Earnings vie with yearnings
NEW YORK — Pity the poor media investor.The quarterly rite of fiscal reckoning is in full swing for entertainment congloms, and with it the barrage of seemingly conflicting measures of corporate financial health. Viacom, Sony, Time Warner, Comcast and MGM have belched a dizzying array of financial data to make their case for a strong three-month performance and proof of an even brighter future. Within their legal limits, companies try to put the best possible face on whatever financial metrics they’re compelled by law to disclose. They use a barrage of press releases, financial data and conference calls to showcase the good news and explain away — or bury on page 5 — the bad. Deciphering an earnings press release can require a degree in forensic accounting; making sense out of the seemingly contradictory mix of befuddled press accounts of the previous day’s financial purge is even more challenging. Which numbers get top billing on a financial press release (Sony Corp. net profits, MGM cash flow, Time Warner sales or Comcast margins) can dictate how the next day’s headlines read and where the stock will trade. Even seemingly straightforward year-on-year comparisons like net profit can be skewed by exceptional items or non-recurring charges. Then there are the ever-enlightening analyst conference calls. Comcast CEO Brian Roberts and his lieutenant Steve Burke sounded either bored or despondent as they extolled the virtues of their margin-enhancing, high-speed data adds. Surely they saw the share price falling like a rock as investors ignored the cabler’s healthy profit jumps and focused on a surprisingly high falloff in basic subs. These ritual calls are a lot about spin and redirection. If subscriber growth is slowing (Comcast), focus on profit margins. If several of your most recent movies barely made break-even (MGM), chat up homevideo sales of library titles. If a tricky profit comparison from last year looks icky (Time Warner), tub-thump your box office prowess. Time Warner, which issues reams of quarterly data, got great press for its solid earnings show and even more optimistic view of the future. But the company actually reduced the financial base for 2003 from which it “raised” its financial guidance for 2004. (A perfectly legal, legitimately disclosed but hardly highlighted accounting change was the reason for the misleading adjustment.) MGM, whose middling movies couldn’t stave off a 17% drop in sales in the quarter, instead kicked off its press release and earnings call talking about its healthy cash flow numbers and booming library DVD biz. The company tends not to look so perky on a quarter-to-quarter basis — a point that Lion CEO Alex Yemenidjian emphasized. To divert attention from an $80 million drop in feature film sales compared to last year, MGM talked up its free cash flow figures and its far-flung (but pint-sized) MGM Networks biz. Then there’s Sony, whose conference call in agonizingly broken English and mish-mash of yen and dollar-based earnings left many a journalist scratching his head. The Hollywood Reporter credited “Spider-Man 2″ for Sony’s earnings jump, even though the film was released in the U.S. on the very last day of the quarter. (The paper also mistakenly reported a 4.1 billion yen figure as revenue rather than operating profit. Oops!)
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