The media congloms will start spewing out quarterly numbers Thursday, and investors have some major questions: How did that strangely nasty start to the broadcast season impact earnings? With ratings volatile and the economy uncertain, where is advertising headed? Can showbiz stocks continue their boffo run in 2013? Will any of the studios be forced to take a writedown on one of their tentpoles?
Also looming large is whether CEOs might address violence and entertainment as the national debate sparked in Newtown, Conn. shows no sign of letting up.
“While we do not perceive an immediate threat to media industry revenue and profits, we are curious how the senior-most executives running content producing media companies view” the issue, said Richard Greenfield of BTIG Research in a blog post Tuesday.
As long as the debate rages, the biz always faces the double threat of tighter government regulation and advertiser boycotts.
Greenfield also wondered whether, “in the age of the Internet with all forms of content only a click away, does airing more violent TV content only after 10 p.m. make sense?”
Viacom reports its earnings first this week, followed by Walt Disney, Time Warner, News Corp. and Sony next week, and CBS the week after. For most of them, cable TV networks are considered “the core component to value,” said Todd Juenger of Bernstein Research in a note Tuesday, and the overall health of the TV advertising market is probably the most important trend for the sector.
Juenger’s three top questions for the December quarter:
•How long can Viacom continue to hemorrhage viewers yet post ad-revenue declines of only low-single digits?
•How badly will the broadcast networks, except NBC, be hurt by the season’s dreadful ratings start?
•And how much will ratings winners like Discovery be able to cash in, given the scarcity of scatter supply?
Nickelodeon ratings, which dropped sharply during 2012, started to level off in December. But the cable group saw declines at MTV, NickToons and Nick Jr. as well. Viacom has invested in new programming to buck up Nick and that’s likely to continue this year. Juenger wonders how high it will go, and also if Viacom brass will renew a deal with Netflix that expires in May.
At the broadcast networks, the season that started in late September had a rocky start with some ratings down 18%-20% early on before heavy DVR usage was factored in. For the fourth quarter, ratings were still off 10-11%.
Fox fell the most. Parent News Corp. ends its fiscal year in June and Juenger wonders if the conglom will stick by its full-year guidance given the drop. Wall Streeters will also glean what they can of News Corp.’s upcoming split into two pieces, publishing and entertainment, and hints as to whether the publisher wants to go after an acquisition of the Los Angeles Times.
At CBS, execs are sure to detail the company’s move this month to separate the big outdoor advertising business into a REIT, or real estate investment trust. Juenger will be listening for news about additional SVOD licensing deals that management hinted at last quarter.
From Walt Disney, Juenger would like some color on theme parks, on how affiliate renewals last year will stream through to revenue, and on supply and demand of sports advertising. He will also be watching for “any reason to fear an impending writedown on either ‘Oz: The Great and Powerful’ or ‘The Lone Ranger.'” Disney sources dispute the suggestion that they may be contemplating a writedown on either pic.
Comcast, split between cable and entertainment, is finally getting love for its showbiz side as NBC jumped to first place this television season thanks to “The Voice” and Sunday Night football. Comcast has a ton of cash it could use for acquisitions or an early buy-in of GE’s remaining stake in NBC Universal.
At Time Warner, CEO Jeff Bewkes just upped home entertainment head Kevin Tsujihara to head Warner Bros. and may have thoughts on how the duo will continue to transition the studio into the digital era. Juenger also wonders if TBS and HBO can continue their stellar growth.
Investors will be listening hard to the conference calls for clues — should they buy the shares, or buy more, or sell them and take profits after an unusually fantastic 2012. Media stock surged last year from 16% (Viacom) to 58% (Comcast) compared with about 14% for the broader market.
“The media sector had a phenomenal 2012. Is it time to get out, or can it possibly outperform again? And for investors who missed it, is it too late?” Juenger said.
He thinks they can still be winners. “The same business drivers that propelled 2012 are still in place. Affiliate fees are safe and contracted, and cord cutting remains a hypothesis rather than reality.”