War Is Bad News for Media Stocks

The effect on the media business of a war in Iraq is unclear. But rumors of war already have impaired both media operations and media stocks.

Though media companies and investors are hopeful that advertising will strengthen soon after the beginning of any armed conflict, marketers' desire to wait for some postwar or even midwar sense of stability is already crimping media companies' performance, according to anecdotal indications.

"You have a skittish environment," says Jonathan Jacoby, an analyst with SunTrust Robinson Humphrey. Advertisers, he says, "are waiting. They're afraid to place dollars."

The question of how long this holding pattern might last, and how long any armed conflict might be, has a significant impact on media conglomerates such as AOL Time Warner (AOL), Disney (DIS) and Viacom (VIAB), all of which have seen their shares fall in value since the beginning of the year.

The uncertainty surrounding a possible war with Iraq impinges on advertising purchases the same way it affects capital spending and hiring plans, says Hal Vogel, an investor and longtime media analyst. "Advertising is not any different than any of these other decisions," he says.

Perfect World

At issue for advertisers is the context of their advertising. In a perfect world for marketers, the editorial material that sandwiches their ads on broadcasts or in print is content that makes people feel good about the world -- content that puts them in the mood for spending money.

That likely wouldn't be the case if fighting were to begin in Iraq. Amid bombing, death and other elements of armed conflict, commercial messages would be pre-empted, rescheduled, ignored, or seem suddenly inappropriate, reflecting badly on the advertiser.

"All of these things are issues, so people hold back," Vogel says.

"No one is going to start throwing money [at advertising buys] knowing two weeks later there is going to be a war," says Jacoby. "You don't want to be associated with a war. You don't want any association with a terrible event like a war."