• by Jack Loechner , Staff Writer @mp_research, December 11, 2009

The Fitch Ratings Report on the outlook for the Media & Entertainment sector for 2010 believes the worst of the advertising downturn has passed, but the risk of a double-dip recession remains present going into 2010. With political and Olympic ads tightening available ad inventory, the analysis expects ad pricing to stabilize (flat to plus/minus low single digits) in 2010 against prior-year comparable periods.

Some mediums will be left behind even in an ad recovery, says the report:

• Newspapers, yellow pages and consumer magazines are expected to be down due to permanent shifts in advertiser sentiment and excess ad inventory 
• Radio is likely to be flat to down slightly
• Outdoor should begin a slow recovery later in the year
• Broadcast TV will be an early beneficiary of increased ad demand
• Cable nets and large market TV broadcast affiliates expected to participate in a potentially modest rebound

According to Fitch, the economic downturn has begun to reshape the competitive landscape in favor of financially and operationally stronger entities. The report indicates that this will be a gradual, multi-year process as the current glut of ad inventory (particularly in local markets) will endure. Balance sheets of weak local players will continue to be restructured, ad capacity from fringe enterprises could remain in place, new ownership will delay the failure of certain newspapers, and outdoor displays will remain empty rather than be torn down. The affect of these things will be a degree of pricing and margin pressure that negatively affects both strong and weak local ad-market participants in the near term.

Audience fragmentation will persist throughout 2010, says the report, but the pace of legitimate new media entrants should slow. The report says the field of legitimate on-line platforms is possibly set in video and music, and does not expect new Internet radio platforms to emerge. The shift of viewers in video will occur to existing players, including the conglomerates' own sites. Recent efforts for cross-media measurements will stay at the forefront in 2010, while the pace of new cable networks will slow.

Time-shifting will continue in 2010. The study is cautious regarding the benefits to advertisers of DVR usage, as it says that it is not illogical to extrapolate the fast forwarding of commercials largely offset by increased viewing with an expanding universe of users. The report expects time shifting to be most detrimental to local broadcast affiliates.

Additional projections from the report include these expectations:

• The report does not expect canceling cable subscriptions and going online only (Cutting the Cord) to be a major threat in 2010. While viewers want 100% on-demand optionality, they also want a back-bone of live TV channel line-ups.
• The TV Everywhere concept appears to be a sound secular risk mitigation initiative, but distribution companies may face challenges in convincing content companies to broadly sign-on. Some content companies, says the report, may push for incremental pricing on 'authentication' offerings. Any incremental pricing that is packaged in a way that gives the content companies the ability to reach consumers without the distributors runs the risk of having consumers migrate towards a la carte viewing habits, opines the author.
• Increases in movie piracy will exacerbate existing pressure on DVD sales from the recession and kiosk pricing. Websites and P2P protocols are now available that allow the streaming and illegal sharing of video without onerous download times. FCC's recent statements specifically exclude illegal activity are a positive development for content companies. The report says that it does not expect piracy to be a material concern for the TV studios so long as incremental pay walls are not erected around TV content.
• Fitch expects pay walls will be erected and dismantled in 2010 as media companies (with print products) experiment with charging users for online content and are ultimately disappointed by the results. Most media companies have too many competitors in their content niche to compel users to pay, says the report, and any attempt to exact price increases on the remaining paying users is more likely to accelerate their departure toward free alternatives than to offset the ad dollars lost from the lower audience base.

To view the complete report, with registration, please visit Fitch here.