Wall Street obsessing over ratings declines this fall at the major broadcast networks
The wave of quarterly earnings set to flood Wall Street in coming weeks may feel like old news as Wall Street obsesses along with the TV biz on the past three weeks of fall broadcast ratings.Nickelodeon ratings, News Corp.’s impending split, NBCUniversal’s Olympics windfall, a possible wave of exhib consolidation and torrid stock buybacks may also be front and center as execs assess financials for the three months ended in September. But TV talk will dominate. Media moguls, speaking at high-profile conferences last month, predicted lackluster third-quarter advertising would revive in the fourth, but that’s become a tough proposition with make-goods eating up inventory as ratings slip. “Ironically, scatter market pricing will be strong (on scarcity) but volume will be weak because of the make-goods” in the current fourth quarter, said Evercore Partners analyst Alan Gould. “It will take a few weeks for people to settle in and know what they want to watch. (Third-quarter) conference calls aren’t until the first week of November, so they may have sorted out the ratings,” he said. Excluding NBC and cablers like AMC with “The Walking Dead,” ratings are on the skids this season, which started just as the third quarter wrapped. They’re off 13% in aggregate for the Big Four as industryites cite an uptick in DVR playback that’s wreaking havoc with live ratings, aggravated by a dearth of new hits. CBS has been hard hit, with 18-49 ratings down 24% so far this fall. Early C3 ratings, live commercial viewing plus three days of DVR time shift, gave everyone a lift but didn’t close the gap. Other culprits could include free cable video-on-demand, Hulu and Web streaming, including from nets’ own sites. NBCUniversal parent Comcast, with a windfall from the Summer Olympics, will be the first of the network parents to report earnings on Oct. 26. Others follow in November. With a new TV season marking the high point of DVR use for sampling, broadcasters are pushing C7 viewing, live plus seven days, as a new benchmark. But “The agency guys say: ‘C3 is about as far out as we want to go. If you’re advertising for a movie opening this weekend, do you really care about C plus seven?’ It’s important when considering whether to renew or cancel a show, but on a short-term revenue basis, who cares?” Gould said. Todd Juenger of Bernstein Research figures CBS and ABC will get a bigger boost from C3 than other broadcast networks because their programming lends itself better to DVR and on-demand viewing than the NFL and singing competitions showing on NBC and Fox. More broadly, Juenger favors media companies poised to benefit the most from increases in affiliate fees and international growth, both in TV and theatrical. “We also prefer companies that are least exposed to certain negative industry forces, including declining homevideo sales and publishing,” he said. Disney and Discovery are his top picks. He’s neutral on CBS, News Corp. and Time Warner, and has been one of Wall Street’s biggest bears on Viacom, which he thinks may be neglecting MTV and its other networks as it pours cash into Nickelodeon to reverse flagging ratings at the kiddie net. Nick was hit by a massive ratings decline a year ago but may be in the midst of a turnaround led by a “Teenage Mutant Ninja Turtles” reboot. Gould said News Corp. is his favorite stock as it prepares to cast off the publishing business that’s slow growing and still plagued by a phone hacking scandal. He said the so-called Murdoch discount, which has kept the stock flat for years, may be evaporating through buybacks and the split. Upping COO Chase Carey to chief executive would be the icing on the cake, he said. Wall Streeters wouldn’t mind clarification on James Murdoch’s role and on rumors that he may be tapped to run Fox’s TV business. In local TV, Wall Streeters are eager to hear if political advertising, softer than expected in the third quarter, is faring better this month ahead of the Nov. 6 presidential election. The film business, said Nomura analyst Michael Nathanson, was a “moving target” for the quarter depending on the company, with fewer releases for some studios actually helping their bottom lines. Paramount slashed costs with only two limited releases, “Katy Perry: Part of Me” and “Raiders of the Lost Ark” in Imax. Most studios faced tough year-on-year comps from digital coin. Warner Bros. juggernaut “The Dark Knight Rises” battled “Harry Potter and the Deathly Hallows, Part 2″ and “Horrible Bosses” last year. At News Corp., which recently saw the abrupt exit of Fox Filmed Entertainment co-chair Tom Rothman, international upside from “Ice Age: Continental Drift” was offset by weak box office for “The Watch.” Disney already announced a s $50 million studio writedown on a stop-motion animation project it canceled in August. Marvel’s “The Avengers” released on homevideo Sept. 25, will be the biggest swing factor for the quarter, Nathanson said. Behind the screen, Regal Entertainment, the nation’s biggest theater chain, and smaller Cinemark are likely to reaffirm the desire to expand in what some think could become an industry acquisition spree sparked by Chinese group Wanda’s landmark purchase of AMC Entertainment. Cablevision’s Clearview Cinemas is on the block. Carmike recently acquired 16 theaters from regional operator Rave Review Cinemas, and there are still a few left. Industry execs say many other owners across the country are exploring options. Two factors are spurring activity: Private equity firms that bought into the biz en masse in 2007 and 2008 are looking to cash out; and small chains are thinking twice about the cost of converting to digital. Media congloms will unveil their stock repurchases for the quarter and talk about how they plan to continue spending their huge amounts of cash on hand buying back stock. Investors tend to like that, although though some Wall Streeters have started to worry that the industry is sacrificing long-term growth in the process. The idea is that media toppers and Wall Street were traumatized by a host of bad mergers over the past decade. “It’s like all the CEOs took ‘no dumb deal pills,’ ” said one fund manager.
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