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Keeping Upbeat During Writedown Season: Tough Go

In a bleak prelude to a February earnings period that many have dubbed “writedown season,” Time Warner announced last week that it would take a $25 billion writedown and an annual loss for 2008.

When the media financial gurus deliver their annual value-impairment tests, it's likely Time Warner's misery will have some company.

Analysts suggest that News Corp. and CBS Corp. could be next. CBS already notched a $14 billion writedown in October on falling values at its radio and TV station properties; CBS Corp.'s $1.8 billion CNET acquisition might be in line for review along with News Corp.'s $5 billion Dow Jones purchase.

Such news has everyone wondering how bad “bad” will get. So far there have been few signs that national TV advertising is collapsing, but second quarter cancellation options are on the horizon. Some media buyers expect auto companies such as General Motors to continue to take money off the table at the next opportunity, and wonder if retailers will follow suit.


The broadcast ad market is already becoming less rule-driven. Tony Vinciquerra, chairman and CEO of News Corp.'s Fox Networks Group, said that Fox is allowing ad clients to extend their deadlines for option taking.

With advertisers increasingly seeking out value, general entertainment cable networks, such as Time Warner-owned TNT and TBS, and NBC Universal's USA, appear to be in the sweet spot. Morgan Stanley also predicts a share shift.

“The share shift story from the 2008 upfront—specifically broadcast ad dollars shifting to general entertainment cable networks—is not only continuing but may be accelerating given the economic climate,” wrote media analyst Benjamin Swinburne. His calls with ad agency Starcom last week suggest a trend away from premium-priced networks and also away from high-priced sports events.

Still, even national cable is a tough sell. “How do I convince advertisers to advertise when they tell me no one is coming in the stores and no one is buying anything?” wondered one cable sales executive.


The once great promise of digital is also dimming. One of the first things to go for many cash-strapped marketers, Swinburne says, are the Web add-ons that come with their TV buys.

Non-advertising-related revenue streams are taking on new significance, especially at CBS Corp., where 65% of its revenues are ad driven. The company wrung out increased programming pricing for Showtime with Time Warner Cable last week and is now putting the squeeze on Cablevision for retransmission payments.

Premium pay-TV services such as Showtime and HBO have so far shown resilience, but won't remain that way if the recession bites harder. “If there is a prolonged economic recession, it's hard to believe that HBO would be immune from that,” Time Warner CFO John Martin said at a Citi investors conference last week.

CBS Corp. CEO Leslie Moonves told investors last week, “I feel much more optimistic in '09 than I did in '08.”

In this climate, however, even Moonves' optimism may be tested.