Despite a prolonged slump in TV advertising spend, industry analysts have said that the long-term outlook remains healthy.
Last week both Seven and Nine announced cost cutting measures in response to falling advertising revenues.
At the Macquarie Conference last week, Seven CEO James Warburton said the company was looking to make an additional $20 million in cut and that he expects that the total television market will be down 11 per cent in the third quarter of this year. ‘
‘The market is still being relatively short and trending in a similar fashion … we could expect that to continue through the rest of the second half, ’’he said.
Also speaking at the conference, Nine chief executive Mike Sneesby said he expects a 15 per cent decline in the free-to-air television market and is also making additional cost cuts.
“It really becomes people and content where we have an opportunity to tighten up costs and we have tightened those (already) this year,” he said.
Quoted in The Australian, Jane Ractliffe, managing director of global advertising intelligence company Standard Media Index AU/NZ, said the large TV companies such as Nine and Seven were “well-placed” to absorb the downturn in ad spend.
“What you really have to remember is that these dips are coming off a massive year,” she said on Sunday. “In the previous financial year you had a federal election, and all the ad revenue that comes with that … the political advertising, and all the spend from different interest groups leading up to the election.
“There was also still a lot of Covid-related ad spend last year.
“So you can put this year’s slump largely down to the perils of having an abnormally large advertising spend last (financial) year. Of course, it’s impossible to have a crystal ball to know where the ad market is going. No one wants to surprise the financial markets, so it’s always better to err on the side of caution and be conservative with these forecasts.”
UBS analysts were less optimistic given the current economic uncertainty.
“For now, we remain cautious on metro FTA (free-to-air) ad market growth into 4Q given continued macro uncertainty, with company commentary suggesting April ad markets have continued to deteriorate but May and June showing some signs of stabilisation,” UBS analysts said in a note. “The additional $15-20m temporary additional cost savings is positive, but we note likely to return when market conditions improve.”
Morningstar said the Covid boost to earnings has well and truly faded.
“The positive impact of cheap money stimulus and advertiser FOMO (fear of missing out) has been usurped by economic worries and marketing spending slowdown,” it said. Morningstar’s report added that “revenue shares are growing strongly which is mitigating impact of current cyclical downturn”.
