Media Maven: Ad Outlook March 2012
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Media Maven: Ad Outlook March 2012

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Coady Diemar Partners provides M&A, strategic and financial advisory services and private capital market advisory services to clients. We are a valued partner to management teams, boards of directors ...

Coady Diemar Partners provides M&A, strategic and financial advisory services and private capital market advisory services to clients. We are a valued partner to management teams, boards of directors and investor groups who seek high-quality, objective M&A and financial advice and institutional capital raising expertise in support of building successful enterprises.

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Media Maven: Ad Outlook March 2012 Document Transcript

  • 1. Media Maven AD SPEND UPDATE –2012 LOOKS PROMISING, DIGITAL ASCENDANTMarch 2012 Volume 11Advertising spending started as a promising year in 2011 and then lost steam commencing in the secondquarter. This slowdown was exacerbated by the loss of auto ad spending after the Japanese tsunami,which disrupted supply chains and made it difficult for autos to reach local dealerships. According toMagna Global, after growing by 4.3% in the first half of 2011, advertising slowed to 2.3% growth in 3Q2011 and to 1.1% in 4Q 2011. We have talked to numerous media companies that witnessed a significantlull in advertising activity between Thanksgiving and Christmas. A common refrain we heard from manymedia executives was that “December failed to show up”.Fortunately, after listening to several media companies report 4Q 2011 results and provide 1Q 2012guidance in recent weeks, it would appear that the weakness in latter half of 2011 was a blip, not a trend.After a relatively sluggish January business appears to be improving.2012 Agency Ad Forecasts – 3%-4% GrowthZenithOptimedia, a division of Publicis Groupe, recently updated their 2012 global advertising forecast to4.8% growth, up from their 4.7% forecast from December 2011. Zenith also raised their forecast for U.S.advertising in 2012 to a 3.6% gain, up from their previous forecast of a 3.5% increase. Magna Global, adivision of IPG, also provided a 2012 outlook recently. Magna’s outlook of a 3.7% increase in U.S. adspend is virtually equivalent to Zenith’s outlook.Both Zenith and Magna’s outlook assume that relatively subdued consumption growth will result incautious marketing expenditures, but that this will be augmented by cyclical incremental advertisingexpenditure from the Summer Olympics in London and political advertising related to presidential,congressional and gubernatorial elections. Due to the relaxation of campaign finance rules, super PACsare now allowed to raise and spend unlimited amounts to run political or issue advertising. Olympic andpolitical advertising are projected to contribute nearly half (1.7%) of the 3.6%-3.7% growth that isprojected in 2012. As usual, we expect local TV broadcasters to be the main beneficiary of politicaladvertising.Perhaps the real question for 2012 (and beyond) relates to better understanding the share shifts that havetaken place in ad spend over the last several years. Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
  • 2. Media Maven: 2012 Ad Spend Looks Promising Page 2Share Shifts in Advertising – Long Term Historical TrendsBroadcast television remains the largest medium, and is shown as two distinct mediums in the chartbelow: national broadcast/syndication (10% of ad spend) and local broadcast television (9%).We find it interesting that the 2nd and 3rd largest advertising mediums today, cable television and onlineadvertising, barely existed 30 and 15 years ago, respectively. As shown in the chart below, onlineadvertising now accounts for 18% of ad spend and cable TV accounts for 15%, both having grownsubstantially over the last decade.Not surprisingly, newspapers share of ad spend has decreased from 38% of ad spend in 1980 to 12% in2011 while magazine share has declined from 16% to 9%.Share of Media Ad Spend By DecadeSource: MagnaGlobal2011 Advertising Spend Recap2011 saw a continuation of these longer term trends with cable TV and internet advertising continuing totake share from print (newspapers and magazines). Zenith recently concluded that the U.S. advertisingmarket increased by 2.3% in 2011 to $165.4 billion from $161.7 billion in 2010. Zenith’s analysisshowed that internet (+12.6%) and cable TV (+12.0%) were the strongest advertising mediums in 2011,while newspapers (-8.5%) and B2B publications (-4.0%) were the weakest.Zenith’s 2011 growth estimates by advertising medium follow on the top of the next page. Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
