Credit Outlook Grim for Heavily Indebted Media Companies

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 |  Includes: CHTR, CMCSA, DIS, NWS, TWX
by: Research Recap

Despite some improvement in ratings, the credit outlook remains grim for many media and entertainment companies with unmanageable debt burdens, especially those in sectors that have not yet seen a turnaround in revenue and EBITDA, according to Standard & Poor’s.

In an Industry Report Card, S&P says further traction in the industry’s recovery is critically dependent on the prospects for a sustained economic recovery, and on consumer spending in particular. “Many of the subsectors in the U.S. media and entertainment industry rely heavily on advertising. For these subsectors, our credit outlook incorporates the following trends and expectations:

  • Online media is rebounding strongly from the recession and will continue to absorb share of total ad spending, with search-related advertising and, to a lesser extent, display fueling growth.
  • Cable and broadcast networks‘ robust 2010 upfront market (the period in which advertisers commit to ad time for the coming fall-to-spring TV season) is likely to be followed by healthy scatter market advertising (advertising sold quarter by quarter after the upfront).
  • Local TV trends, supported by recovering auto advertising and political campaign spending, will likely outpace other local media.
  • Outdoor advertising may not post positive numbers until the second or third quarters, but local radio should be able to continue its recovery (compared with severe 2009 declines) over the near term. We believe radio advertising faces long-term structural impediments to sustained growth.
  • A deceleration of revenue declines for newspapers and magazines, with a return to sustainable growth likely elusive over the near term.

A potential positive factor in the 2010 outlook is the early 2010 U.S. Supreme Court ruling that loosened restrictions on corporate and nonprofit campaign advertising spending.

For the subsectors that do not rely on advertising, technology and consumer usage shifts, along with the audience reception of content, have had a greater influence than economic trends. The collective stresses on some of these non-ad-reliant subsectors are still apparent:

  • The recorded music industry continues to report double-digit CD sales declines, and slowing growth in digital sales.
  • Movie producers continue to indicate lower DVD sales–especially for catalog titles.
  • Motion picture box-office receipts are up year to date, after a strong first-quarter increase. We still see the possibility of a full-year decline in 2010.