Trouble under the hood

Exposure to auto advertising spells problems for some industry players

CBS Corp. and News Corp. are more at risk than their peers for advertising weakness this year and early next year because of their higher exposure to auto and financial ads amid a sluggish economy, according to a new UBS analysis.

"Due to its lower advertising exposure to autos and financials and higher mix of more economically resilient advertising partners, we view 'buy'-rated Viacom as best positioned relative to peers," UBS analyst Michael Morris said in the latest survey looking at how a sluggish U.S. economy will affect media and entertainment giants.

Viacom management argued that its fast-food and consumer staples marketing partners are less likely to cut back on ad budgets in a possible recession, making the firm more recession-resistant despite a higher revenue percentage coming from ads than at other conglomerates. In line with that, Morris predicts that Viacom's top 10 ad partners will show 5.6% revenue growth in 2008, compared with 1.7% for the top 10 media industry ad partners overall.

He said that CBS, which gets 70% of its revenue from advertising, is the most exposed among all media conglomerates to ad risks in a weak economy, followed by News Corp. (which gets 37% of revenue from advertising), Disney (38%), Time Warner (19%) and Viacom (35%).

However, CBS will feel some of the economic hit lessened by its strong position for political ads. The company, for example, reported a record first-quarter political ad haul in radio and TV.

The economic ad effect is likely to be most pronounced in the car category.

Across the media space, "autos represent a particularly high-risk business at 12% of total ad spend, with 0.6% consensus estimated revenue growth in 2008," Morris said, noting that News Corp. has four car advertisers among its list of top 10 marketing partners, CBS has three, and Disney and TW two each, while Viacom has none.

Morris highlighted that Viacom's top marketing partners also include other film and entertainment companies, and he argued that this category will not suffer even in a recession. (partialdiff)
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