  • 3. Media Maven: 2012 Ad Spend Looks Promising Page 3Source: ZenithOptimediaIn the chart below, we show the major advertising categories (often referred to as measured media), andapply Zenith’s growth rates by medium, in order to determine which advertising medium generated themost incremental revenues in 2011.As shown in the chart on the left, ad spend grew by an incremental $3.8 billion in 2011, and as shown inthe chart on the right, both internet and cable TV enjoyed incremental revenues of $3.2 billion in 2011.Most of the incremental advertising flowing to cable TV and online advertising likely came from a shareshift from newspapers. Or put another way, approximately 58% of the $3.8B in incremental ad spend in2011 can be explained by a $2.2B share shift out of newspapers.2011 Growth - by Advertising Medium 2011 Growth - Sorted by Medium Est. Growth Incremental IncrementalMedium 2010 2011 (a) 2011E Revenues Medium Revenues Spot TV $15,558 (4.2)% $14,905 ($653) Internet $3,281 Syndication $4,111 10.0% $4,522 $411 Cable Networks $3,269 Network $24,967 (2.4)% $24,368 ($599) Spot TV $622Broadcast TV $44,637 (1.9)% $43,795 ($842) Radio $346Cable Networks $27,242 12.0% $30,511 $3,269 Outdoor $246Internet $26,041 12.6% $29,322 $3,281 Magazines $0Newspapers $25,838 (8.5)% $23,641 ($2,196) Broadcast TV ($41)Magazines $15,623 0.0% $15,623 $0 Syndication ($164)Radio $17,287 0.6% $17,396 $109 Network TV ($499)Outdoor $6,143 3.0% $6,327 $184 Newspapers ($2,196)Total $162,810 2.3% $166,616 $3,806(a) ZenithOptimedia estimates Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
  • 4. Media Maven: 2012 Ad Spend Looks Promising Page 4Digital Share Continues to IncreaseFor years, the discrepancy between time spent online and ad spend in online advertising underscored thesubstantial revenue opportunity and prospective growth in online advertising. A few years ago, thediscrepancy between time spent online and ad spend was nearly 2-to-1. In December, eMarketerprovided an updated view of the time spent vs. ad spend comparison, and it is notable that the disparitybetween time spent (26%) and online ad spend (22%) has narrowed substantially, as shown below, whilestill representing a substantial opportunity.In fact, the largest disparity between time spent and ad spend now resides in mobile advertising, as 10%of time spent is with mobile devices, but only 1% of ad spend currently targets mobile viewers, as shownin the chart below. We expect this gap to narrow over time, particularly as marketers demonstrate agreater appreciation for the magnitude of the growth in consumer mobile usage.Mobile and Video Grab Larger Share of DigitalAccording to an eMarketer and ValueClick survey, digital advertising budgets for U.S. marketers in 2012are expected to mirror consumer usage trends, resulting in more mobile and digital video advertising. In asurvey of U.S. marketers, nearly half (49%) planned to increase their ad spend on online video, and nearlytwo-thirds (66%) plan to increase their mobile budgets for 2012. Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
  • 5. Media Maven: 2012 Ad Spend Looks Promising Page 5The success of Apple’s iPad and tablet trends in general bode well for growth in ad spend on mobile.Apple sold 55 million iPads after only 7 quarters on the market, substantially exceeding unit sales of theiPhone (17 million) after the same period of time. This does not include the 3 million “iPad 3” tabletsthat were sold in the first week on the market in mid-March. With tablets much more conducive to bothbanner and video advertising than smartphones, we expect continued migration to online video andmobile advertising in the coming quarters and years.Upside in 2012 Ad Spend for Online, TV and RadioMagna Global forecasts a moderation in the growth of digital advertising, from 21.4% in 2011 to 10.9%growth in 2012. However, this growth will be spurred by continued strong gains in paid search (+12.6),online video (+22.4%) and mobile advertising (+44.2%). Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
  • 6. Media Maven: 2012 Ad Spend Looks Promising Page 6Source: Magna GlobalMagna’s 2012E growth forecast by advertising medium results in newspapers losing another 150 basispoints in share, with virtually the entire increase going to digital (internet).We believe Magna may be too conservative in their outlook, particularly with respect to internet, TV andradio.Online:With respect to the internet, Magna’s outlook results in a significant slowdown in growth in 2012 relativeto 2011. In 2011, internet advertising is likely to have increased from $26 billion to $31 billion (+18.5%).We believe that revenue increases, particularly in online video and mobile are likely to drive incrementalad spend at the same rate as in 2011, which would result in approximately mid-teens growth in 2012,significantly more than their 10.9% projection.A recent report from eMarketer supports this view. Earlier this month, eMarketer compiled 2012forecasts for the top 5 online display advertising companies. As shown in the chart below, online displayadvertising among the “Big 5” are projected to increase by 33% in 2012, which would drive overallonline display revenue growth by 24%, more than twice Magna’s forecast. The top 5 would increase theirshare of overall online display advertising to 51% from 47% in 2011, as shown below.Top 5 - Online Display Ad RevenuesDisplay Revenues ($Bn) 2011 2012 % GrowthFacebook $1.73 $2.58 49%Google $1.71 $2.54 49%Yahoo $1.35 $1.40 4%Microsoft $0.56 $0.67 20%AOL $0.53 $0.62 17%Total Top 5 $5.88 $7.81 33%Total Online Display $12.40 $15.39 24%Top 5 - % of Total 47% 51%Source: eMarketer Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
