The stock market’s off to a weak start this morning — but investors are hitting Big Media companies especially hard after another Wall Street opinion leader soured on the sector. Disney’s down 4.8% and Time Warner’s off about 3.6% in early trading after Bernstein Research’s Todd Juenger downgraded both companies to “market perform.”
But others were bloodied as he lowered his target stock prices virtually across the board. Viacom is trading -3.9%, CBS is -3.8% (and touched a 52-week low of $46.39), AMC Networks is -3.5%, and Discovery’s -1.8% (touching a 52-week low of $28.09). The only major TV provider whose stock Juenger recommends now is Fox, which he says poised to benefit from its global sports investments — yet it’s also down 2.9%.
The report reinforces the market’s turn against Big Media after Disney acknowledged early this month that ESPN had lost subscribers — partly due to a decline in pay TV customers — leading it to trim some financial projections. Earlier this week, Wells Fargo Securities’ Marci Ryvicker warned that “we are FINALLY seeing the fraying of the television ecosystem in affiliate fees.”
Big Media stocks are now at “near recession levels,” Juenger says. And that may be appropriate, he adds. It’s “fair and warranted” to now look at U.S. ad-supported TV businesses “as structurally impaired assets.”
After Disney, Juenger says he fears that “the next data points are more likely to be negative than positive. Especially among younger consumers….Under such industry upheavals, it usually ends badly for investors who cling to hope that things won’t get worse, or who wait for that next conclusive data point just to make sure.”
That hurt because he had already concluded that TV ad sales are “entering a prolonged period of structural decline, caused by the migration of viewers to non-ad supported or less ad-supported viewing platforms.”
Juenger has vigorously argued that programmers hurt themselves by syndicating shows to subscription video on demand services led by Netflix. The short-term infusions of cash may have looked good on quarterly reports. But they undermined their main businesses by encouraging viewers to turn away from ad-supported pay TV channels — their cash cows.
As a result, “we fear the entire sector will struggle to work until the content owners take concerted action to reclaim on-demand viewing from the SVOD services and use it to protect affiliate fees.”