Studio share prices still steady

Cutting costs. Getting tough with talent. Reinventing business models. Wall Street loves that kind of talk from Hollywood, so it should come as no surprise that the 8-week-old writers strike hasn’t rattled the share prices of major showbiz congloms. In fact, they’ve barely budged since the day the strike began Nov. 5.

As of Wednesday, Viacom and Sony are up slightly. News Corp., CBS Corp., Time Warner and Walt Disney Co. are essentially flat. NBC Universal parent General Electric is down about $2, although with the industrial giant’s products also including aircraft engines, plastics and washing machines, it’s hard to blame it all on the drama in Burbank and Universal City.

The cold, hard fact is that media stocks were already trading at historic lows this year because investors see the profitability of traditional businesses heading south.

One investor explained that Wall Street never put much stock in executive hype about a digital windfall just around the corner — hype the writers are throwing back at studios, who now say digital is still too undeveloped to be profitable.

Digital revenue varies from the millions at some congloms to the nearly $1 billion at News Corp.’s Fox Interactive. Profits are nil, except at Fox Interactive, where they’re driven by MySpace, the huge social-networking site that uses little scripted content in any case.

With Wall Street in their corner, the studios view the strike in part “as a great opportunity for cleaning house. It’s a little like filing for bankruptcy — you can get out from under,” said one former studio exec.

Some downplay the strike’s impact. “What shows are on this January don’t make any difference to the value of these companies in a couple of years,” said Mark Greenberg, a senior portfolio manager with AIM Investments. “I can pretty much promise strikes do get settled. Each side will make concessions.”

CBS Corp., the closest of the congloms to a pure-play television company, would theoretically be expected to feel some heat from the Street. But reaction’s been muted so far. Some of CBS’ flagship shows, like “CSI,” aren’t serials and do well in repeats. CBS, like the other major networks, has a reality lineup and a big news department to draw on. In addition, it can draw programming from its pay cabler Showtime for the mothership CBS broadcast net, as it is already planning to do with buzzworthy serial-killer drama “Dexter.”

Within each conglom, however, production divisions are smarting. Warner Bros. and 20th Century Fox TV, the industry’s largest suppliers of TV programming, have been forced to shelve projects they’ve already paid big bucks to develop with high-priced talent. And given the great divide between the studios and scribes and the impasse in their negotiations, it’s looking increasingly like that the town will chalk up the 2007-08 television season as collateral strike damage.

Fox has a big advantage on the network side because its nonscripted megahit “American Idol” is still arriving on sked next month.

Fox is also part of the News Corp. global empire, which helps blunt the overall impact of shocks that hit some of its many divisions. News Corp. has $30 billion in annual revenue and far-flung interests in newspapers, publishing and satellite television.

Disney owns juggernaut ESPN, which uses little scripted fare and can buffer woes at ABC for a time. Disney Channel has thrived on scripted hits like “Hannah Montana” in the past few years, but the kid-centric cabler can survive on reruns more easily than its older sib ABC. Between Disney’s theme parks, hospitality and live entertainment businesses, it rakes in total annual revenue of about $35 billion.

At Time Warner, parent of Warner Bros., Turner Broadcasting, Time Warner Cable, AOL and Time Inc., annual revenues reach about $44 billion.

Sony Pictures Entertainment is a blip on the Japanese electronic giant’s $70 billion in annual sales. Ditto for NBC U and General Electric.

“These are big companies. Warner Bros. itself is a big company,” said one industry exec. They’re “not going out of business.”

Still, the big unknown is the same on Wall Street as it is on the picket lines: How long will it last?

“The more it goes on, the more I worry about TV,” said media analyst Richard Greenfield of Pali Research. “If it ends in January, that’s very different than if it ends in September.”

Longer term, the question for broadcast TV is not whether but how many people will tire of a diet of repeats and reality and seek entertainment elsewhere. And how many of those eyeballs will return once the strike ends.

Networks will lose momentum on new shows they’ve invested in. And in due time, broadcasters in particular will feel the pinch of lower ratings in the form of make-goods to advertisers to account for those ratings shortfalls.

“A few shows start to get traction with an audience and now will have a hard time coming back,” said veteran showbiz analyst Harold Vogel, author of “Entertainment Industry Economics.” “They will recover some of the lost audience but not all.” And the industry “will have to spend millions on advertising and marketing and on make-goods. Until now, they’ve been saving, not paying anyone and still getting advertising revenue.”

From Wall Street’s purview, the sides are ensnarled in a dogfight over a shrinking pool of revenues. And at least for now, digital distribution of shows is not the cure-all for declines in traditional profit-generating areas like syndication and international sales. Studios have taken a tough stance in the negotiations with the Writers Guild of America because contract talks with directors (who may wind up cutting a deal before the scribes) and actors are just around the corner next year.

“The ratings have gone way down. Shows typically aren’t profitable; one or two out of 10 makes money. The backend is drying up. And there’s a group that wants more money,” said a former media exec. “If it was just the (new media) residuals, you’d say yes, they should get paid more. But the studios (are obsessing about) the bigger picture.”

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