Earnings reports due this week
Will Time Warner topper Jeff Bewkes continue to lob his verbal bombs at Netflix? Will Rupert Murdoch give us a hint about MySpace’s future at News Corp., or will he instead gush about the promise of tablet journalism? And how much will investors grill Philippe Dauman about the controversy surrounding MTV’s “Skins”?
As earnings season kicks off in full this week, those subjects and other hot topics — think cord-cutting, release windows and the advertising rebound — will surely shape part of the conversation between media brass and Wall Street about results from the final quarter of 2010.
While stocks overall have been robust in the past year, media has left the broader market in the dust. Returns on the Bloomberg Media Index, comprised of more than 30 companies, delivered a 36% return over the past 12 months vs. 21% for the S&P 500 Index.
So analysts are generally expecting to see solid financials for the period ended Dec. 31, particularly those related to advertising.
Pricing for TV’s scatter ad market continues to be in the mid-teen to 30% range above upfront pricing, said RBC Capital Markets analyst David Bank, helped by auto, tech and telco spots. These gains come even though ratings have been relatively soft, with Bank pointing out that no major broadcast or cable network has “broken” a freshman show this season.
Sluggish ratings have also impacted two of Wall Street’s media favorites, pure-play cable programmers Discovery Communications and Scripps Networks Interactive. Growth rates in advertising at Scripps may slip to 13% for the fourth quarter vs. 18% in the previous quarter due to softer ratings at its nets, particularly at Food Network and HGTV.
Discovery, too, has seen softer ratings at flagship Discovery Channel and TLC, said Nomura analyst Michael Nathanson. Cable overall has posted negative ratings growth for five straight quarters, he said.
One cabler without a ratings headache is ESPN, which should show strong double-digit ad growth from strong “Monday Night Football” ratings and healthy viewership for the Rose and Fiesta Bowls.
One topic that will almost certainly prevail over the next two weeks of earnings reports will be online video. Time Warner Cable, which reported earnings on Jan. 27, saw its video subscribers drop by 141,000 — certain to keep alive theories that people are cutting the cord and opting for services like Netflix and Hulu instead.
For those concerns, RBC’s Bank believes free online TV content “is likely an endangered species” and distributors will move toward subscription services or TV Everywhere services tied to existing cable, satellite or telco packages.
“It is simply too much of a threat to the current pay TV ecosystem that rewards the networks in potential transmission fees far more handsomely than (over-the-top video) access does today,” he said.
Finally, count on execs to tout the potential of new tech. Just hours before he’s scheduled to deliver News Corp. earnings on Wednesday, Murdoch will preside over an elaborate event introducing his highly anticipated, iPad-only newspaper the Daily at New York’s Guggenheim Museum. So expect lots of upbeat Daily talk on the earnings call and less chatter about the company’s ailing MySpace and Internet businesses.