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Info Spanish TV: Steeped in gloom - 06-November-2008, 12:40

Spanish TV: Steeped in gloom

Last Thursday, October 30, Spains network broadcasters released what investment bankers Morgan Stanley say are lacklustre and downbeat results. The banks report makes grim reading.

Net advertising revenue shrank by 12.9% year-on-year at Antena 3 versus a 6.6% fall at Telecinco. Spanish TV adspend overall was down 8%. Profits have nearly halved at A3 and were down 13% at TL5.

As the bank expected, and as Rapid TV News commented on earlier in the week, Telecinco continued to perform slightly better than the market and significantly better than A3 despite severely challenging conditions, said the banks report.

The outlook concerning TV adspend in Spain remains very gloomy and Q408 is shaping up even marginally worse than we had anticipated, with October down between 20% and 25%. In such a difficult context, the broadcasters have started and will continue to cut costs to try and offset pricing pressures and falling volumes. We firmly remain of the view that TL5 will continue to perform and resist the downturn better than A3, but would not advise to buy the shares just now as earnings may still be at risk.

In a tough environment, to say the least, Telecinco saw NAR (Net Advertising Revenue) decline by 6.6% (-6.2% gross) vs. 8% for the market. Group revenue came in to line with our forecast at 735m while EBITDA beat our forecast by 4.6% due to much more significant cost cutting than expected. Overall, the results came in at the top end of consensus showing that, despite its relative cost efficiency, TL5 still managed to control tightly its cost base mainly through reduction of overhead expenses and increased in-house production (now reaching 85.6% of total group production).

Antenna 3s October trading was down between 20% and 25% and A3 continues to be more challenged given its low exposure to housewives, who have been typically more targeted by the less challenged advertisers this year. A3 is more exposed to Auto, beverages and finance than TL5 (more food, health, beauty). The group has lost 1% of market share so far this year (24% market share vs. 25% last year), mostly to Telecinco. Management admitted that investing in DTT while advertising is undergoing a major recession was debatable. However, to preserve its positioning on DTT, the group intends to invest 15m in production, 10m in transmission costs (same for every broadcaster, cannot be cut) and use 20m of its library on DTT. We forecast A3's DTT revenues to reach 8m in 2009e, which means that DTT will be heavily loss making yet again in 09e. However, we think it is still possible that A3 could ice some of its investments in DTT if adspend remains too low for too long.
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