TV Ad Spending on Rebound After Anemic Run, Merrill Analyst Says

'Ad Market Is Finally Showing Signs of Life'

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Credit: Seokyong Lee/Bloomberg News

TV advertising is on the rise again after an "anemic" year, Bank of America Merrill Lynch analyst Jessica Reif Cohen said Friday in a webinar sponsored by Bloomberg Intelligence.

Ms. Reif Cohen, who hosted a media conference last week in Beverly Hills, Calif., said every company she spoke with cited higher TV ad spending. That part of the business has been one concern for investors, who feared TV ad dollars may be permanently shifting to online media. Advertisers may have only been holding back on spending as they reviewed $30 billion worth of accounts at the ad agencies representing them, she said.

"The ad market is finally showing signs of life," Ms. Reif Cohen said. "It's been a pretty tepid market across the board at the national level."

Media stocks collapsed last month after Walt Disney Co. said its flagship sports network ESPN was losing subscribers. After bidding up the shares following the 2008 financial crisis, investors have also grown concerned that consumers will drop cable-TV subscriptions in favor of online video services such as Netflix.

Two other themes emerged from last week's conference, Ms. Reif Cohen said. Weaker cable networks will have a harder time landing the double-digit rate increases they've gotten in the past from pay- TV distributors each time they sign a new contract, she said. And theme parks are becoming a big earnings contributor to companies such as Disney and Comcast Corp.

Philadelphia-based Comcast is undervalued, Ms. Reif Cohen said, when considering that cable TV distributors have sold recently for more than nine times earnings before interest, taxes, depreciation and amortization.

"Their business is strong and they've been gaining share," Ms. Reif Cohen said. "Having a really strong data connection will be really important" for consumers.

The analyst also likes 21st Century Fox, which she said was "really smart" for taking weaker offerings such as its Reality channel and converting them into Fox Sports 1 and 2 as part of a global push in athletics.

"They've created much more valuable channels with the real estate," Ms. Reif Cohen said. "They're kind of the ESPN outside the U.S."

Ms. Reif Cohen was less enthusiastic about Viacom, which lost its two most popular hosts on its Comedy Central this year, and has seen some smaller cable TV distributors drop its networks rather than pay higher fees.

"To the extent there is an unbundling, they're vulnerable," she said. "They may be cheap, but there's going to be issues."

-- Bloomberg News

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