YEARENDER: Wall Street throughout 2011 became starry eyed when they talked about tech stocks. But they still had a soft spot in their hearts for traditional media companies all year long. Five of the seven companies in the Big Media group beat the Dow Jones Industrial Average’s 5.5% increase (through December 30th) — four of them by a lot. And they weren’t outliers: The Standard & Poor’s broadcasting index was +15.2% while the S&P movies and entertainment index was +10.2%. Many of the stocks were bolstered by the industry-wide improvement in ad sales. In addition, there was a general sense of relief — perhaps a pipe dream — that digital companies don’t yet pose a clear and present danger to the way traditional movie and TV companies do business. We’ll see how long that lasts.
Here’s how each of the Big Media companies fared in 2011, in order of how well the stock performed. Next to the company name is the percentage increase or decrease in the stock price this year as well as the price-earnings ratio (the stock price divided by the expected earnings per share) which is a rough measure to compare how cheap or expensive the stock is compared to its industry peers.
CBS (Stock: +41.3%, PE: 15.4) Once it became clear that U.S. advertising would continue to recover, investors started to pay attention to CEO Les Moonves’ sales pitch to bet on old-fashioned network TV shows. He held the line on costs while CBS cranked out dependably popular, easy to syndicate procedural dramas including CSI, NCIS, The Good Wife, and Hawaii Five-0. Meanwhile Moonves beefed up CBS’ revenues by striking deals to license series to digital streaming companies including Netflix and Amazon. He also continued to play hardball to collect retransmission consent fees from pay TV providers, and reverse compensation from CBS affiliates. Moonves became cocky during the upfront ad sales season, asking for an unheard of 18% price hike before settling for a highly respectable 14%. That sets CBS up nicely for 2012 when it will benefit from the influx of political ads, and the growing popularity of original shows on Showtime. It also enabled the company to raise its share repurchase effort by $1.5B. But the economy remains a concern. And Moonves will have to show investors that he can tap other revenue sources to keep CBS growing in 2013. Consensus estimated 2011 Earnings Per Share (EPS): $1.90, +82.7%.
News Corp (Stock:+19.9%, PE: 15.9) Investors strangely either dismissed the UK phone hacking scandal as a minor event at the global infotainment colossus, or a positive. They didn’t mind Rupert Murdoch’s decision to abandon his $12.6B effort to buy the 61% stake in BSkyB that News Corp doesn’t already own. Those who initially liked the transaction said it would use up cash and stop Murdoch from overpaying for less promising acquisitions the way he did with Dow Jones, MySpace, and his daughter Elisabeth’s Shine Group TV production company. Now they could count on the scandal to keep Murdoch sidelined while he closed News Of The World, sold MySpace, and agreed to $5B in share repurchases. Once freed of their concerns about Murdoch, investors focused on the company’s strong fundamentals. The cable networks, its biggest profit driver, led the way. Ad sales were up, and they benefited from the company’s big – executives said overdue — increases in pay TV fees for channels led by FX, Fox News, and regional sports services. Like with CBS, the Fox broadcast network saw additional revenues from retransmission consent and digital syndication deals. Although the movie studio didn’t have a megahit like Avatar, which helped the 2010 results, it more than held its own with solid results from Rise Of The Planet Of The Apes, X-Men: First Class, and Alvin And The Chipmunks: Chipwrecked. Estimated EPS (Fiscal year ending in June 2012): $1.38, +16.9%
Viacom (Stock: +13.8%, PE: 12.7) Viacom’s shares probably would have closed the year much higher if it weren’t for the startling, and still perplexing, recent decline in Nickelodeon’s ratings. The drop in its live plus same-day audience accelerated from -5.4% in 3Q to -15.7% in October and -18.1% in November. CEO Philippe Dauman called the Nick situation a “blip,” touted the channel’s new programming plans, and questioned Nielsen’s measurements. He also announced in November an eye-popping increase in Viacom’s share repurchase authorization to $10B from $4B. Investors still want proof that Nick and other Viacom networks aren’t running out of gas. That said, they liked a lot of other things that they heard from the company in 2011 including its strong upfront ad sales and new digital syndication deals. Movie service Epix became profitable. Paramount also had a great year at the box office with releases including Transformers: Dark Side Of The Moon, Thor, and Captain America: The First Avenger. Viacom probably will have to settle for less in 2012 as the Marvel titles shift to Disney. EPS (FY ended in September) $3.78, +25.2%.
