Advertising Growth Remains Robust in Media Sector, Analysts Say

Strategic Insights -

The media sector is poised for significant growth in advertising revenue, according to analysts at Morgan Stanley. On August 3, 2010, Benjamin Swinburne, a top-ranked analyst at Morgan Stanley, discussed the industry's prospects on Bloomberg TV's "In Business" program with host Margaret Brennan. Swinburne highlighted three key trends that will shape the media landscape in the coming months.

Key Takeaways:

  • Advertising growth remains robust, with a 13% increase in domestic advertising revenue for Discovery Communications in Q2 2010.
  • Media companies are experiencing margin expansion due to fixed or slightly growing costs, leading to increased profitability.
  • The ability to access debt markets efficiently and inexpensively has enabled media companies to leverage organic growth into higher earnings and free cash flow.
  • CBS, with its significant local ad revenue exposure, is particularly well-positioned to benefit from the current election cycle and the Supreme Court's ruling on political spending.
  • The CBS-Comcast carriage agreement is a significant development, highlighting the shift towards cash payments for retransmission fees.
  • The media industry's focus is shifting towards building content libraries and monetizing them across various distribution platforms.
  • The increasing number of home entertainment and mobile entertainment options has changed the way analysts analyze the media industry.

Statistics:

  • 13% domestic advertising growth for Discovery Communications in Q2 2010 (Source: Bloomberg TV)
  • 70% of all political spending goes to local television stations (Source: Benjamin Swinburne, Morgan Stanley)
  • $1 billion buyback authorization announced by Discovery Communications (Source: Bloomberg TV)
  • 2011: a potential year for buybacks at CBS and Time Warner (Source: Benjamin Swinburne, Morgan Stanley)

Sources:

  • Bloomberg TV: "In Business" with Margaret Brennan
  • Benjamin Swinburne, Analyst, Morgan Stanley
  • Discovery Communications: Q2 2010 earnings report
  • CBS: 2011 earnings expectations
  • Time Warner: 2011 earnings expectations