Better-Than-Expected Third Quarter Results Take TV Investors by Surprise

After last summer’s meltdown for media stocks, investors were bracing for a bumpy ride in third-quarter earnings results. But the surprise turned out to be the amount of good news emanating from the sector — one that is in the throes of fundamental economic disruption.

In some cases, solace came from numbers that were not as bad as expected. In others, there were standout performances that made investors take notice. AMC Networks, Scripps Networks Interactive and Charter Communications were among the quarter’s winners; Time Warner and Viacom, not so much.

Domestic TV ad sales and MVPD video subscriber rates were, generally speaking, better than forecast. More surprisingly, the positive signs in these arenas were driven by companies most considered to be dinosaurs of the digital age: broadcast networks and Big Cable operators.

Overall ad revenue for the quarter was up 1% from third-quarter 2014, or $140 million, according to an analysis by MoffettNathanson, which had projected a 1% decline for the quarter.

Going Up
The third quarter saw ad revenue growth for the Big Four broadcasters outpace that of cable networks, year over year.
1.4% Broadcasters’ 3Q ad revenue growth (ABC, +5%; NBC, +3%; CBS, +1%; Fox, -7%)
0.8% Cablers’ 3Q growth

“The pricing was very strong in the quarter,” as was demand, said Lori Hickok, chief financial officer of Scripps Networks Interactive during the company’s Nov. 9 earnings call. SNI sales execs “were able to sell it as fast as they were knocking on the door.”

AMC Networks was the rock star of the quarter, with a 40% hike in year-over-year ad sales to $193 million. The catalyst was primarily the spinoff spawn of its “Walking Dead” franchise, “Fear the Walking Dead,” which opened to record cable ratings in August. Nonetheless, AMC Networks CEO Josh Sapan emphasized that SundanceTV, IFC and We TV were also up “double digits” over the year-ago frame.

Viacom and Time Warner, meanwhile, lagged behind rivals due largely to softness in advertising and affiliate fee concerns.

With media CEOs touting the strength of the scatter ad sales market and strong demand, the hope is that momentum continues in the fourth quarter, traditionally a strong frame for the TV blurb biz. However, MoffettNathanson’s expectations remain modest. “The days of mid-single-digit TV advertising growth seems to still be a thing of the past,” Nathanson wrote.

The ray of hope provided by MVPD subscriptions came from numbers that were less bad than initially feared. According to MoffettNathanson’s analysis, MVPDs lost 357,000 subs in the quarter — which marked a deceleration of the rate of subscriber hemorrhaging compared with recent quarters. Nearly half that loss came from satcaster Dish Network, which is on a mission to transform its video business into the Sling TV streaming platform. DirecTV and telcos U-verse and FiOS made up most of the remaining losses, per MoffettNathanson.

Comcast lost 48,000 residential video subscribers in the quarter — its lowest losses in a third quarter in nine years. Time Warner Cable lost just 7,000 subscribers, its best for a Q3 since 2006.

But the most impressive performance came from Charter Communications, which gained 12,000 residential video customers in the quarter, compared with a loss of 9,000 in the year-ago period. Those numbers gave a big lift to the company as it prepares to swallow up Time Warner Cable, assuming the deal wins approval from regulators.

“This quarter was a better quarter for the MVPD universe writ large,” said AMC Networks’ Sapan. “It’s a nice change to see in terms of a trend.”

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