Political advertising and media stocks


Barclays Capital analyst Anthony DiClemente writes that given the heated political climate and record spending levels that we are likely to see in 2012, he’s using this opportunity to take a closer look at the beneficiaries of political advertising.

In 2012, they expect political advertising will reach an all-time high of $2.6 billion, growing 45% above 2008 levels and 15% above 2010 levels. “Somewhat counter-intuitively however, our analysis reveals that stocks exposed to political advertising actually perform better in non-election years. We believe investors tend to look through the transitory benefit of political and focus more on underlying core fundamentals.”

Political advertising is only 1.4% of the US ad market, but Clemente believes it will account for over 25% of the growth in 2012. Their US ad forecast calls for US advertising to grow 4.0% Y/Y in 2012 including political and the Summer Olympics. While the $2.6 billion of political advertising pales in comparison to the $180 billion overall US ad market, political accounts for 110 basis points of the 4.0% Y/Y growth in US advertising according to their estimates.

Political advertising’s share of the US ad market has steadily increased from 0.4% in the 1980s to an estimated 1.4% in 2012. Over this period, total political ad dollars have grown (on a 4-year basis) with every election. Barclays believes the pool of potential political advertisers is likely larger than ever before as two judicial decisions in early 2010 essentially lifted restrictions on corporate spending for federal candidate elections, giving way to the rise of super PACs. In the South Carolina primary, the Republican candidates and the super PACs spent $13 million in total, almost double the $7 million that the Republican candidates spent in 2008.

To a lesser extent, given that 75-85% of political advertising is spent on local broadcast and given that broadcast viewership continues to lose share to cable TV, Barclays believes the candidates will need to spend more to reach the same number of viewers.

Political campaigns becoming increasingly digital. According to AdAge, digital could represent more than 10% of political ad budgets across all races this election season, considerably higher than the roughly 5% that most House of Representatives candidates spent in the 2010 midterm elections.

Local TV stations are the biggest winners from political, as 75-85% of political ad dollars go towards local broadcast, with the remainder going largely to local radio stations. Clemente believes that this influx of political dollars will push advertisers into other media, which should tighten the market and boost CPMs.