Economy Squeezes Content Providers

The economy continued to squeeze the already pressured advertising market at two top programmers — Time Warner Inc. and Viacom — in the first quarter, but at least one CEO sees some light at the end of the tunnel.

Viacom CEO Philippe Dauman told analysts on a conference call last Thursday that the sharp declines in the advertising market are beginning to level off, but stopped short of predicting an imminent recovery.

First-quarter results were little cause for optimism — Viacom's total revenue dipped 7% to $2.9 billion, fueled by a 9% drop in domestic ad sales. It was the third consecutive ad-revenue decline for Viacom — ad sales dipped 3% in both the third and fourth quarter.

The picture was a bit brighter at Time Warner Inc., which reported its first-quarter results April 29 with cable-network revenue up 9% to $2.8 billion, offset by a 2% decline in domestic ad sales. Overall revenue at Time Warner was down 7%, mainly because of losses at its troubled AOL online unit.

While Time Warner struggled with AOL — the company is considering whether to spin off the unit — Dauman said signs are starting to emerge that the advertising market is beginning to stabilize.

When pressed during the call just what he meant by stable — as in, should analysts expect 9% declines for the foreseeable future — Dauman backed off.

“As far as advertising, we're one month into the [second] quarter,” Dauman said. “We have seen the environment stabilize; we are seeing people enter the market. We are seeing more robustness as we head into the next few months and the upfront season. As far as prognosticating what that will mean on the pace of ad sales for the full quarter into the year, we just don't want to be in a position to make that projection. We have seen over the past few weeks signs that are encouraging.”

Dauman did say that Viacom is beginning to see some advertisers that have backed away as the economy worsened re-enter the market, including foreign car manufacturers and at least one domestic automaker.

“Where you had companies that have had to step back for awhile, if they are going to have ongoing businesses, they're going to have to spend. Advertising does work,” Dauman said.

Dauman also said that efforts to boost ratings at some of its more challenged networks are beginning to pay off. Ratings, for example, at VH1 rose about 6% in the period, and MTV saw a sequential ratings improvement in the first quarter.

Credit Suisse media analyst Spencer Wang wasn't totally convinced. In a research note he said that Viacom still faces “challenges” and predicted a 10% slide in advertising revenue in the second quarter “given increased upfront cancellations and persistent ratings issues.”

Time Warner chairman and CEO Jeff Bewkes spent little time last week pontificating about the advertising market — he said on the conference call that the CPM [cost per thousand] gap between cable and broadcast is beginning to close as cable continues to capture viewers.

“We think advertisers continue to look at TV as a total picture and are making economic decisions based on where they can get the biggest bang for their buck,” Bewkes said. And that is increasingly becoming cable.

But Bewkes seemed more excited about his TV Everywhere concept — which would give subscribers to cable, telco and satellite-TV programming the ability to access content they have already paid for through their subscriptions on multiple platforms, including online and via mobile devices. Bewkes said that Time Warner is talking to distributors about trialing the concept with their networks and others in the second half of the year.