The ticking time bomb known as General Motors Corp. finally detonated Monday with its Chapter 11 bankruptcy filing. The collateral damage will obviously be plentiful especially in the auto parts sector, but another likely victim will be the media industry.
Advertising agencies, newspapers and magazines, television and radio stations, and Web sites will lose hundreds of millions in GM advertising dollars from the fallen American industrial icon. Those losses will likely translate into more corporate restructuring in the form of possible layoffs or divestments to protect the bottom lines of these media companies.
In fact, GM's largest unsecured creditor claiming trade debt is not an auto parts maker, but an advertising company. Chicago-based diversified advertising group Starcom MediaVest Group Inc. is listed as the sixth-largest unsecured creditor with a claim of $121.5 million. Starcom's claim exceeds bankrupt auto parts maker Delphi Corp.'s claim of $110 million.
Meanwhile, Starcom is not the only advertising company making the top 50 list of unsecured creditors. Paris-based advertising agency Publicis Group SA (OTC:PUBGY) is owed $25.2 million of unsecured debt, followed by $15.9 million to Interpublic Group of Cos. and $4.6 million to McCann Erickson of Calgary, Alberta.
While the bankruptcy documents list advertising agencies, it doesn't elucidate the impact on the media companies. The advertising agencies are the intermediaries who deal with the media companies. In order to understand the impact on media companies, you must look at the crumbs left in news stories and SEC filings.
A good example is Walt Disney Co. (NYSE:DIS), which ahead of the bankruptcy saw GM withdraw from a longtime sponsorship of the Academy Awards in 2009. GM had paid $13.5 million for broadcasting ad time in February 2008, and, according to TNS Media Intelligence, GM, overall, had spent more than $110 million on Oscar Night from 1997-2008. Now those dollars are certainly gone or will be much smaller from a downsized GM that comes out of Chapter 11 process.
One media executive, who wants to remain anonymous, at New York-based diversified advertising sales firm Petry Media Cos. says that many companies have planned for a GM bankruptcy for the last couple of years as well as the Detroit automaker's cut in ad spending. In 2008, GM reduced its ad budget by 15% from the previous year, to $2.12 billion, according to data from Nielsen Co. But all that planning makes it hard to swallow when some auto advertising sales can account for at least one-third of a company's revenue.
Look for media stocks with heavy newspaper investments such as Gannett Co. (NYSE:GCI), E.W. Scripps & Co. (NYSE:SSP) and New York Times Co. (NYSE:NYT) to also feel more pain from a loss of GM auto advertising dollars in their already slowing ad revenues. In the first quarter, classified ad revenue fell 39% at Gannett, 42% at New York Times and 43% at E.W. Scripps. The GM bankruptcy is possibly going to force a shakeout in the industry with some smaller companies that relied on auto-related revenue to seek a merger to survive and bigger players to become more creative to fill the GM loss. - Gerald Magpily
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General Motors has been in hot water for some time, and it isn't likely to let up anytime soon. Recently, General Motors released information indicating that they have a $1 billion debt payment coming up very soon, and they might not be able to pay it. The firm has been teetering on the verge of bankruptcy since fall of 2008, and they sought loans from the government in order to begin debt consolidation and to keep themselves afloat. The company is heavily leveraged, and currently owes almost $30 billion, and is rumored to file for bankruptcy before fall. It appears that no amount of cash advances is going to save General Motors.