Media bizzers were ecstatic as a federal budget deal to avoid the fiscal cliff buoyed stocks Wednesday, soothed advertisers and left the pocketbooks of average cable subscribers and moviegoers relatively untouched, though most warned that the clarity isn’t likely to fuel any significant dealmaking or hires in the new year.
“Now that the tax burden stayed at the upper levels, people will have the same discretionary income. For people over $400,000, the only things they may be cutting back on are luxury items, and our business is not a luxury business,” said a rep for one big media company. “Cable subscriptions are a staple, (so is) ordering a movie online. Maybe instead of taking vacations, they’ll see more movies.”
The House of Representatives passed a bill late Tuesday night that limits tax hikes to the top 2% of earners and delays spending cuts, avoiding the potentially lethal combo that economists feared might have tipped the still-fragile U.S. economy into recession. An economic downturn in 2009 badly squeezed advertising, which remains the lifeblood of the media business despite the growth of new revenue streams.
Grateful media investors applauded the new congressional accord and showbiz stocks outpaced a euphoric market that saw the Dow Jones Industrial Average jump 2.35%, or 308 points, on Wednesday. But any expectation that averting the fiscal cliff would directly spur dealmaking or new initiatives in the showbiz realm was tamped down by execs and analysts.
While several media execs said they were “relieved” and “happy” at the resolution, they noted that corporate and departmental budgets had been set months ago and there weren’t plans for new hiring or other expansion because of Tuesday’s deal.
“We don’t manage that way,” said one industryite. “We don’t wait for the fiscal cliff to pass, and then decide if we will hire somebody or not.” “People thought it would get done, but that it might take a little longer, that maybe we’d go over (the cliff). The fact that it came over the holiday is great. It was particularly good to sit around in pajamas and watch people in Washington work,” he said.
Wall Streeters said the upbeat stock perfs mostly repped a sigh of relief in the markets that tax policy had been clarified — not necessarily anticipation of higher earnings or faster growth.
“The stock market hates uncertainty, so it’s all to do with investors being confident in paying more today for a dollar of future earnings because they are more certain what the ground rules will be. They don’t think earnings will be higher,” said Todd Juenger of Bernstein Research.
Wednesday’s stock market surge in response to the deal saw Viacom hit a new 52-week high, boosted by nearly 6.4%, by far the biggest gainer. Wall Streeters attributed the boost to both the budget deal and renewal of a long-term carriage deal with Cablevision.
CBS jumped 3.29% to $39.30; Comcast surged 3.10% to $38.52; News Corp. rose 3.62% to $27.19; Time Warner popped 4.04% to $49.76; and Discovery Communications ended up 3.15% at $65.48. These are the highest levels these stocks have hit in a year.
Gains were widespread. AMC Networks ran up 3.03% to $51; Lionsgate jumped 2.87% to $16.87; DirecTV surged 3.01% to $51.67. Facebook had a stellar day, soaring 5.19% to $28 on several analyst upgrades and renewed confidence in mobile advertising.
International market surged with 2% and 3% increases in European and Asian exchanges.
The budget agreement calls for a tax increase to 39.6% for couples with incomes over $450,000, or individuals over $400,000. Those households would also see capital gains and dividend taxes rise to 20% from 15%. The estate tax was boosted to 40% from 35%.
The measures addressed taxes but postponed a battle over spending, which will also rise sharply unless a deal can be reached in February.
Pundits anticipate another heated and stressful partisan fight when that battle is fought, a concern that injected a note of worry into Wednesday’s jubilation. Spending cuts could slow the economy but are likely to hit some sectors, like defense and health care, harder than others.
“It’s not without impact. But avoiding the fiscal cliff meant avoiding tax hikes and spending cuts simultaneously,” said Alan Gould of Evercore Partners.