Digital licensing gains, superheroes and subscriber growth drive big gains
Media stocks enjoyed a heady run in the bull market of 2013. Shares of most major congloms closed out the last full week of the year at or near 52-week highs.
Netflix regained its platinum-plated status, thanks to solid subscriber growth and a generally warm reception to the company’s first slate of original programs. CBS Corp. logged the biggest year-to-year gain in share price among its traditional-media peers after impressing Wall Street with its ability to rake in digital licensing revenue and deliver consistent hits to CBS and Showtime.
Among showbiz heavyweights, the most modest growth came from the stock that only had six months on its own: the newly solo 21st Century Fox. Investors were happy to see Rupert Murdoch’s Hollywood and international TV assets separated from its old-line publishing holdings as of July 1, but softness at the 20th Century Fox film studio and rising content costs in the cable wing raised questions about near-term performance prospects.
Overall, the equity markets in 2013 exhibited “Wolf of Wall Street”-like enthusiasm, based on leading indicators (although trading was fairly flat on Friday). The Dow Jones Industrial Average (in which Disney is the sole showbiz component) was up 25.8% for the year (Dec. 27, 2012-Dec. 27, 2013). The NASDAQ climbed 39.5% over the same frame, while Standard & Poor’s 500 rose 29.9%. And the mutual fund market had its best year since 2009, particularly for U.S. funds, according to a report in Thursday’s edition of USA Today.
Netflix closed out 2013 as the single-highest performing stock of the S&P 500, with a 316.5% gain to close Friday at $367.50 (which was shy of its 52-week high of $389.16). That’s a dramatic reversal of fortune from its plunge to below $60 in fall 2011 — after unveiling an unpopular new pricing plan that was ultimately scuttled — and again in summer 2012 on concerns about rising content bills.
The company has quieted those fears with strong domestic and international subscriber growth. And it continues to work from the HBO playbook with a good response from critics to most of its original series offerings, notably “House of Cards” and “Orange Is the New Black” (pictured), which are generating the kind of awards buzz that fuels subscriptions. Netflix is still keeping mum about specific viewing data for its series — even with creator Jenji Kohan — but execs have allowed that “Orange” is its most-watched original series to date.
CBS Corp. is up 69% for the year, closing Friday at $63.04, near its 52-week high of $63.62. Wall Streeters like how CBS has mined its program vault for digital dollars, and analysts have applauded its willingness to experiment with new business models such as this past summer’s “Under the Dome” deal with Amazon Prime. Some expect that the planned changes to its outdoor advertising operations will further boost earnings in 2014.
“Our top stock pick among the content companies we cover is CBS because it is unterthered by Hulu ownership and, therefore, it is the most innovative at creating new cash flow strems by windowing digital distribution to maximize the ROI of its content,” gushed Needham & Co. analyst Laura Martin in her Dec. 4 report “Valuing Consumers’ TV Choices.”
Lionsgate also had a blockbuster year, rising 99.2% to close Friday at $30.81. Boosted by “The Hunger Games: Catching Fire,” Lionsgate delivered an early Christmas present to shareholders this month in the form of its first-ever dividend. Its TV wing also has momentum in the digital arena with the success of “Orange is the New Black” and ”Mad Men” reruns on Netflix.
Sumner Redstone’s other conglom, Viacom, is up 63.1% for the year, closing at $86.05, just shy of its 52-week high of $86.16. The company is seen as having done a good job in managing the margins on its film studio, which had success this year with “World War Z,” “Star Trek Into Darkness” and “Anchorman 2.” The turnaround at Nickelodeon is under way after two sluggish years, and investors are betting on upside for BET and MTV next year.
Bob Iger may have taken a pay cut this year, but Disney still has plenty of pixie dust on its shares. The Mouse gained 50.6% for the year, closing at $74.35, near its 52-week high of $74.77.
Fortified by its Marvel and Lucasfilm acquisitions, Disney is likely to stay buoyant next year if only on the anticipation of its boffo 2015. That’s when the first of the new “Star Wars” movies and the sequel to “The Avengers” hit, and when the long-gestating Shanghai theme park is expected to open its doors.
Time Warner is also banking on the bottom-line boosting power of superheroes in the coming years. The conglom’s big-screen strategy for its DC Comics unit is fueling some investor enthusiasm. Shares gained 47.6% for the year, closing Friday at $69.64, compared to its 52-week high of $70.77.
Like News Corp./21st Century Fox, Time Warner is poised to part ways with its Time Inc. print assets in a spinoff set for next year. That shift may send Time Warner back on the hunt for cable and international acquisitions, especially as domestic growth potential begins to plateau at HBO and Turner.
NBCUniversal parent Comcast Corp. gained 39.2% for the year, closing at $51.79, a penny shy of its 52-week high of $51.80.
As the nation’s largest MVPD, Comcast is front-and-center in the cord-cutting debate, which has made investors anxious about the cable sector. But even as subscriber counts drop, revenue gains from high-speed Internet services are seen as a good sign that Comcast is retaining high-end customers that value their fat cable broadband pipes. The positive signs at the NBC mothership network and the prospects for growth in VOD and streaming revenue allow Comcast to benefit from the bullishness on the content market.
The media side of the Murdoch empire, 21st Century Fox, has seen a 16.5% gain since going solo on July 1. It closed out the year at $34.37, which marked a healthy uptick from the $25-$29 range of News Corp. shares in the months prior to the split.
The streamlined Fox is seen as needing an injection of new film franchises, particularly with James Cameron pushing back the “Avatar 2” release date to late 2016.
The prospect of heightened sports rights bidding with the launch of Fox Sports 1 as a national competitor to ESPN has also stirred some concerns. But the three-year plan laid out by Chase Carey at 21st Century Fox’s first investor day in September earned the company some goodwill on the Street, which has learned that it rarely pays to bet against Murdoch.
Among other closely watched media stocks:
Discovery Communications: Up 42.2% for the year, thanks to international growth, improvements at OWN and ad sales gains at the Hub. Friday closing price: $88.95
Starz: Up 121.7% in its first year as a solo entity. Friday closing price: $29.02
AMC Networks: Up 34% on the back of “The Walking Dead’s” record setting ratings. Friday closing price: $66.96
DreamWorks Animation: Up 114.6% on the market’s rising tide even with a big B.O. flop with “Turbo.” Friday closing price: $35.23
Live Nation Entertainment: Up 117% with a good comeback story after a rough ride in 2012. Friday closing price: $19.82, just two bits shy of its 52-week high.