Analyst Anthony DiClemente also adjusted upward the 2010 outlook for cable, increasing it to 5.5% growth from a previous 2% estimate. Cable TV accounts for nearly 60% of all U.S. media profits, the analyst wrote in the report.
"Cable TV is the only advertising category that has taken share of U.S. advertising in every year since 1980, the year cable TV was born as a measured advertising medium," DiClemente wrote.
The analyst's report could augur a strong scatter market in 2010, even as the coming upfront may suffer. Apparently banking on the recession ending late this year, DiClemente said "consumer confidence has likely bottomed." He noted that the ad market tends to return to growth two to three quarters after a macroeconomic recovery.
With that as a backdrop, he upgraded his rating on the entertainment sector at large -- which has been hammered on Wall Street for months, from "negative" to "neutral." Specifically, ratings for Viacom and CBS were upgraded, while target prices for Time Warner, News Corp. and Scripps Networks Interactive -- all with successful cable portfolios -- were raised.
"Media stocks are inexpensive relative to the market and other U.S. consumer discretionary stocks, and we can no longer justify that discount, especially for cable TV business models, which are a larger part of media profits (about 60% of the total) than ever before," DiClemente wrote.
That cable business model -- collecting subscriber fees along with ad dollars -- has increasingly drawn favor from media executives. The sub fees can serve as a partial buffer against a suffering ad market.
In regard to his reversal, where he is now projecting growth in broadcast TV next year, DiClemente wrote that networks and local stations have cut costs during the downturn. A "potential return of advertising dollars will significantly boost the bottom line."
Contrary to some of the doom and gloom about the future of the local station business, which has been hit hard by a drop in auto advertising, the analyst offered a different take: "In our view, TV stations will still remain an effective medium to reach a local audience."