Economy seen hurting cable TV ad sales

NEW YORK (Reuters) - A surprising shortfall in Viacom Inc's cable advertising sales is sparking concerns ad spending could crater in the coming months and reverberate across what was considered the hot spot in television.

As major corporations try to stretch their marketing dollars as far as possible in a deteriorating economy, they have turned to the Internet and public relations as alternatives to traditional venues such as TV and print.

That helps explain why advertising and marketing conglomerate Interpublic Group of Cos Inc reported one of its best quarters of revenue growth in years this week.

But the switch hurt Viacom in the second quarter and could continue to plague it this year. The shares of Viacom, which owns MTV Networks and Nickelodeon, fell as much as 5.5 percent on Wednesday after it said U.S. cable ad sales grew a meager 1 percent, missing its own downgraded projections for a 3 percent to 4 percent lift.

News Corp and Time Warner Inc are scheduled to report results next week. They have not warned of any second-quarter shortfalls, but analysts and advertising industry executives say Viacom probably is not alone beyond that.

Walt Disney Co's ESPN reported "low double digit percentage gains" in ad revenue on Wednesday. Disney executives told investors that weakness in autos and consumer electronics had hurt its sports cable franchise.

"Companies are starting to cut back," said Steve Lanzano, chief operating officer for the U.S. division of advertising services company Havas SA's MPG. "You could see it in the scatter marketplace that's really softened up in third quarter," he added, referring to the spot market where advertisers buy short-term commercial time.

"If things don't turn around, 2009 will be a very difficult year."

Viacom declined to project third quarter ad sales, blaming weakness in the autos, retail and consumer packaged goods industries for clouding its view.

Other companies with cable networks may fare better for now, either because they have hit shows such as AMC's "Mad Men" or feature exclusive programming such as NBC Universal's broadcast of the 2008 Beijing Olympics, analysts said.

Cable networks, particularly those owned by News Corp and Time Warner, are also seen as prime beneficiaries of a migration of audiences from broadcast to cable.

These viewers tend to be older, which actually hurt some of Viacom's most popular youth-focused networks, Viacom Chief Executive Philippe Dauman told investors on Tuesday.

"The problems at Viacom may be company-specific and certainly NBC Universal is likely to outpace the market in the third quarter," SNL Kagan analyst Derek Baine said of Viacom's latest report.

Baine pointed to second quarter ad sales at Scripps Networks Interactive Inc, which owns the Food Network and HGTV, rising 11 percent as one example of the sector's resilience.

That may be cold comfort for big media conglomerates. CBS Corp reports on Thursday, News Corp next Tuesday, followed by Time Warner Inc next Wednesday.

Although the portfolios of each conglomerate varies, making sweeping generalizations difficult, what unites them is a fear that a dramatic halt in newspaper and local advertising could seep into national advertising, namely cable and broadcast networks.

It is all the more troubling because cable networks are seen riding a high as their shows vie for award nominations as aggressively as they court broadcast viewers.

Cutbacks in marketing dollars brought on by a persistent malaise in the economy is seen eating away at the sweet spot in television advertising.

"Cable is still growing and more efficient. But it goes to show that what happens in the overall economy is starting to hit advertising," Lanzano said.

RBC Capital Markets media analyst David Bank agreed.

"Is the read through (on Viacom's results) that the advertising economy, particularly in cable, is weak across the board? That's a pretty fair read through," he said.

(Editing by Andre Grenon)