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Industry Heads Tip Ad Market to Grow

08 Jul 2011

Media chiefs think the $13 billion Australian national advertising market will recover in the second half of the year and are hopeful moderate growth in earnings is still possible, despite the uncertain economic outlook.


That is the message from The Australian's second annual survey of leading media chief executives as the industry grapples with a combination of structural technological change and cyclical downturn in retail demand.


The cautious optimism of a year ago has not evaporated, but few of the 20 chief executives surveyed were willing to predict that the consumer and political uncertainty that has clouded the outlook for media companies will end any time soon.


"We would be expecting gradual improvement in the ad market over the financial year," said Fairfax Media chief executive Greg Hywood.


"The current weakness is clearly the result of poor consumer sentiment reflected in a historically high savings rate of around 13 per cent."


Nine Entertainment boss David Gyngell said: "At present the market is quite short, with advertisers placing their bookings closer to the run date than usual -- we are not currently seeing a pickup, but because the market is so short, that could change quite quickly."


Australia's largest media agency, Aegis Media Pacific, is predicting year-on-year growth of 6 per cent for the calendar year. This is well below the previous year's 11 per cent growth rate, but at the top end of the forecasts, with analysts at Credit Suisse (5.1 per cent) and Citigroup (2.4 per cent) tipping weaker growth.


The forecasts translate to 7 per cent advertising growth for 2010-11 and again in 2011-12, according to Goodman Sachs.


"Advertising in an economy as strong as Australia's will always be strong, and growth should follow," said Aegis executive chairman Harold Mitchell. "In the short run, though, there is no doubt the lack of confidence is dangerous, because unless it is arrested it could become permanent, "That would be a tragedy for Australia, because the underlying strength of the economy is there.


"Leadership is critical. Usually we look for it to be political, but business can also lead."


Many chief executives, including Seven West boss David Leckie, ranked lack of consumer confidence as the biggest impediment to restoring growth.


But political uncertainty was nominated as a factor by Yahoo7 boss Rohan Lund and News Limited chief John Hartigan.


"Political uncertainty is exacerbating consumer nervousness," Mr Hartigan said.


"Prospects for further interest rate increases before Christmas are crushing middle Australia's confidence."


Chief executives such as Foxtel's Kim Williams and APN News & Media's Brett Chenoweth are confident the advertising market will pick up later this year, although Mr Williams said many of the growth numbers were suffering from difficult comparisons with last year's strong growth.


"In the June quarter last year the television market grew by over 25 per cent, so we are naturally seeing a correction this year," the Foxtel boss said.


There is more optimism about the online, outdoor and radio market, and to a lesser extent television, than there is for print, which faces structural challenges.


One area of broad agreement is that organic earnings growth is still possible, despite the uncertain ad market. But many executives said they would be keeping a close eye on costs, as evidenced by recent job cuts at companies such as Fairfax, Ten Network Holdings and Nine's ACP magazines.


Source: The Australian



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