% gain at Scripps Networks.

Lower ratings and competition from other networks and online offerings have helped temper advertising revenue growth. Those factors have also contributed to a sluggish broadcast upfront, according to Jayant and Joyce.

That could end up boding well for cable networks. The analysts predicted AMC would have the highest-percentage growth among cable networks in the upfront — 7.6%, to $565 million from $525 million in 2013 — but that is most likely due to broadcasters holding back some inventory for the scatter market. Jayant and Joyce estimated that NBC would report the healthiest gain in broadcast upfront revenue (8.3%), with Fox down 7.5%, and ABC and CBS relatively flat. “With less broadcast inventory sold in the upfront, some advertisers who want broad reach may step up their cable network buys,” Jayant and Joyce wrote.

Fox’s broadcasting business is expected to suffer ratings-related ad weakness in the period — season-todate ratings at the Fox network are down about 4% — and cable is expected to more than take up the slack, according to Jayant and Joyce. Domestic cable ad revenue should rise 13% in the June quarter, they said. And with the launch of Fox Sports 1 and Fox Sports 2 and the acquisition of a controlling stake in regional sports player YES Nework, the analysts estimated that affiliate-fee revenue could increase as much as 20% domestically.

Disney should also benefit from its strong sports properties. ESPN and ABC broke ratings records for their World Cup soccer matches.

ESPN was the only one of the top 10 cable networks to grow its average primetime audience in the quarter, Joyce and Jayant said. The period marked the first time in 31 consecutive quarters that USA Network (down 12% in 18-49) was not No. 1 in ad-supported cable. Time Warner Inc.’s TNT, although down 20%, won first place with the NBA Playoffs and scripted series Major Crimes and The Last Ship.

Softer ratings plagued Turner during the period. Stern Agee analyst Vasily Karasyov estimated that in the first two months of the quarter, TBS’s total audience was down about 11% and TNT viewership declined 8%. Turner’s ad sales will rise just 1% in the quarter, Karasyov predicted, adding that he thinks the focus is exaggerated because it ignores the shift in Turner revenue drivers toward subscriptions. Subscription revenue will account for 66% of Turner’s total revenue growth in 2014, versus 52% in 2013, he estimated.

“We see Turner’s revenue structure moving closer to Disney’s networks (75% of growth from affiliate fees) and farther away from Scripps Networks (15%) and Discovery (23%) as a positive,” Karasyov wrote in a note to clients.