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December 01, 2006

Bud Latest Company To Shift Advertising Mix

Advertising Age is reporting that Anhueser-Busch (BUD) "2007 media plans call for significant increases in marketing spending." However, not surprisingly, the company plans to shift its mix in favor of digital advertising. This is good news for internet advertising driven stocks, most likely those with strong positions in branded advertising such as Yahoo (YHOO). On the flip side, the losers appear to the broadcast television networks.

BUD's Chief Financial Officer, Randy Baker, told an investor meeting that the total advertising spend was going to rise significantly but the mix of media purchased would change "to reflect the viewing habits of our consumers." Baker noted two key mix shifts. First, more money will be spent on cable TV networks and less on broadcast TV networks. Since Baker noted that BUD's massive spending on sports would unaffected, this implies that prime time network TV would bear the brunt of the mix shift. ABC is owned by Disney (DIS), CBS is owned by CBS Corporation (CBS), FOX is owned by News Corp (NWSA), and NBC is owned by General Electric (GE). Fortunately, DIS, FOX, and GE also own a broad array of cable networks so the loss at the broadcast networks will be softened. CBS has extremely limited exposure to cable networks. The numbers here aren’t huge, BUD spent under $300 million on network TV in 2005, but given the high operating leverage in the network TV business, this is still a meaningful shift.....

The second shift is from traditional media to internet. This is old news. BUD made its intentions clear several months ago, while other large TV advertisers like Procter and Gamble (PG) have announced similar moves. In this case, only NWS through MySpace has any real hope of recapturing lost network TV dollars.

Yesterday, I discussed how advancing technology benefits content producers like DIS, NWS, CBS, GE, and Viacom (VIA). The news out of BUD reminds us that closely related technology changes are also working against these same companies.

I continue to believe that due to the momentum of its major operating businesses DIS is the best positioned entertainment conglomerates. NWS should enjoy a similar syncing of its major operating units beginning in 2007, while also benefiting from MySpace. Consequently, these are top two choices for current investment.

And I you are wondering why BUD feels the need to significantly up its marketing spend, look no further than shipment growth of just 2% for the first three quarters of 2006. #2 and #3 brewers, Coors and Miller are faring no better, with Coors up less than 2% and Miller seeing a 2% decline in shipments. Traditional media may face secular challenges, but apparently they aren’t alone.

Posted by Steve Birenberg at December 1, 2006 11:50 AM in Media