Outlook not good for ad revenue

Analyst: Situation 'likely to worsen before it improves'

Wall Street continues to turn more bearish on the outlook for U.S. advertising growth.

Amid weak ad trends reported by most media and entertainment giants in the latest quarter, UBS analyst Michael Morris on Thursday lowered his 2008 and 2009 domestic ad revenue growth estimates for the large entertainment companies to 2.9% and 0.7% from 4.1% and 2.5%, respectively. He also lowered his 12-month price targets on Disney, as well as News Corp. and Viacom, which have reported weakening ad momentum.

He also cited a sluggish U.S. economy as a key challenge for the industry. "Our updated outlook reflects negative advertising trends and the recent downward revision to UBS's 2009 U.S. GDP growth forecast," Morris wrote in a report. "Advertising growth has historically been highly correlated to GDP growth."

Given a sudden decline in ad momentum reported by several sector biggies, he predicted that advertising is "likely to worsen before it improves."

The analyst also cited UBS advertising contacts as saying that 2009 budgets are coming in "primarily flat," indicating downside to Morris' prior estimates, particularly in TV.

For Disney, the analyst lowered his calendar year 2008 ad growth estimate to 2.3% from 3.4%. For calendar year 2009, he cut it to 1.6% from 3.8%.

He reduced News Corp.'s ad gains estimate from 5.3% to 4.7% for calendar 2008 and from 0.1% growth to a 1.1% decline in calendar 2009.

Morris' Time Warner estimates came down 1.3% ad growth in 2008 from 3.5% and to 2% from 4.6% for 2009.
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