Sept. 11 No Albatross for Media Business, Viacom's Karmazin Insists

"Advertising doesn't suck."

That, verbatim, was the message from Viacom President Mel Karmazin, pitching his company's prospects to the audience at J.P. Morgan's Global Telecom and Media Conference.

It's also a rough paraphrase of the message from other media industry types at the New York conference Friday morning, as representatives from companies in the advertising food chain professed a measure of optimism about the outlook for media businesses over the next few months -- or at least their own media businesses.

Comments at the conference spotlight how in good times and bad, advertising -- a business that forces people to value the intangible opportunity of delivering a message to an audience that isn't necessarily paying attention -- is at the heart of a constant tension between supply and demand, between perception and reality, as buyers and sellers negotiate the price of a 30-second spot or a full-page newspaper ad.

Right You Are

For the most part, participants said things had changed, but weren't as terrible as outsiders might think, given the advertising slowdown this year and the temporary freeze brought on by September's terrorist attacks. In fact, the mood on a panel discussion was rosy enough that Richard Tofel, assistant to the publisher of The Wall Street Journal at Dow Jones (DJ Quote - Cramer on DJ - Stock Picks), felt compelled to wonder whether he was the only person who thought Sept. 11 wasn't good for the economy.

Karmazin, reiterating Viacom's reduced estimates for the year and for 2002, sought to persuade attendees that the advertising market isn't terrible, but rather that it simply isn't as good as 2000, which for several reasons, including the abundance of dot-com money, was extraordinarily good. "It's hard for me," said Karmazin, "to hear everybody talking about softness in advertising."

Karmazin blamed the press for spreading the perception that the ad market is soft, and dissed other media companies, such as NBC, for reiterating that perception by quickly making unnecessary price cuts. If advertising isn't effective and valuable, he asked, "How did Michael Bloomberg get elected?"

Advertising revenues at the company's CBS and UPN television networks will be up this year post-Sept. 11, Karmazin said. But he doesn't expect a quick advertising rebound to last year's levels. "You shouldn't think about 2000 coming back real fast," he said. As for Viacom's nonadvertising-based businesses, they "have been perfectly fine" since Sept. 11, Karmazin says.

Karmazin, however, quickly disavowed a rather innovative way of maximizing ad revenue practiced at perhaps two of CBS-owned TV stations. According to reports in Electronic Media, the Pittsburgh Tribune-Review and The Baltimore Sun, CBS-owned stations in Pittsburgh -- where the story originally broke -- and in Baltimore have been using a piece of TV production equipment to imperceptibly speed up programming, apparently in order to create more slots for advertisements. The practice, used during programs such as live football broadcasts, would violate usual affiliation agreements and sports broadcasting contracts. "CBS didn't do it," Karmazin told TheStreet.com Friday. "A station did it. And it has been eliminated."

Sure It Didn't

Fortunately, one thing that's unlikely to be eliminated is bright-eyed optimism. On the panel discussion that followed, Jon Mandel, an executive with the MediaCom unit of the advertising giant Grey Global Group (GREY Quote - Cramer on GREY - Stock Picks), assured listeners that money pulled from the media after the disaster didn't get erased from annual budgets: "All the money that got pre-empted got respent," he said.

But Mandel conceded that Sept. 11 changed business psychology. "It made people afraid not just as human beings, but as people," he said. As a result, he said, clients are not making commitments far out into the future, making it hard for his company and others to plan ahead.

Jon Nesvig, president, national sales, for Fox Entertainment's (FOX Quote - Cramer on FOX - Stock Picks) Fox Broadcasting unit, said that this October was the best ever in terms of network sales. (Neither Nesvig or Karmazin spoke specifically about ad sales at individual stations owned by their respective companies.) The sixth and seventh games of the World Series were a last-minute gold mine for Fox, with Nesvig estimating the company had sold $30 million to $40 million in advertising in the week of those games.

To people searching for a leading indicator of advertising's recovery, Mandel said a rise in capital expenditures has proved to be reliable in the past. But he said that the Fed's rate cuts, which perhaps will encourage people to make capital investments more quickly than they might have otherwise, could make that leading indicator less useful.