Bleak 2009 Outlook for US Traditional Media

Looks like the traditional media could be in need of a bailout before too long. The secular decline in readership of print products is being compounded by the cyclical economic downturn. Fitch Ratings’ latest assessment is littered with negative outlooks almost across the board of traditional media sectors.

Fitch believes that economic weakness could extend well into 2010 such that the cumulative affect of the downturn in advertising could approach 2001 levels (down 6%-9% in real terms).

Fitch expects that five of the top 10 advertising categories or over 40% of the ad mix will be under meaningful pressure next year: No.1 Retail (12% of total), No.2 Automotive (12%), No.5 Financial Services (6%), No.6 General Services (6%) and No.9 Airlines, Hotels and Car Rentals (4%). In particular, the automotive category (which can represent over 20% of a broadcast affiliate’s revenue) will present meaningful challenges.

“Also, advertising inventory has proliferated (from online and emerging mediums as well as traditional ones) since previous downturns. Owners of inventory (predominantly media companies) are likely to compete more heavily on price in this downturn to fill the vast supply of ad space available.”

Sub-sectors of particular concern to Fitch:

Newspapers (Negative Outlook)

Fitch expects newspaper industry revenue growth will be negative for the foreseeable future as both ad pricing and linage will be under pressure within each of the four main components of newspaper companies’ revenue streams: circulation and local, classified and national advertising.

Fitch believes more newspapers and newspaper groups will default, be shut down and be liquidated in 2009 and several cities could go without a daily print newspaper by 2010.

Yellowpages (Negative Outlook)

Incumbent publishers will likely continue to see erosion in the advertiser base and may have difficulty offsetting volume declines with price increases, particularly in local markets that are experiencing significant housing weakness.

Terrestrial Radio (Negative Outlook)

Listenership is likely to continue to fall, available inventory should remain relatively stable, and pricing could be up on some advertisers but not enough to compensate for declines in unit sales. Internet streaming provides additional day parts to sell but should not make a material difference in the financial profile of the broadcasters.

Magazines (Negative Outlook)

Fitch expects the larger players to rationalize available print advertising inventory through consolidation and closing down titles. With limited catalysts for growth in the core print product, magazine publishers have become more proactive online. However, until further evidence of successful execution and monetization is available, Fitch remains skeptical about the ability of magazines to make the digital transition profitably.

For details see, ‘Credit Encyclo-Media: Fitch’s Comprehensive Review of the U.S. Media & Entertainment Sector.

Forrester Research adds to the gloom, predicting further declines in print subscriptions: 10% of newspaper subscribers surveyed said they plan to cut back on subscriptions next year, while 18% of magazine subscribers intend to cut back.

Publishers have not been able to build their digital businesses fast enough to offset print losses, and the economy is making that an even more difficult proposition.

If the economic downturn is prolonged, we expect to see some major publishers go down as their resources dry up.