Media stocks kept tumbling this week dropping to new recent lows yesterday in many cases after underperforming Tuesday’s rally. Lehman’s across the board downgrade of the big conglomerates got the latest drubbing started. Lehman’s opinion was based a new, more negative view of the risk to content creators form the transition to digital distribution. I happen to think that the secular challenge form digital distribution won’t bite for several more years. In the meantime, the problem for the media stocks is slowing advertising growth.
That was reinforced yesterday when Bob Coen of Interpublic, the patriarch of advertising forecasting slashed his estimate of US ad growth in 2008. Bob is now expecting just 2% growth this year, down from his 3.7% prediction made at the start of the year. Bob’s new forecast parallels a similar cut from Zenith Optimedia, the other major player in the ad forecast game.
Notable from Bob’s new forecast is that he also sharply cut his forecast for internet advertising, now at 12% from a prior estimate of 16%….

12% is great if you are a newspaper, radio station, or local TV station but most forecasters have felt that internet advertising would still grow 20% this year. Another interesting point form Bob’s new forecast is that he also slightly cut his global growth estimate. Like Zenith Optimedia, Bob did not cut his forecast for 15-20% growth in emerging markets but he sees weakness in Western Europe still taking a bite out of the global growth rate.
My sales of Disney and News Corp at the end of May were based on a belief that the “media recession” theme was gaining traction. Recent forecasts from Zenith, Coen, and several Wall Street analysts indicate that the media recession is reality not a theme. For the stocks, the silver lining is that estimates are coming down along with stock prices. I suspect that at least at the major conglomerates 2Q results will be as good or better than expected, though cautious commentary on 2H08 seems likely and will rule the day if it occurs. I think you should stay on the sidelines in most media names exposed to traditional sources of revenue.
As an aside, after the close yesterday I played a fast 18 holes (amazing how quickly you can go by yourself on an empty course). Coming up number 8 – along and tough dogleg par – sitting right in the middle of the fairway was a brand new Callaway ball. I couldn’t help but laugh when I picked it up and “The New York Times” was etched into the ball in its famous font. This on a day that NYT shares fell 7% to a level it traded at in 1987 before the October crash! A sleeve of those balls is going to be worth more than share soon!