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Reassessing The Pace Of Recovery For U.S. Media


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Reassessing The Pace Of Recovery For U.S. Media

Just over six months ago, as the first COVID-19 cases hit the U.S., we began to speculate on the extent of the economic downturn and the impact on the media and entertainment industry. Today, the U.S. remains mired in the pandemic, with no real clear line of sight back to normal.

Our updated conclusions for the U.S. media sector after six months of the pandemic are:

  • S&P Global Ratings economists now expect U.S. GDP to contract 4% in 2020 (previously a decline of 5%), then increase modestly 3.9% in 2021 (previously growth of 5.2%).
  • We are revising our 2020 advertising forecast to a decline of 9.4% (previously a decline of 12.4%) and lowering our growth expectations for 2021 to 10.3% (previously 14.2%).
  • While still contracting in 2020, advertising appears to be performing in line with, if not somewhat better than, our May 2020 expectations.
  • We are increasingly concerned that out-of-home (OOH) entertainment segments will not recover until a COVID-19 vaccine is broadly available (likely not until mid-2021) and that credit measures for many OOH companies may not return to pre-COVID-19 levels until at least 2022, if not 2023.

Updated Economic Forecast

S&P Global Ratings economists recently updated our economic forecast for the U.S. Key takeaways from that report include:

  • The U.S. economy has taken a few promising steps toward recovery, with consumer spending largely resilient through the summer and the unemployment rate declining a bit more than we had forecast (though still in recession territory). We expect a 29.5% bounce in third-quarter GDP, which will only partly offset massive losses in the first half.
  • While the drop in the unemployment rate to 8.4% in August from its post-1947 record high of 14.75% in April was a relief, that was likely the easier half of the jobs market recovery. We don't expect it to reach its pre-pandemic level until mid-2024.
  • For full-year 2020, real GDP is likely to contract 4% (it was a 5% drop in our June forecast) and increase a modest 3.9% in 2021 (5.2% in June).
  • As this sluggish recovery unfolds, three big risks remain: no coronavirus vaccine yet available as the country heads into flu season, lack of new fiscal stimulus, and trade tensions with China on the rise.

Table 1

S&P Global Ratings U.S. Economic Outlook
September 2020 baseline estimates
Key indicator 3Q 2020 4Q 2020 2020 2021 2022
Real GDP (%) 29.5 3.5 (4.0) 3.9 2.4
Consumer spending (%) 38.1 3.0 (4.4) 4.9 3.1
Unemployment rate (%) 8.9 7.9 8.4 6.7 5.7
Sources: Oxford Economics, S&P Global Economics' forecasts.

The health and confidence of the U.S. consumer will ultimately drive the pace of recovery for the media and entertainment sector. Consumer spending was robust through the summer despite expiring unemployment benefits, helped by housing-related spending and lockdown fatigue. Still, this recovery may face more hurdles now that extended federal unemployment benefits have expired, state and local government budgets remain in limbo, and job gains have slowed after an initial jump. We believe consumer spending could suffer if Congress fails to agree on another package of aid to American households and businesses--especially among the lowest-income families, who tend to spend a higher percentage of their incomes than wealthier individuals.

For further details on our view of third-quarter 2020 credit conditions, including our current U.S. economic forecast, see "Credit Conditions North America: Potholes On The Road To Recovery", published Sept. 29, 2020)

Updated Media Sector Recovery Heat Map

We updated our COVID-19 media sector recovery expectations. While our view of the path to recovery for most media subsectors is unchanged from our initial assessment (see "Rebooting The U.S. Media Sector In A Post COVID-19 World", published June 10, 2020), we believe a number of OOH entertainment subsectors, most notably theme parks and movie exhibitors, will take longer to recover to pre-COVID-19 metrics, if ever. We had expected they would be among the first OOH entertainment businesses to reopen. And while they have (with many exceptions), these businesses have performed well below our expectations. We remain quite concerned that consumers may be reluctant to venture into public venues until a vaccine is available and broadly distributed, which may not be until mid-2021. And, as a result, credit measures for companies in these sectors may not return to pre-COVID-19 levels until at least 2022, if not 2023.

For many companies rated 'B' or lower, with inadequate liquidity and limited access to the capital markets, restructuring may be necessary, as time may not be on their sides.

Table 2


Ad-Based Sectors Have Performed Better Than We Originally Expected

We believe advertising spending has generally held up as well as, if not somewhat better than, our April 2020 expectations. That isn't to say advertising wasn't severely hurt by the pandemic. For some local media sectors, such as radio, second-quarter advertising was down 50% year over year. But generally, the steep declines were limited to the quarter, followed by sequential improvement--even if year-over-year comparisons were still deeply negative.

