Paul McIntyre: Media bulls stampeding

COMMENT

Australian media companies were drooling this week at the prospect of another round of fat profits as the first forecasts for the advertising market in 2005 indicate the media sector will crash through the A$10 billion ($10.98 billion) barrier for the first time.

Not one media owner is unhappy, because every category from TV to newspapers, magazines, radio and pay-TV will contribute to an overall rise of 10.6 per cent in advertising expenditure for 2005.

Most interesting is the internet, which, after being on the nose since the dotcom crash in 2000, is stampeding back into favour as a new media channel.

Next year it is tipped to post the biggest rise in advertising revenues with a gain of 36 per cent to more than A$300 million. No surprises in this one, but the biggest beneficiary of the online phoenix will be Kerry Packer, who, through his listed entity, Publishing & Broadcasting Ltd (PBL), owns the most popular online portal, ninemsn, in a joint venture with Microsoft. Packer, in fact, has major stakes in the three media categories expected to return the biggest ad revenue increases next year - the other two are pay-TV and free-to-air TV.

Pay TV, and that basically means Foxtel, in which Packer has a 25 per cent stake, will be the next biggest improver with ad revenues forecast to rise 21.7 per cent to $140 million. Free-to-air TV is next with a 12.6 per cent rise in advertising to $3.6 billion. PBL owns the top rating TV network, Channel Nine.

The outlook for the remaining media sectors look like this:

* Outdoor, up 12.1 per cent to A$370 million.

* Radio, up 11.7 per cent to A$950 million.

* Newspapers, up 7.9 per cent to A$3.8 billion.

* Magazines up 7.9 per cent to A$950 million.

* Cinema up 7.1 per cent to A$70 million.

It's certainly a fine and dandy time for media companies in Australia, although the only mob unhappy about the bullish scenario are corporates, who are funding the media romp - they face another round of steep ad rate increases next year because of high demand.

In fact, this year's advertising market has been so strong that one of the country's leading media forecasters, Fusion Strategy, has revised its estimates for market growth in 2004 from 7.4 per cent to 11.3 per cent.

In recent weeks, some of Australia biggest companies have been doing their best to dampen the spirits of media owners - the three commercial TV networks in particular - by threatening to shift their bucks to alternative marketing options such as direct and database marketing.

Sniffing the wind for 2005, advertisers such as Nestle and McDonald's have been unusually vocal about what they call "greedy TV networks" in their negotiations for advertising rate rises for next year.

"It's squeezing the FMCG [fast-moving consumer goods] guys out of the act," Nestle's marketing boss and Australian board director, Ian Alwill, said this week at a media forum. Alwill revealed Nestle had already doubled its database marketing budget to A$4 million this year to get around its reliance on mainstream media and TV, particularly.

One of McDonald's Australian marketing supremos, Alastair Fysh, said likewise at the same forum: "TV is still a powerful medium but there's no doubt we will be looking for other options to ensure our money is spent in the best way."

The only problem for these guys is that their threats are not sticking.

I asked the advertising sales boss at Packer's Nine Network whether the noise from some of his biggest customers had made anyone in the Nine camp blink. Fat chance.

"No," said Vance Lothringer bluntly. "You get people saying TV is too expensive. It's just that other parts of the media are too cheap. The reason they're too cheap is because they're not as effective as TV. It all comes down to effectiveness and [advertisers] know that. It's simple. The moment the market starts to bottom, TV will follow it down." And with that in mind, the TV networks are going for as much gold as they can get.

For all the bullishness, though, there are some caveats for media owners in Australia. With between 60 and 70 per cent of national advertising budgets controlled overseas, any instability in the US economy and heightening concern over its deficit could deliver a reality check. In the media recession of 2001 and 2002, multinationals cut back their Australian ad budgets in line with a sober global economy despite Australians continuing with their protracted retail spending boom. That will be something to watch.

For the time being, though, the media bulls are stampeding.

* Paul McIntyre is a Sydney journalist.