advertising gathers strength

THE light at the end of the tunnel that appeared in November was not another train.

Having experienced one of the worst advertising downturns ever -- the 10 per cent drop in advertising spending in the first six months of 2009 was the biggest in Australian history -- media executives are preparing for solid, but not spectacular, growth this year. Forecasts vary but analysts at Royal Bank of Scotland and Goldman Sachs JBWere are tipping advertising growth of 7.4-7.6 per cent this year.

This is off a low base, but any expansion of the $12 billion advertising market should improve earnings across the whole media sector.

UBS analyst Richard Eary set the tone late last week, releasing a report titled "10 Reasons to be Positive on Media".

Among positive signs were commentary in the recent annual meeting season, a likely surge in advertising during a federal election and belief that the strength of the advertising recovery would outweigh technological and structural challenges facing traditional media such as newspapers, magazines, radio and television.

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The report also argues that media companies are leaner, having cut staff and reduced costs during the global financial crisis.

UBS estimates the average cost base of a media company is down 17 per cent from the peak in 2007.

"We expect a rising tide to lift all boats and for all media to benefit from an improvement in the advertising environment," RBS analyst Fraser McLeish says in a report.

This is a relatively short-term view. Media companies still have to work out better ways to make money in the brave new digital world.

Growing competitive threats such as internet protocol television won't make that any easier, while more advertising spending is expected to be allocated to digital players.

One example is a decision by soft-drink giant Pepsi to forgo an expensive television spot during the upcoming Superbowl in the US and instead pour millions of dollars into online advertising.

Meanwhile, the idea of convergence won't go away, particularly for those in the business of broadcasting pictures.

"We see this fight moving to the living room in 2010, as media companies, telecoms operators and technology providers battle for control of the TV, and -- in turn -- a share of the associated advertising, subscription and (pay-per-view) revenue streams," notes Goldman's Christian Guerra.

Pay-TV

PAY-TV'S battle with its terrestrial cousins is expected to especially keen in what will be the first full year of multi-channels on free-to-air. Sony and Telstra's BigPond will push hard with internet-enabled personal video recorders -- complete with new content and channels -- to take on the established Foxtel IQ product.

Nevertheless, analysts such as Macquarie Group's David Moberley expect the likes of Austar and Foxtel to stay ahead of new entrants as they build critical mass and sell advances such as high-definition channels.

Television

UBS expects the industry's share of the advertising pie to shrink from 29 per cent in the 2008 financial year to 27 per cent next financial year, but it should be among the first to benefit from the near-term recovery in advertising.

Anecdotal evidence that radio was receiving money in December that couldn't find a home in TV tends to support this theory.

Seven boss David Leckie and Nine chief David Gyngell say they are generating revenue gains from their new digital channels.

Pay-TV industry players reckon they are cannibalising viewers from their more lucrative main channels.

A review of anti-siphoning rules for sports broadcasting is expected to work in free-to-air television's favour and will set the scene for negotiation of NRL and AFL broadcast rights this year.

Radio

NEW management will set the tone for a radio industry that returned to growth in November and December. Austereo and its Today network remain top of the tree but face new competition from a Lachlan Murdoch-backed DMG, which owns Nova. Austereo is the self-appointed poster child for digital radio, which is yet to win many listeners. Even AM radio will be shaken up when John Singleton's Macquarie Radio Network challenges Fairfax Radio's 3AW in Melbourne.

Print

MANY analysts expect newspapers and magazines to lag other forms of media as advertisers assess structural challenges on the digital side of the business. Still, earnings at Fairfax should bounce back, as chief executive Brian McCarthy has kept a tight rein on costs. "We expect cyclical factors to significantly outweigh structural headwinds in a recovery period," Mr McLeish said. "This is evidenced in the newspaper job ads, which were up 5 per cent in December (versus the previous corresponding period) and broke a 19-month run of declines."

Moves to charge for online content, led by News Corporation, publisher of The Australian, will be a defining issue for print this year.

Online

ONLINE should continue to grow strongly as its share of advertising catches up with its audience share. Goldman says participants with a competitive edge -- whether technological (Google), content (BigPond), or market position (Seek, Carsales) -- will continue to exploit strong pricing power. Executives are wary, however, that low barriers to entry mean new competitors are a threat.

Outdoor

ANALYSTS forecast strong growth here, partly boosted by Move, a measurement system to be launched this month. The industry hopes this will increase its share of revenue from 4 per cent to 6 per cent over three years.


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