Resurgence in advertising market may be short-lived, media analyst warns
The shares of several big media companies, including Walt Disney Co., Viacom Inc. and CBS Corp., have soared over the last 18 months, in large part because of renewed confidence in the advertising market. While many sectors of the economy are still struggling, ad spending has been on the rebound.
That resurgence may be short-lived, warns a prominent media analyst.
"Some recent data points may suggest that the ad market could in reality be less robust than year-to-date media performance implies," wrote Anthony J. DiClemente of Barclays Research in a report released Thursday.
DiClemente believes a couple of major events -- one being the earthquake and tsunami in Japan and the other being the merger of AT&T and T-Mobile -- could put a drag on the U.S. advertising market.
In his report, DiClemente noted that auto giant Toyota plans to temporarily shut down U.S. factories because of a shortage in parts produced in Japanese factories damaged by the earthquake and tsunami. Toyota also plans to trim its advertising budgets. General Motors, Ford and Honda have said they too would halt some U.S. operations. As a result, those automakers, DiClemente said, "have been reducing their advertising spending."
Meanwhile, the combination of two large cellphone carriers -- AT&T and T-Mobile -- could potentially wipe out hundreds of millions of dollars in ad spending. AT&T was the nation's third largest advertiser last year, spending $2.1 billion to promote its service, according to Kantar Media. The smaller T-Mobile, meanwhile, spent $600 million.
DiClemente predicts the proposed bullked-up cellphone company wouldn't spend at the same $2.7-billion level.
"We estimate that the newly consolidated ad budget will fall somewhere in between and result in a reduction of a couple hundred million dollars in ad spend annually," he said.
Such a slowdown in demand for TV commercials would come at an inopportune time for television networks. The industry is gearing up for its springtime ritual of selling its advertising time in advance of the new fall TV season. The major media companies have been hoping to increase commercial rates by as much as 10% over the prices set in 2010. Less demand might make that tough to pull off.
-- Meg James