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French TV advertising looking up, but sector challenged

France’s free-to-air commercial broadcasters will benefit from a sharp uptick in national advertising revenues next year, but still face severe structural challenges as the TV market fragments and the effects of new regulation kick in, according to Morgan Stanley.

The investment bank notes that RTL-backed M6 has outperformed the wider stock market by over 30% in the past three months and has weathered the recent downturn better than its larger competitor TF1. “TF1 has lost ad market share in this downturn, not M6,” the bank noted.
Morgan Stanley expects TV ad spend to increase 8% next year and 3.2% the year after, but still says that structural changes to the French TV market mean that both M6 and TF1 will likely miss its earnings estimates.

These changes include audience share erosion, with lost audiences being a permanent, not cyclical, factor. Too much advertising inventory is another issue, the bank notes, especially in daytime where the quality of programming on the DTT and terrestrial channels is less noticeable.

Finally, the new tax levied on commercial broadcasters to replace revenues  lost at France Télévisions as it phases out advertising will “drag down any advertising revenue upturn in the long run”, according to Morgan Stanley.