Report predicts slow advertising rebound

S&P cites 2009's credit downgrades, says more are likely

NEW YORK -- Credit agency Standard & Poor's remains downbeat on the recovery prospects for the media and entertainment sector, predicting on Friday a slow advertising rebound this year.

In a report entitled "Economic Factors Point to a Long Trudge Out of the Recession for U.S. Media and Entertainment," S&P pointed out a high number of credit downgrades last year and said "there are no assurances of a near-term resumption of industry growth."

Under the firm's base-case scenario, "more downgrades are likely, especially for companies with already-strained liquidity," S&P analyst Heather Goodchild and her team wrote. She highlighted that 76% of companies carry a B debt rating or lower, meaning they will "require favorable economic, business and financial conditions to prevent their problems from coming to a head."

Discussing the ad market, Goodchild said there has been a "downside overreaction" during the recession as the ad-spending contraction has exceeded the GDP contraction.

This will reverse in the rebound. S&P expects 2.35% of real GDP growth this year, and it forecasts this will translate into 4.2% growth in ad spending, driven by the midterm elections and the Winter Olympics.

"We do not expect many media subsectors to show any growth until the second half of the year," S&P warned, though.

In a more pessimistic economic scenario, ad spending could decline 1% in 2010; a quicker recovery could mean 6% ad growth, the firm estimates.

How about specific ad media categories?

Cable networks will likely experience a "moderate uptick largely because they suffered minimal decline in 2009," S&P argued.

Meanwhile, "broadcast networks, with tighter ad inventories than cable networks in any market scenario, could experience firming of demand that pays off with considerably stronger pricing between now and mid-2010, followed by an upfront market that benefits from more palpable signs of economic recovery," S&P said.