  • 7. Media Maven: 2012 Ad Spend Looks Promising Page 7Spot TV:We agree with Magna’s overall growth rate for TV and, to drill down further, we expect cable TV togrow by mid-to-high single digits; syndication revenues to grow by low single digits; network TV togrow by mid-single digits (driven summer the Summer Olympics); and local spot TV to increase bydouble-digit revenues, as local TV stations remain the #1 destination for political and issue advertising.2012E TV Revenue Growth Estimated 2011E 2012E Growth Spot TV $15,093 $16,603 10.0% Syndication $4,676 $4,817 3.0% Network $24,329 $25,789 6.0%Broadcast TV $44,099 $47,208 7.1%Cable Networks $29,243 $31,290 7.0%Total TV $73,342 $78,498 7.0%Source: TVB, Cable Advertising Bureau, Coady Diemar PartnersWe track 20 publicly traded media companies that report results of their TV station groups. These stationgroups accounted for $8.0B in advertising revenues in 2010. In 2010 (the last political year), revenuesincreased by 21.4% over 2009 levels, with political advertising 10% of revenues in 2010. This impliesthat even if all other advertising categories are flat, then TV station revenues should grow by 10% in2012, assuming political remains a 10% category.The 2010 Supreme Court decision in Citizen’s United v. Federal Election Commssion, effectively equatedthe idea of political advertising as free speech, and resulted in two developments: 1) it eliminated thelongstanding ban on corporate political spending, and 2) it effectively ended the limits on how muchindividuals can give to political action committees (PACs). Most advertising agencies are projecting mid-teens growth in political advertising in 2012 (vs. 2010), which would put 2012 levels on local TV stationsin the $2.5-$2.6 billion range.TV station groups will also benefit from improving trends and easy comparisons related to the autoadvertising category. Auto is off to a start strong this year, with several station groups reporting auto ispacing ahead strongly in 1Q 2012. February auto sales rose nearly 16% and annual sales jumped to 15 Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)
  • 8. Media Maven: 2012 Ad Spend Looks Promising Page 8million vehicles, the best monthly showing since February 2008. Auto ad spend comparisons should getsignificantly easier in coming weeks and months, as this time last year, auto advertising pulled backdramatically following the Japanese tsunami, which disrupted supply chains and made it difficult forvehicles to reach the dealer lots.Radio:Radio is off to a relatively slow start in 2011, partly as a result of the late 2011 “hangover” still impactingresults at the start of the year. We expect radio station groups to report flat revenue growth in 1Q 2012.However, we expect trends to improve in subsequent quarters, as radio stations will also benefit frompolitical advertising. We expect political to account for 1.5%-2.0% of industry revenues in 3Q 2012 andwe expect political to add about 4 percentage points to growth in 4Q 2012. As a result, we see radiorevenue growth in the 2.5%-3.0% range for 2012, not -0.8% as Magna has predicted.Final ThoughtsWe believe the advertising marketplace is poised for a good year in 2012, given the backdrop of agradually improving economy, the return of political and Olympic advertising, and a strong return on autoadvertising, driven by easy comparisons and the improving strength of new car sales. These trends,combined with significantly improved balance sheets across traditional media companies, set the table forpotential investor friendly activities such as share buybacks, increased dividends and increased mergerand acquisition activity.Sincerely,Chris Ensley(212) 901-4160chrise@coadydiemar.comAbout Coady Diemar PartnersWe provide mergers and acquisitions, private capital markets and strategic advisory services to growthcompanies in a number of industries. We have a breadth of transaction experience, industry knowledgeand institutional relationships and provide clients creative solutions and unparalleled access to ideas andcapital. We are acutely sensitive to the specific and unique requirements of each client and opportunity.For more information on Coady Diemar Partners, visit our website www.coadydiemar.com. ContactColin Knudsen at colin@coadydiemar.com or Chris Ensley at chrise@coadydiemar.com for additionalinformation or to arrange a meeting.If you currently do not receive our newsletters and would like to be added to our distribution list, pleasecontact Ryan Williams at ryan@coadydiemar.com. Independent Advice. Seamless Execution.This announcement is neither an offer to sell nor a solicitation to buy securities. This announcement appears as amatter of record only. Copyright (C) 2011 Coady Diemar Partners, LLC. All rights reserved. Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)