The flat TV ad revenue figures for the first half of 2008 has seen leading brokers, Goldman Sachs JBWere, warn that media stocks are overpriced at current levels.

The figures showed that revenue in Sydney dropped for the biggest fall since 2001 and spending outside the five metro markets in regional Australia outstripped the big city because of the booming Queensland market.

In fact the regional Queensland market, with $101.83 million in revenue in the June half (and up 5.57%), could overtake the Adelaide market by the end of this year ($104.27 million and down 0.33%).The NSW regional market is already larger than Perth or Adelaide and Queensland would slot in behind Perth with $140 million in revenues.

The slump in Sydney is a foretaste of what other markets will feel this half, especially as much of the ad spend is controlled from this market. The Brisbane market was up 1.9% and Perth was up 3.8%.

After examining the figures, Were’s told clients this morning:

The FTA TV ad market, representing c. 30% total advertising spend in main media, is typically a good barometer for the broader Australian ad market. Today’s Free TV data, together with recent economic data points and TEN’s profit warning, confirms our view that the ad market is not only slowing, but at a quicker rate than many in the industry were expecting.

We believe structural headwinds (e.g. fragmentation) remain as real in Australia as they are globally.

The issue here is not only confined to: (1) the fragmentation of existing media types (i.e. FTA TV multi-channelling, new magazines launches, new radio licenses); and (2) the emergence of new media types (e.g. online, pay TV). Consumers are enjoying new technologies (e.g. household broadband penetration reached c.65% in June 2008, one third of Australians have a 3G mobile telephone, etc.) and new forms of leisure (e.g. gaming consoles) which are fragmenting media consumption.

However, despite these structural risks, and despite the earnings risk discussed above, Australian media stocks: (1) are not trading at historical floor valuations; and (2) are trading at a significant premium to global media stocks. In our view, this is unsustainable.

Were’s believes the metro TV ad market will decline 5.0% in FY09, “driven by: (1) the challenging economic conditions; and (2) the absence of government advertising in FY09. We estimate incremental government ad spend in FY08 added c.$100m (c.3%) to the FTA TV ad market.”

And Merrill Lynch pointed out that the fall in Sydney (of 1.4%) was “larger that the -1.0% decline in 1H CY06 and indeed was the largest fall since 2001 (-9.5%).” It highlighted the risk of a slowing consumer economy and “reduced spend from multi-nationals (witness Coke and GM announcing cuts to advertising budgets in the US last week).”

In comments yesterday Nine said it was confident of rebuilding its ad share to match its ratings share, while Seven said it would retain its share and Ten said that it saw growth in its 18 to 49 target audience group.

But if Were’s 5% ad fall prediction is right, the real battle will be to maintain existing share, not build on it.

Rate rises will be at a premium and all three networks will come under increasing cost pressures. Job cuts could very well be the big story next year. And Pay TV won’t be immune ether.