Commercial TV doing it tough

chris

Last week was not a good one for Europe’s main commercial broadcasters. The UK’s ITV, for example, is still languishing at around 57p, much less than half its share price of a year ago. A new report from investment bankers Morgan Stanley highlights the current set of challenges.

Morgan Stanley downgraded or cut back its forecasts on a slew of European commercial broadcasters last week. Germany’s ProSieben (P7), for example, was downgraded by the bank to “equalweight”, almost inevitable given the broadcaster’s profits warning, and what the bank describes as “the lack of positive catalysts and the tough trading conditions in the German market.” The ban is concerned that ProSieben is “performing poorly in a healthy market. The profit warning posted by the company in 1Q08 changed the P7 story. While the German economy seems to be holding up surprisingly well against the global slowdown and TV adspend remains decent, the group’s NAR (down 5% in Q1) should remain under significant pressure as P7’s commercial strategy has been rejected by media buyers. We think it will take a couple of quarters before the re-implementation of the old system allows the situation to return to normal.”

The bank’s report makes similar dismal reading for France’s commercial powerhouse TF1: “While M6’s ratings and pricing power are holding up in the current environment, TF1’s aren’t. The group is suffering audience share erosion every month and is being hit much more severely by France Télévision’s new pricing strategy than M6 because it has a much larger advertising share. In our view, weakening ratings, testing advertising conditions and ongoing structural challenges are likely to continue weighing on the group’s performance throughout the year. In this note, we cut our EPS forecasts by 24% in 08, 19% in 09 and 21% in 2010.”

As far as Italy’s Mediaset is concerned the bank is a tad kinder, saying its results are in line with expectations but its outlook remains gloomy. “We remain cautious on the stock as the outlook is unappealing. Indeed, macro indicators are slowing more strongly in Italy than anywhere else in Europe, and there is generally a 1Q lag before adspend actually replicates the macroeconomic trend (time taken by advertisers to review their budgets).”

Spain doesn’t get let off either. “Despite a fairly solid April (up about 10%),” says Morgan Stanley, “where [Telecinco] TL5 and [Antena 3] A3 benefited from an easy comparable and better ratings, the faster than anticipated macro slowdown is challenging both TL5 and A3 in Q2. The market was down 10% in May and A3 expects June to be down at least 5% as the benefits of Euro 2008 will go mostly to Cuatro. In Q2, macro conditions and TV adspend shrinkage actually get the upper hand on audience fragmentation. While ratings have temporarily stabilised so far in Q2, the abrupt economic slowdown witnessed in May puts pressure on TV adspend. We suspect advertisers may decide to cut their budgets further when they conduct their annual review (typically in June). In that environment, we believe TL5 should hold up better than A3 given more consistent ratings, stronger pricing power and lower exposure to the most challenged sectors (e.g. car industry).”

But there is one favoured broadcaster, in France’s M6. “Despite a particularly challenging advertising market, M6 posted a respectable -0.5% NAR decline in 1Q08 (vs. -3.7% at TF1) against a tough comparable (+9%), and should benefit from the good ratings recorded in Access and Prime Time in Q2. A dynamic programming strategy protects the group from audience fragmentation (share of viewing has been progressing marginally year-to-date) and generates solid pricing power, which explains why M6 is gaining market share from TF1. Regulatory benefits could be announced during the summer, providing new growth areas, and Euro 2008 should stimulate NAR in June. Nevertheless, we are unwilling to be too bullish on the stock and retain our Equal-weight rating because we believe M6’s FY top-line is likely to be stalled by slowing diversification revenues and a lacklustre French economy this year and possibly again in 2009 unless some regulatory benefits ‘kick in’ (which is still very uncertain).”



Source: Rapid TV News