Table 3

S&P Global Ratings Revised 2020 U.S. Advertising Revenue Forecast
Media sector
2020p 2021e
Previous (May 2020) Change Revised (October 2020) Previous (May 2020) Change Revised (October 2020)
Digital 0.0% 5.0% 5.0% 20.0% (6.0%) 14.0%
Local television (incl. political) (9.6%) 3.9% (5.7%) (0.4%) (4.8%) (5.2%)
Network television* (12.0%) 2.0% (10.0%) 13.5% (2.6%) 10.9%
Cable television* (15.%) 2.5% (12.5%) 11.5% (3.3%) 8.2%
Local political advertising (Mil. $) $3,050 $200 $3,250 $825 $0 $825
Total television (12.7%) 2.7% (10.0%) 8.5% (3.4%) 5.1%
Radio (23.5%) 0.0% (23.5%) 18.0% 0.0% 18.0%
Outdoor (23.3%) 1.8% (21.5%) 19.3% (1.8%) 17.5%
Magazines & newspapers (35.5%) 0.0% (35.5%) (12.5%) 0.0% (12.5%)
Direct mail (30.0%) 0.0% (30.0%) 15.0% 0.0% 15.0%
Advertising, excluding Digital (21.3%) 1.4% (19.9%) 8.8% (1.9%) 6.9%
Total advertising (12.3%) 2.9% (9.4%) 14.2% (3.9%) 10.3%
U.S. GDP growth (5.2%) 1.2% (4.0%) 6.2% (2.3%) 3.9%
U.S. consumer spending (5.5%) 1.1% (4.4%) 6.7% (1.8%) 4.9%
*Both cable and network TV estimates for 2021 include rescheduled Summer Olympics, which were moved from 2020. p--Projected. e--Estimated. Source: S&P Global Ratings estimates.

Television advertising has performed better than we expected. National advertising declined, but not as steeply as we initially feared, then improved more quickly, especially as sports programming resumed in the summer. The return of sports leagues and the appearance of unusual upfront spending will at least lessen the reported declines in the third quarter. The one caveat to any sustained recovery is continued declines in audience ratings, the rate of which has appeared to return to pre-pandemic levels. Pricing in the scatter market--air time sold closer to the actual programming air date--has not declined, according to comments at recent investor conferences. National TV companies appear to have maintained pricing discipline and not cut pricing to simply sell advertising inventory.

For local TV, meanwhile, second-quarter year-over-year advertising declines were steep (in some cases over 30%), though slightly better than our expectations. Third-quarter pacings steadily improved such that in some markets, local TV advertising is actually up year over year. This was overwhelmingly aided by what will likely end up being record political advertising. Given this trend, our improved revenue expectation for 2020 local TV advertising includes a 6.5% increase in our political advertising forecast to $3.25 billion.


Similarly, we raised our expectations for outdoor advertising in 2020. In particular, billboards in smaller markets, without the same degree of government-imposed lockdown measures, have performed significantly better than we expected (down around 20% for the second quarter). This is somewhat tempered by revenue declines in larger markets (New York, Los Angeles, Chicago) and public transit (subways, buses, airports), which were steeper in the second quarter (in some cases transit declines exceeded 75%) and have yet to show significant improvements. While we lowered ratings on all the outdoor advertisers we rate since the start of the pandemic, our concern is primarily for outdoor companies with significant exposure to transit and larger markets.


Digital advertising remains a bright spot in the advertising ecosystem. After immediate cuts at the start of the pandemic, spending recovered as the quarter progressed, with growth in social media advertising followed by year-over-year declines in search and brand spending. The digital advertising recovery is trending better than our April 2020 expectations, and we raised our ad forecast for both 2020 and 2021.

A source of constant debate is where all this growth is coming from. Digital ad gains have far exceeded declines in traditional media advertising. We attribute much of it to advertiser preference for performance-based advertising, the dominant component of digital advertising. In addition, advertising for online applications and games partially offset declines in digital advertising stemming from lower spending on branding and travel. Also, as the world tried to move more life into a virtual setting to maintain social distancing and contain the spread of COVID-19, digital advertising presented itself as the ideal channel to market for advertisers, who are following their customers online.

Furthermore, underlying growth for digital advertising is underpinned by its ability to allow small and medium enterprises to utilize self-service tools to market their products and conduct a level of performance attribution previously unavailable or too expensive through other advertising channels. This brings in a long tail of smaller advertisers and supports growth. Notwithstanding, verticals such as live events and travel will remain challenged until a medical breakthrough is widely available, tempering growth for digital advertising in 2020 and early 2021.

A 2021 Advertising Recovery

We expect advertising to begin recovering in earnest in 2021, and by the end of the year total ad spending will equal 2019 levels. However, we credit this rapid recovery solely to digital advertising, which we expect will continue its torrid double–digit percentage annual growth after a somewhat soft 2020 (only expanding 5%). Excluding digital, we believe traditional advertising (linear television, radio, outdoor, print) will increase just 6.9% in 2021 and recover to 86% of 2019 levels (including the Tokyo Summer Olympics). Within traditional media, we expect linear television will climb back to 95% of 2019 levels (again, with the caveat that 2021 will include the Olympics) and that outdoor will recover to 92%. We expect radio will recover to 90%, then resume declining at a low-single-digit percentage rate.

