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TV Upfront Ad Sales Shaping Up Pretty Well


Upfront sales indicate solid CPM growth even as economic worries mount.

An article in the Wall Street Journal indicated that the upfront ad buying appears to be shaping up pretty well in the coming TV season. [Editor's Note: Upfront refers to the advance advertising sales for the coming TV season. During the upfront, networks sell up to 80% of their inventory. Cost-per-thousand (or CPM) is how much it costs to reach a thousand people.]

Lots of business is being written with Fox (NWSA) apparently the furthest along and gaining upper single digit CPM gains. CBS (CBS) leads the way on pricing gains, averaging double digit increases. ABC and NBC (GE) are also writing good business at mid-single digit CPM gains. Data on cable nets is sparse but Viacom (VIA) was noted as active and with broadcast nets meeting expectations for upper single digit CPM gains, cable nets should do well. If these gains hold for the broadcast nets, I'd say it is good news. It is in line with initial hopes, but given recent economic data, better than what could have been.

However, reiterating a theme I have been repeating all year, ratings matter. CBS is strongest for a reason. It sits atop the ratings race with breadth across its schedule. NBC and ABC lag for a reason. NBC has a few hits for the first time in many years but overall the schedule is still struggling mightily. ABC slipped to last place this season. Fox still tops ratings but given weakness in American Idol, its upfront looks solid. As the cable nets begin writing business, I think we will see more bifurcation between ratings winners and losers.

A widely read article on Wall Street on Monday noted that last week was one of the worst ever for reported US economic data relative to expectations. Of 21 economic releases, 18 came in below consensus expectations. This data cements the perception that US economic growth is decelerating. In fact, what it really does is turn perception into reality.

Against this backdrop, the strength in the upfront is a hopeful sign. Will it be enough to cut the tight cord between investor sentiment toward the economy and media stocks? With the prevalence of "risk on, risk off" trading using algorithms and futures and index based securities it seems unlikely. However, during May, SNL Kagan's Media & Entertainment held up better than the S&P 500 (^GSPC), falling about 4% against a drop of over 6% for the market.

Maybe investors were anticipating strength in the upfront.

Or maybe the failure of Facebook's (FB) IPO amid downgrades of the company's future growth rate made investors realize that traditional media is not dead yet. At least not national TV.

Another factor that could be helping is that political spending is starting to pick up and the Olympics are just around the corner. Mike Morris, who analyzes traditional media stocks for Davenport and Company, had a note out last week stating that his checks show improving demand for political ad spending in battleground states. This coincides with Mitt Romney wrapping up the Republican nomination allowing the presidential campaigns and the Super PACs to hit the airwaves. As the summer wears on and the political conventions approach, expect political advertising to intensify. This will occur just as the Olympics start in a couple of months serving to tighten ad markets come this fall. With a solid upfront in the books locking in advertising for the final calendar quarter, maybe, just maybe, the recent relative strength in media stocks can continue.

This column was previously published by SNL Kagan on
No positions in stocks mentioned.
Entermedia is a long/short equity hedge fund focused on media, communic= ations, and related technologies. Steve Birenberg is co-portfolio manager o= f Entermedia, owns a stake in the Funds' investment management compan= y, and has personal monies invested in the Funds. CBS and Discovery Communi= cations are widely held by Northlake Capital Management, LLC, including in = Steve Birenberg's personal accounts. Steve is sole proprietor of Nort= hlake, a long only registered investment advisor.

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