Grim word for UBS: 'Down 10 percent is the new zero'

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Let the wailing begin.

Today marks the opening of the 36th edition of the annual three-day extravaganza known as the UBS Global Media and Communications Conference. It's where titans of the industry meet analysts, investors and reporters to review the current year and look ahead to the new one.

Traditionally, CEOs and CFOs at this and other conferences paint the best picture possible, emphasizing strengths and sidestepping messy questions. But now the recession is official, the auto industry is in turmoil and the ad market is uncertain, and many see little chance of it all getting better anytime soon. The media moguls are facing their biggest PR challenge in years.

Just what are they going to say?

The level of bullishness of some entertainment moguls at investor conferences already has declined in recent months. No one dares shrug off the economic downturn and its effect on the ad market anymore, as happened in the early part of 2008.

The opening session likely will set a down tone for the UBS gathering, with veteran ad forecaster Bob Coen and others discussing ad trends for 2008 and the outlook for 2009.

"Nobody's got a good story to tell," said CNBC's David Faber, who will be there to cover the conference. "It's just who's less bad."

Every major media conglomerate is represented. News Corp., CBS Corp., Time Warner, NBC Universal and Viacom will all get their hour of face time, headlined by Leslie Moonves, Jeff Bewkes, Jeff Zucker and Philippe Dauman.

So will execs from the challenged local TV sector, such as Belo, Nexstar, Sinclair and Entravision.

And if that isn't enough potentially bad news , how about radio? Cumulus Media will be there to discuss the sector on top of Moonves' comments on radio.

If that still isn't a complete bummer yet, there are representatives of the newspaper sector — including execs from A.H. Belo and the New York Times — which has recorded some of the biggest layoffs in media amid the current downturn.

Still, don't expect media biggies to offer much specific guidance for 2009. After all, some, such as Viacom and NBC Uni, have only in recent days announced job cuts, and no one really knows how things will shake out after the recent financial crisis and pace of the downturn surprised many.

"There's very little transparency at this point into next year," one media executive said. "We all see the same things. We put the TV on, and we see the automakers and the struggles they're having. We read the papers."

Veteran media analyst Harold Vogel, president of Vogel Capital Management, thinks investor conferences are an obligation for companies and key from a PR perspective.

"It's important to talk when the news is bad, not just when it's good," he said. "The down 10% is the new zero. That's the attitude."

Carmine Gallo, a communication skills coach for Fortune 500 executives, suggests that entertainment CEOs could learn from former British Prime Minister Winston Churchill, who turned public opinion against a capitulation to Nazi Germany during World War II. Gallo said Churchill's success was based on his acknowledging reality but following it up with an enthusiastic and detailed promise on how to turn things around.

"That's the outline for a motivational presentation in times of crisis," Gallo said. "Acknowledge reality; lay out a game plan; and drive home a soaring, hopeful conclusion."

Mark Fratrik, a media economist and vp at BIA Financial Network, also expects such a mixed approach.

"They're going to acknowledge the tough times that they find themselves in, but in any event, they're going to be cautiously optimistic going forward because they have strategies in place that they think will succeed," he said.

That means that there will be, amid the gloom, a lot of accentuating the positive. For some, it won't be an act.

Discovery Communications, a relatively new player at investor conferences, has a pretty good story to tell, observers say. It's got growing ratings at its domestic channels and 48% of its operating cash flow coming from subscriber fees.

"Our focus is the Discovery business model, which we think is foundationally pretty strong," Discovery CEO David Zaslav said. But even he isn't under any illusions. "The recession is going to affect everybody in media," he said.

Expect to hear references to the second half of 2009 and to 2010 because many a company has as of late highlighted that it is strengthening and streamlining its business for the longer term to benefit once a recovery comes about.

Also, expect investors to ask where media firms put capital in these hard times and why they expect to see growth and make a return there.

"It's really challenging in a down time to say, "I want to invest $25 million in something while I'm laying off people on the other side,' " Fratrik said. "It's challenging, but you have to do it."

For example, investors have at times expressed doubts that Viacom is successfully investing in new content given continued ratings challenges. The company last week announced a write-down of the value of programming assets, which relaunched this Wall Street debate. "The sizable programming write-down raises questions about the current management's ability to effectively program their cable networks to drive ratings," Sanford C. Bernstein analyst Michael Nathanson said in a report.

Beyond that, Vogel and Gamco Investors portfolio manager Larry Haverty think that one of the UBS gathering's themes might be looking to a potential recovery sometime later in 2009.

"Hopefully this is the bottom right now," Haverty said, adding that in 1974 the market bottomed in early December, too. "Media and entertainment stocks are very, very cheap."

Even if CEOs don't talk up a rebound in the back half of 2009, investors may do so in the hallways, he argued, suggesting that cheap Blu-ray Disc player sales could strengthen DVD sales trends and a possible auto bailout could lead to an auto ad rebound late next year as manufacturers promote new energy-efficient cars for 2010.

But Vogel said such a 2009 recovery scenario probably will prove to be an illusion; he forecasts a weak recovery followed by a fuller, deeper slide in 2010.

One final key theme among entertainment conglomerate CEOs at the UBS conference could be the potential SAG strike, which Haverty said would be "truly insane" at this time.

"That's one thing that could really make things much worse for the industry," he said.
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