Ad spending expected to slow

The Olympics and a presidential election may not be the advertising bonanza some investors anticipated.

By Jonathan Berr Jun 18, 2012 12:26PM
For investors, advertising spending is like a canary in a coal mine. Unfortunately, it's starting to chirp.

ZenithOptimedia and MagnaGlobal, units of Publicis Groupe and InterPublic (IPG), on Monday lowered their forecasts for spending. ZenithOptimedia calls for global ad spending to hit $502 billion in 2012, an increase of 4.3%. That's down from a March forecast for a 4.8% increase. MagnaGlobal lowered its forecast to $480 billion, an increase of 4.8%, versus an earlier projection of 5%.

The figures in the U.S., which call for spending to rise about 4%, are especially depressing, given that media companies should benefit from the Olympics and the presidential election. Unfortunately, there may be less to these events than meets the eye for media companies.

NBC generated strong ratings for the 2010 Winter Olympic games in Vancouver, in part because U.S. viewers were able to see much of the games live. Comcast (CMCSA) may have trouble attracting audiences to the 2012 games on its NBC cable and broadcast network because the events are in London. The network will need to persuade viewers to watch tape-delayed broadcasts instead of reading about the results online. Only a few die-hard fans will watch the games live, possibly in the middle of the night because of the time difference. The only way to counteract this trend is with compelling stories -- like the "Miracle on Ice" -- which Comcast can't guarantee.

Political ad spending also may not be the bonanza that some investors expect. The race between incumbent Barack Obama and challenger Mitt Romney will be the most expensive in history, with spending that is expected to top $9 billion. Most will go to broadcast television. Local station owners in swing states will not be able to meet the huge demand for commercial time from the campaigns. The big beneficiaries will be Comcast, CBS (CBS), Walt Disney's (DIS) ABC and News Corp's (NWS.A), which will pocket about 40% of the spending. Some people had expected that Lin TV (TVL), the owner of 17 stations in 12 swing states, would benefit from the presidential election. But Wall Street is not convinced that happy days are here again. The company's shares are down about 20% this year.

The uncertainty surrounding advertising spending will continue because the economic outlook remains cloudy. When times are tough, it is one of the first things companies cut. Much of the good news about these stocks is already baked into their price. The fact that experts are predicting that companies will increase spending only a relatively modest amount in an Olympics and presidential election year is worrisome.

Jonathan Berr is long CBS.  Follow him on Twitter@jdberr.

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125
125 rated 1
264
264 rated 2
485
485 rated 3
679
679 rated 4
640
640 rated 5
617
617 rated 6
632
632 rated 7
493
493 rated 8
276
276 rated 9
153
153 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.