The second-quarter earnings cycle is a wrap, with media companies posting their strongest results since the Great Recession began two years ago, helped in a big way by a recovery in advertising.
Nearly every major outlet reported double-digit gains in ad revenue for the period ended June 30. Scripps Networks Interactive led the pack with a 13% year-over-year increase in ad dollars — 27% if you include its acquisition of the Travel Channel in late 2009.
The moguls may have their counterparts in Detroit to thank, with autos emerging as the strongest category. Upfront TV inventories sold better than they have in years, kickstarted when automakers began buying time earlier this summer for the upcoming NFL season, said Chris Geraci, managing director of national TV for OMD.
“It may be that the national TV marketplace is living in an alternative reality from the rest of the economy, but it looks like companies still want to invest in their brands,” he said.
All in all, the improved financials were welcome news for a media industry that has been particularly battered by the vicissitudes of the recent economy.
“We are not all the way back,” CBS and Viacom chairman Sumner Redstone told analysts on Aug. 5, “but the horizon is brighter than it has been in a long time.”
Despite new concerns about a slowdown in the economic recovery, media execs said that advertisers aren’t showing signs of pulling back in the third quarter. They remain hopeful that political advertising will boost results in the back end of the year.
“The comparisons will certainly get tougher since advertising began to pick up some in the last half of 2009,” said media sector economist Arthur Gruen of Wilkofsky Gruen Associates. “But these numbers show that advertisers think they can sell product, that they have confidence consumers will begin to spend.”
Hollywood studios nearly all showed heightened earnings, and some reported record results, including the $1.3 billion in operating profits recorded by 20th Century Fox for its last fiscal year.
It came largely from “Avatar’s” record box office performance and strong DVD sales, making it the most successful movie of all time.
For the most part, as studios grapple with whether their windows release schedule needs revising, DVD and home entertainment sales continued to be soft for many of the media companies — most notably at Viacom, where Paramount’s decision to cut expenses by releasing fewer movies theatrically and for home entertainment helped push DVD revenues down 43% in the quarter.
Disney was able to report earnings from the “Alice” DVD during the period because the studio experimented with releasing the film a month earlier than usual on homevideo.
It’s estimated that the film’s versions on DVD and Blu-ray rang up nearly $67 million in sales since June 1.
During a call with investors, Disney’s Bob Iger said the Mouse House will “become aggressive in experimenting with new windows, including digital” to drum up more homevid dollars in the future.
“We know there are people who would like to see movies sooner than later and would pay a premium price to do that,” Iger said. “The DVD market is challenged and will continue to be challenged. You’re dealing with a title-to-title environment. … Collectability doesn’t seem to be as important as it once was other than for certain brands like Pixar.”
Also, as more studios opt for tentpole films, higher budgets for those movies have chipped away at profits. Time Warner’s studio operating profits, for example, fell below the Street’s expectations on higher costs.
As ad dollars began to flow, the second-quarter results provided evidence of the heightened value to media companies of the dual revenue business model of cable networks — advertising and affiliate fees.
The cable nets were the highlights of the quarterly results, from Time Warner’s Turner family of channels to Disney’s ESPN to News Corp.’s Fox News, FX and regional sports networks to pure-play Scripps, with the Food Network and HGTV.
And a gleeful CBS chief exec Leslie Moonves was anxious to report on the heels of a 10-year distribution agreement with Comcast that the broadcast Eye would now be firmly in the dual revenue camp, taking in new retrans fees.
The performance of cable networks these days garners much more Wall Street attention than do, say, films. Given the decline in DVD sales and the hit-or-miss nature of movies, the film biz is given less weight when it misses analysts’ estimates than when TV networks beat projections, said Anthony DiClemente, a media analyst with Barclays Capital.
In addition to accelerating ad growth, DiClemente noted heavier spending in content made during the quarter, highlighting for example, CBS’ increased spending in its primetime lineup — signing a new long-term agreement to broadcast the NCAA basketball tournament — and the net’s investments in a new film division.
Of course, with earnings back on track and free cash flow up, Wall Street always wants more.
“The question for all these companies,” said DiClemente, “is what’s your next act?”
(Marc Graser contributed to this report.)