Though financials are strong, ad-dependent orgs take steepest hit

Even in the face of strong corporate earnings and robust advertising sales, Big Media stocks couldn’t fight the gravitational pull of Monday’s plunging markets as Wall Street responded to the Standard & Poors’ historic downgrade of the nation’s credit rating.

In the selloff that sent the Dow Jones Industrial Average down 634 points, or 5.5%, there were signs that investors worry the threat of an extended downturn will spur a sudden drop in advertising spending. CBS, the most advertising-dependent of the showbiz majors, took a 10.3% hit, with shares closing Monday at $21.31.

In a bit of irony not lost on Eye insiders, S&P just last week upgraded its rating on CBS shares to “positive” from “stable” — citing the Eye’s improved mix of nonadvertising revenue sources and lower debt ratio, as well as the strong ad forecast for 2012.

Prior to last Thursday’s 513-point market plunge, CBS shares had been on a roll, up nearly 40% for the year to date. But in the kind of panicky reaction that inlarge and small displayed on Monday, none of that mattered.

“The markets are telling us we’re going into another recession — whether that’s accurate or not, who knows?” said Alan Gould, an analyst at Evercore Partners who follows CBS. “If we do go into another recession, advertising would clearly go down, and CBS would be impacted more than the other studios.”

Among other showbiz heavyweights, Viacom lost 8.84% on Monday to close at $40.96, even after the conglom impressed Wall Street on Friday with a strong fiscal third-quarter earnings report (Daily Variety, Aug. 8).

News Corp., already battered by the U.K. newspaper scandal, gave up another 7.16% Monday to close at $13.62. Comcast ($20.43) and Disney ($33.03) lost more than 6% on Monday, while Time Warner came in just under a 6% loss with a closing price of $29.89.

For showbiz congloms, the good news in a grim market is that the underlying earnings drivers are improving, especially with digital revenues growing amid competition for rights deals among Netflix, Amazon and other emerging platforms. Evercore’s Gould notes that most of the major congloms are in the midst of stock buyback programs to boost share prices. CBS bought up $500 million of its own shares in the first half of the year. Last month, News Corp. committed another $5 billion to buy back shares over the next 12 months.

“The big concern is really the advertising sensitivities,” Gould said of the share price volatility. “All of the (major media) companies have pretty darn good balance sheets these days.”

Filed Under:

Follow @Variety on Twitter for breaking news, reviews and more