Nov. 30 (Bloomberg) -- Next year's outlook for the U.S. media and entertainment industry is negative for bond investors as advertisers divert an increasing part of their budgets online, according to Fitch Ratings.
Newspaper publishers's sales will be hurt by a slowdown in national advertising and automotive classified ads, Fitch said in a report today. Recruitment and real estate ads, which lifted earnings in the first half of 2006, will also slow in 2007, Fitch said. Both forces will heighten risks, Fitch said.
``The ongoing shift in advertising dollars from traditional media into non-traditional media, most notably the Internet,'' will affect broadcasters and entertainment companies as well, the ratings service said in the report.
Newspaper publishers including New York Times Co. and Tribune Co. and broadcasters such as Emmis Communications Corp., under pressure from their investors to lift stock prices, are shedding assets and bolstering their Web offerings. Radio and broadcast television companies will also suffer from the absence of Olympic games and political ads next year, Fitch said.
The biggest risk to credit ratings for diversified media companies such as New York-based Time Warner Inc., the world's biggest, may come from activist shareholders, Fitch said. Dissident investors may pressure companies into reevaluating their capital structures, and the abundance of private equity makes some candidates for leveraged buyouts, raising risks for bondholders, Fitch said.
Investor Carl Icahn earlier this year pushed Time Warner to increase its stock repurchase program to $20 billion. New York Times, under pressure from investors including Hassan Elmasry, managing director of Morgan Stanley Investment Management, is selling nine TV stations and a radio station in New York.
Time Warner's debt is rated BBB by Fitch, with a stable outlook. New York Times is rated A- by Standard & Poor's Ratings Services with a negative outlook.
To contact the reporter on this story: Cecile Daurat in New York at cdaurat@bloomberg.net