Chart 1


Still, No Visibility For Recovery For The OOH Sector

While we see signs of recovery in advertising-based sectors, OOH entertainment remains mired in a deep depression.

Our outlook remains uncertain as most venues are closed (theaters, indoor arenas, concerts) or open with strict government-mandated social distancing measures that severely limit attendance (outdoor sports events, movie theaters, theme parks). Still, attendance at both movie theaters and theme parks, which reopened with much fanfare, is below even government-allowed levels. More concerning for the pace of recovery, rising infection rates heading into the winter months may lead to governments around the world imposing more aggressive social distancing measures or reclosing OOH venues, setting back any recovery. Longer term, even with a broadly available vaccine, lingering consumer fears about returning to large public events will ultimately delay any return to normalcy or permanently alter the dynamics of OOH media sectors.

Movie exhibitors

We view movie exhibitors as the test case for assessing consumers' comfort in venturing out of their homes. The struggles of both studios and exhibitors are circular as consumers remain wary of returning to public theaters (perhaps until studios release new content). Movie studios continue to delay releasing major blockbuster films as they await restrictions on theater attendance to lift and for consumers to return to theaters in larger (profitable) numbers. Much was hoped for from the Sept. 4 domestic release of Warner Bros' "Tenet". However, box office performance in the U.S. has been disappointing (through Oct. 18, the movie has earned just over $50 million domestically).

Recently, we lowered our credit ratings on three movie exhibitors to the 'CCC-' category, reflecting the impact from the decimated box office schedule on the companies' already weak liquidity. We believe they may have to restructure their balance sheets unless the global box office returns to normalcy within the next six months (not likely). In addition, we downgraded a fourth exhibitor, Cinemark Holdings Inc., to 'B' from 'B+'.

Our tracking of the domestic release slate does not bode well for this year. Only one major film is scheduled for release in 2020 (Warner Bros.' "Wonder Woman 1984" on Christmas Day). In addition, the announcement that Pixar's "Soul" is skipping its theatrical release in favor of direct release to Disney+ (also Christmas Day) raises concerns that other family friendly fare may also go directly to subscription video on demand, further weakening exhibitors.

Theme parks

Similarly, the pace of recovery for global theme parks has been far weaker than we anticipated. Major theme parks, most notably The Walt Disney Co.'s Disneyland and Comcast Corp.'s Universal Studios Hollywood, have yet to reopen six months after closing. Attendance is depressed at even parks that have reopened (Walt Disney World and Comcast's Universal Orlando Resort) because of cautious consumer behavior among its target family segments, discomfort with wearing masks for extended periods in warm outdoor weather, and implementation of social distancing measures.

We believe attendance will remain down until a vaccine or effective treatment becomes widely available. Thus, we expect visitations may not begin to recover until the industry's seasonally important third quarter in 2021. Still, we anticipate attendance will remain substantially below 2019 levels even in 2021.

As a result, we recently lowered our ratings on two regional theme park operators, Cedar Fair L.P. and Six Flags Entertainment Corp., to 'B-'. In addition, our ratings on Disney remain on CreditWatch with negative implications as our visibility into 2021 and 2022 results remains cloudy at best.

Ratings Impact

Given the uncertain economic conditions and our economists' revised expectations for a slower recovery in 2021, our view on the path to recovery for the media sector remains at best uncertain. That means our media industry ratings bias remains negative with the potential for additional negative actions for OOH-focused media companies.

For advertising-based media companies, the changes to our advertising forecast are unlikely to result in rating changes for the majority of rated media and entertainment companies. For most companies, there are only modest changes to 2020 and 2021 leverage forecasts. However, those media companies with riskier credit profiles, and thus with less tolerance to handle these changes to our forecast (rated 'B' and lower) could face additional rating actions.

Growing importance of direct-to-consumer (DTC) streaming services

As we have discussed in the past, one of the long-lasting effects of the pandemic is the acceleration of secular trends, in particular those affecting the TV and film sectors. Before this pandemic, we viewed the impact of DTC streaming services on media company credit ratings as evolutionary. That is, we believed media companies had time to develop their DTC strategies and experiment with different offerings because the linear TV ecosystem would decline at a measured rate.

Now, six months into the pandemic in the U.S., we expect the rate of decline of linear television will accelerate, speeding up the importance of DTC streaming services to the longer-term success of media companies. Thus, an assessment of a company's DTC strategy may become a key ratings factor sooner than we anticipated.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Naveen Sarma, New York (1) 212-438-7833;
Secondary Contacts:Thomas J Hartman, CFA, Chicago (1) 312-233-7057;
Jawad Hussain, Chicago + 1 (312) 233 7045;
Vishal H Merani, CFA, New York (1) 212-438-2679;
Scott E Zari, CFA, Chicago + 1 (312) 233 7079;

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