Cuts on cards as adgrowth takes hit

Source: Nick Tabakoff, The Australian

SOME of Australia's leading media companies are preparing for a round of belt-tightening as reverberations from a likely US recession lead to predictions of zero growth in advertising in free-to-air television, radio and newspapers.

There is even talk in local media of "margin calls" extending from being purely a financial market concept to a TV programming one as part of a more hard-headed approach to individual programs if they do not generate adequate advertising returns.

Signs indicate further tough times at the Nine Network, amid recent revelations the network's debt burden has blown out by $500million in the past 18 months and stands at $4.2billion.

Media understands an annual 3per cent pay review for staff has been rejected, months after staff thought it would be implemented.

Nine's managers have been told the pay rise will be halved to 1.5 per cent.

Meanwhile, advertising sales chiefs are bracing for tougher times. Anthony Fitzgerald, chief executive of Multi Channel Network - pay TV's leading sales representation group - sees lower growth for the 2008-09 financial year.

"I see a slowing rate of growth across the board but expect total TV ad revenue will grow by 2 (per cent) to 3 per cent," he said.

Mr Fitzgerald saw no slowing until June 30 because "advertisers have strong existing ad budgets for the current fiscal year".

Seven Network sales boss James Warburton said while spending had not yet slowed, there were signs companies were being more cautious. He said ads were being booked closer to airing dates: "The market is definitely short. The cycle is down to a number of weeks on whether or not to advertise."

A report this week by Christian Guerra, chief local media analyst for broking house Goldman Sachs JB Were, has been more pessimistic, forecasting zero growth for Australia's free-to-air TV, print and radio advertising for the 2008-09 financial year.

The prediction follows downgrades in Australian economic growth and consumption forecasts on the back of the US-led global credit crunch.

Mr Guerra said corporate advertisers were "intimately concerned with broader trends in consumer spending", such as private consumption.

The report coincided with the share prices of leading media companies - including Fairfax Media, News Corporation (publisher of The Australian), Seven Media, Ten Network, West Australian Newspapers, APN News & Media and Austar - this week hitting long-term lows.

The global meltdown is occurring just as media groups begin preparing their budgets for the next financial year. As one TV source said: "April is the witching month for (2008-09) budgets."

In such a crucial budgeting period, Tuesday's departure of Nine's long-term chief operating officer, Ian Audsley, has been viewed as untimely.

One prominent TV source said there was an emerging tension between revenue and costs: "In those harder times, you either prepare to take a hit on margins or you cut costs."

One of Australia's leading media buyers, Anne Parsons, chief executive of MediaCom, said these developments were about dealing with "the cost of programs versus their ratings, which generate the yield theprograms are getting in advertising terms".

As for radio, Austereo chief Michael Anderson said: "It's going to be a very interesting 2009 (financial year) for radio. We've got a watching brief on how the market goes and we're talking to clients."

But he expected the biggest problems to come from the US and European multinationals caught up in the market woes and who advertised locally. Of Austereo's top 20 clients, only five are multinationals.

"We don't believe radio is immune to global factors, but we think it is less affected by them than some other media that are globally aligned in how they are used."

But there are signs some radio divisions are struggling. Revenues at APN's Australian Radio Network - which it jointly owns with US group Clear Channel, with assets including the Mix group of stations - fell 1 per cent for the 2007 calendar year. APN last month admitted to problems in attracting revenues, particularly in the Sydney market.

The global meltdown meant APN - which also owns many newspapers in Australia and New Zealand - abandoned its practice of predicting returns for the year ahead in its profit result last month: "Given the current turmoil in world markets, the board believes it is inappropriate to give specific projections at this time."