Time Warner (Stock: +11.6%, PE:13.8) The company’s shares pretty much tracked along with the rest of the media and entertainment industry before surging late in the year. The biggest questions involved the so-so performance of the cable networks. CEO Jeff Bewkes won investors over by talking up TNT and TBS’ programming acquisitions – including The Family Guy and The Big Bang Theory – and CNN’s opportunity to grow as a digital news portal. He also evangelized digital streaming: He says that his networks’ audience and ad sales will grow as pay TV operators roll out their TV Everywhere packages and HBO GO. Like virtually every other content producer, Bewkes licensed TV shows to digital providers including Netflix. Investors are unconvinced that Time Warner made a smart bet by turning Web site Flixster into a gateway for consumers who want to stream movies that they buy as part of the entertainment industry’s UltraViolet initiative. Still, Bewkes seemed to quell investor fears that 2012 would be a tough year for Warner Bros now that its lucrative Harry Potter series has ended. He says that he’s optimistic that the upcoming Batman/Dark Knight release will drive a new franchise. Even if it doesn’t, the production unit is poised to see a lot of additional syndication revenue from TV shows including The Mentalist, Fringe, Chuck, and Gossip Girl. Estimated EPS: $2.82, +25.3%
Comcast (Stock: +6.8%, PE: 17.1) The company’s acquisition of NBCUniversal made it an infotainment production powerhouse. But the assets only account for 22.5% of Comcast’s revenues, which is why Wall Street still values the company based on the sales it generates from and through its 22.4M cable lines. That business had a mixed 2011. On the minus side, the number of Pay TV customers declined and many investors worry that it’s a precursor to a mass defection as consumers discover cheaper ways to entertain themselves on the Web. On the plus side, the drop in video this year was smaller than the one in 2010 and was more than offset by gains in broadband and phone subscriptions. What’s more, prospects for 2012 look somewhat rosier after Comcast and other cable companies announced a shocking cross-promotion agreement with Verizon – a former arch enemy — just as AT&T dropped its effort to merge with T-Mobile. NBCU’s performance did little to reassure investors. The cable networks including USA, CNBC, and SyFy predictably delivered strong revenue increases from ad sales and carriage fees. But Comcast wasn’t able to juice NBC’s ad sales or ratings as new series including Playboy Club bombed. And the film slate it inherited at Universal delivered lower revenues than in 2010. Comcast says the entertainment unit remains a work in progress, and plans to keep investing in it. Notably, the network agreed to pay $4.4B to keep the Olympics from 2014 to 2020. That’s a mixed blessing: NBC lost money on the 2010 games and is likely to do so again in 2012. Estimated EPS: $1.50, +16.3%.
Disney (Stock: -0.7%, PE: 15.0) Investment bears dominated the market’s thinking about Disney in 2011. They fear that many consumers will shun Disney’s theme parks if the global economy weakens – and that the company is stuck with expensive spending commitments to upgrade existing parks and launch new ones including Shanghai Disneyland. Concerns about the parks were exacerbated in March when Japan’s earthquake and tsunami stranded thousands of visitors at Tokyo Disneyland. Also, Universal’s Islands of Adventure has the hot ticket in Orlando with its “The Wizarding World of Harry Potter” attraction – which the company says it will replicate at Universal Studios Hollywood. The second biggest concern is that ESPN, Disney’s cash cow, will be slammed from two directions: Pay TV providers including Time Warner Cable and Dish Network have been talking about providing consumers with lower-priced packages that don’t include sports networks. Also, ESPN faces growing competition – including from Comcast which is relaunching its Versus channel as NBC Sports Network. The company also suffered from lackluster ratings at ABC and the film studio’s 2011 slate which had no match for last year’s Toy Story 3 or Alice In Wonderland. But Wall Street’s bulls are ready to charge in 2012 if consumers like the improvements they’ll see at the theme parks, ESPN proves it’s still a must-have channel, and ABC scores hits this spring from new dramas including GBC (it stands for Good Christian Belles) and The River. EPS (FY ended in September) $2.54, +22.7%.
Sony (Stock: -50.5%, PE: NA) The stock chart looks like a ski slope since March when the earthquakes and tsunami hit northern Japan and sent Sony headed toward its fourth straight year of losses. The company was “flattened, flooded, hacked and singed,” CEO Howard Stringer said after months during which just about anything that could have gone wrong did. Sony’s PlayStation Network was hacked in April, and the company angered consumers by failing to immediately come clean about the problem. Sony also had its seventh year of losses in TV set sales, leading it to sell its share of a LCD manufacturing joint venture with Samsung. But the company says it still believes it will recover by blending its movie, TV and music content with its technology. Stringer underscored that by spending $8.4B on acquisitions including EMI’s music publishing operation. The movie studio held its own in 2011 with help from The Smurfs and The Girl With The Dragon Tattoo. Estimated EPS (FY ending March 2012): -$1.02, 132.7% improvement.