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Morgan Stanley, Group M Deliver Bad News for the Ad Market

Upfronts 2009: Complete Coverage from B&C

TVB May Re-Revise 2009 Forecast

Media companies might want to brace themselves for possible downgrades on two negative ad forecasts out this week.

A Morgan Stanley report on the U.S. ad market suggests that ad spending at the Big Four networks will be down by 10.5%, to $14.5 billion, in 2009, while the total broadcast market is expected to drop by 16.6%, to $36.8 billion. Total cable TV sector will suffer a less severe drop, down only 5.6%, to $26 billion, the company predicts.

The news--from Benjamin Swinburne, media analyst and executive director of research--comes alongside the firm's annual survey of the local ad market. Morgan Stanley reveals that 30% of local advertisers expect ad rates to drop by more than 3% in the next 12 months. Last year, when Morgan Stanley conducted the same survey the figure was just 2%. Twenty-five percent of local advertisers also expect their budgets to be down in the next six months.

The company describes the advertising drop across the media industry as the "storm of the century," and noted that Lamar and CBS are the most exposed to the poor local environment. The survey of smaller advertisers suggested there will be significant pricing pressure in the local TV market. The one bright spot is the percentage of heavy advertisers who said they would increase spending. Twenty-three percent of heavy advertisers said they would spend more money versus 58% who said they would spend the same.

On Tuesday, Group M, the biggest single ad spender in the world, reported that 2010 would not likely provide the bounce back everyone is hoping for. The company forecasts measured media spending will be down by 4.3% in the U.S. this year and by 6.8% in 2010. That's a revision from a forecast little more than three months ago that suggested U.S. measured media spending would be down 3% in the U.S.

Rino Scanzoni, chief investment officer at Group M, said marketing budgets devised in the throes of a recession were much more likely to reflect a decline in spend. The company thinks the Obama administration's stimulus package is unlikely to drive much consumer spending given the continued weakness in housing and high unemployment. "Any optimism we feel about the U.S. this year is expected to be mitigated by a further spending decrease," said Scanzoni. The company's full year forecast will be published in June.

On Monday, UBS downgraded CBS Corp. stock on the increasingly poor ad market and its exposure to auto advertising problems. The stock took a double-digit nose dive on the news but rallied on Tuesday closing at $3.84.