Despite Economic Worries, Media Companies Finish Successfully

By Steve Birenberg  AUG 16, 2012 11:05 AM

The second week of earnings from media companies reinforced the theme that, despite economic worries, positive business trends remain in place


A second week of earnings from major entertainment and cable/satellite companies revealed the same positive trends as the initial batch of earnings (see August 9 article, Wall Street Mostly Happy With Media Earnings So Far). Advertising growth has slowed at national TV networks, but remains at acceptable levels with a post-Olympics pickup widely forecast.  Political advertising is beginning to kick in, especially for local TV stations. Cable and satellite companies lost video subscribers, pulling overall multichannel subscribers into negative territory vs. a year ago.  However, the loss of subscribers is decelerating, suggesting over-the-top driven cord-cutting remains more a fear than a reality. Capital spending upticks at Charter Communications (CHTR) and Cablevision (CVC) seem company-specific but are worth watching in case a new round of network or box upgrades is coming that would restrict the free-cash-flow story driving outstanding performance of cable stocks.

Affiliate fee and retransmission revenues continue to grow strongly, implying that content providers are maintaining the edge over multichannel TV distributors.  The flip side is that video margins remain under pressure at the cable and satellite companies.

There was less discussion of regulatory and legal issues on the calls than I expected with the exception of Dish Networks (DISH), which is at the center of disputes over Aereo, Hopper, and affiliate fee fights.  I expect the focus on regulatory and legal issues to pick up post-Labor Day, although a tight presidential race leaves the long-term conclusions unpredictable.

Finally, the one consistent positive across the media stock landscape is capital allocation.  Companies continue to return excess cash and capital to shareholders with large share repurchase programs and rising dividends.  I heard nothing on conference calls to indicate that this bullish trend is starting to wane.

Overall, against a skeptical investor base and weakening global economic growth, media companies produced good results in the June quarter.  More importantly, other than an Olympics-driven advertising and ratings slowdown away from Comcast’s (CMCSA) NBC Universal networks, the outlook for the third and fourth quarters looks quite firm.  Media stocks seemed poised to continue outperforming the market, especially those that are domestically focused, have accelerating free cash flow growth, and have strong television ratings.

Here are brief comments on the major companies that reported last week presented in the order in which the conference calls occurred.

This column was previously published by SNL Kagan on
Position in CVC

Entermedia is a long/short equity hedge fund focused on media, communic= ations, and related technologies. Steve Birenberg is co-portfolio manager o= f Entermedia, owns a stake in the Funds' investment management compan= y, and has personal monies invested in the Funds. CBS and Discovery Communi= cations are widely held by Northlake Capital Management, LLC, including in = Steve Birenberg's personal accounts. Steve is sole proprietor of Nort= hlake, a long only registered investment advisor.

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