The gloomy outlook for media companies could continue longer than expected, according to Credit Suisse, which has slashed its earnings estimates for the industry further and warned that advertising demand may not recover before 2012.
The broker's pessimistic forecast will dampen hopes expressed by some media executives that demand, having deteriorated further this year, would start to pick up next year.
Two Credit Suisse analysts, Finola Burke and Belinda Tilbrook, said the worse-than-expected first-half results reported by media companies last month pointed to a longer and deeper advertising recession. Hardly any player could predict conditions beyond the end of this month because bookings from advertisers had become so short-noticed.
"We have found little to convince us that the advertising downturn will be short and sharp," the analysts said in a research note published yesterday.
The June half was likely to be the toughest for television broadcasters and newspaper and magazine publishers.
The broker reduced the share price targets for all the media stocks it covers and said the $12 billion advertising market would probably slump 7.2 per cent this year, with metropolitan newspapers and TV networks the hardest hit.
Growth in pay TV and online advertising sales would slump "dramatically" from 27 per cent in 2007-08 to 4.1 per cent next financial year.
"Corporate Australia's capacity to refinance its debt obligations will be the key determinant for business investment, corporate profits, business confidence and ultimately employment growth. These factors, in turn, will drive a large part of advertising expenditure."
Credit Suisse was not confident of a recovery in those conditions until 2011 she said, "hence have pushed out our advertising recovery until 2012".
The broker downgraded the James Packer-backed online site Seek to 'underperform'. It retained its 'outperform' rating for Fairfax Media, publisher of the Herald, arguing the risks from the downturn "were more than priced in."
The researchers expect the brunt of the decline to be borne by metropolitan newspapers and the television networks. "We forecast the only segments to grow advertising revenues will be subscription TV and online advertising, albeit their rates of growth are expected to dramatically decline," they wrote wrote.
"Excluding search, we are now forecasting a decline of 2 per cent in online advertising in both fiscal 2009 and fiscal 2010."
There was a bloodbath in the media sector during last month's reporting season, with most companies admitting to falling earnings and writing down the value of assets. "It was apparent from the muted commentary from companies that advertising visibility remains poor and ad spending is volatile," the Credit Suisse report said.
"History tells us that a falling or stalling economy, such as we saw in the early 1970s, early 1980s and early 1990s, has a detrimental impact on advertising," the report said.
Newspapers which are heavily reliant on classified advertising will be worst hit, suffering an 11 per cent drop in advertising revenue this financial year, the analysts said.
Conversely, the best-performed companies will be pay TV providers and those offering online advertising. The analysts said pay TV advertising revenue would increase by 2.4 per cent this year, although that is significantly down on last year's figure of 27.9 per cent.
Free-to-air TV will experience a drop in advertising revenue of 8.9 per cent his year, while radio revenue will fall 4.7 per cent.
While the report did not mention News Corporation, which reported a $7.6 billion ($A11.9 billion) loss last month, it is believed forward advertising is down at the company's Australian newspapers.