Bumps in the advertising road came into focus with trading updates from outdoor industry leader oOh!media warning of a softening market, and from networks Seven and Nine forecasting negative metro TV growth.
Analysts believe the potholes will be temporary for oOh!media, whose share price suffered from its “softening” description of the market, because it has a superior structural advantage with outdoor media.
However, the rest of the media industry is prepared for a downturn after the strong run post lockdown in 2021.
Inflation and war are here, supply chain issues persist, and consumer confidence is frayed.
And all that means that the COVID-19 boost to advertising earnings is fading.
“The positive impact of cheap-money stimulus and advertiser FOMO has been usurped by economic worries and marketing spending slowdown,” says Brian Han, Morningstar equities director.
Global advertising agencies are doing well because of a shift to expertise in technology, data and ecommerce.
Omnicom posted 5.2% growth in the March quarter, WPP reported a 2.9% rise in net sales and Publicis Groupe came in with superior organic growth of 7.1%.
Television is in another place.
Analysts at investment bank UBS are cautious on metro free-to-air advertising market growth into the June quarter.
They cite “continued macro uncertainty, with company commentary suggesting April ad markets have continued to deteriorate but May and June showing some signs of stabilisation”.
UBS expects a 22% fall decline in metro FTA ad markets in the June quarter compared to the same three months last year.
But the analysts have improved their outlook for the full year to June to -12% from -13%, reflecting a slightly better March quarter.
UBS' metro TV forecast:
Both trading updates from Seven West Media and Nine Entertainment last week warned of a weaker advertising market.
Seven identified further costs cutting in case overheads need to be reduced,
However, market analysts see Nine in a good position, despite a slower ad spend, because the network has been gaining a greater share of metro free-to-air ad spend.
“Nine has the balance sheet to withstand the near-term cyclical challenges,” says Brian Han at Morningstar.
Nine’s trading update was in line with expectations, according to Investment bank UBS, in a note to clients.
And a big positive was Nine’s 45% share in metro free-to-air and 56% in BVOD;
The analysts see other upside in the update including Nine’s outlook for a slightly better than expected forecast for a 15% fall in metro TV free-to-air ad revenue in the current June quarter.
Also price increases in digital, both in publishing and streaming platform Stan, are working with few dropouts.
“Overall, we remain positive around … growing exposure to digital assets, which are likely to see continued opportunity for growth, despite macro challenges,” the analyst said.
The biggest surprise for the analysts is that Nine is sticking to its full year guidance for EBITDA (earnings before interest, taxes, depreciation, and amortisation) of $590 million to $600 million.
On the market as a whole, media agencies see TV hitting a bump rather than a slide.
In March, according to the SMI (Standard Media Index), an expected sharp drop off in government spend was behind most of a 5.5% for the month.
The same month last year was a frenzy as the nation prepared for a federal election in May and the new Labor government is spending significantly less on advertising than the previous regime.
With the impact of government spend removed, the underlying dip in advertising revenue was 1.5% in March.
Joe Frazer, head of growth at Half Dome, is not worried about the slide in TV and suspects this is more of a correction.
“The next six months will be a good watch, the economy and inflation could have small, medium, or significant impacts on how we see clients investing, and I personally believe we might see ad spend enter a period more reflective of the global economy – which presents opportunity for intelligent clients and agencies,” he says
Craig Cooper, chief investment officer for Carat, expects the second half will see ad spend improve from government compared to the March quarter.
“The (global) economy continues to be challenging for many clients and has resulted in some cautiousness with ad spend,” says Cooper.
“But we know that maintaining or increasing investment during these times should positively impact long term sales volume and market share for brands.”
Gaby Srour, media director at Avenue C, anticipates that by the months’ end consolidation of the declines should be closer to -3% and still remain higher than 2019 figures.
“This is an extremely positive outcome, considering the current economic outlook,” he says.
“Linear TV and radio continues to see ad spend declines in the double digits across Q1 2023, meanwhile the digital counterparts of BVOD and audio streaming are seeing reported SMI growth representing 10-15% of total channel spend,” says Srour.
“Interestingly Nine had an extremely strong quarter against linear TV, while the network enjoyed a strong 42% audience share against major demographics, its commercial share punched above its weight delivering 47%.”
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