Big Media Q2 Corporate Earnings Round-Up: A Hint Of Anxiety, But Not For Investors

There’s a little hyperbole in Nomura Securities analyst Michael Nathanson’s observation that the Q2 Big Media earnings season that wrapped up last week was “one of the most unusual periods [for the industry] in recent memory.” But he’s basically on target. Most companies had something worrisome to report — including softer than expected Q2 revenues, and likely weakness in the Q3 ad market. Even so, media stocks are up, in some cases substantially: Over the last 30 days the Dow Jones Media Index is +7.8% while the benchmark Standard & Poor’s 500 is +4.6%. CBS is the stand out, +14.7%. “Strangely enough, the market didn’t seem to care that much about the specifics,” says Bernstein Research’s Todd Juenger. “In general, media stocks are all in favor, each with its own story.”

What accounts for the euphoria? The most common explanation is that Big Media looks like a safe haven in a weak economy, especially in comparison to other sellers of consumer discretionary items (think Coach, Starbucks, or Best Buy). Giants including Disney, Discovery, News Corp, Time Warner, Viacom, and NBCUniversal make most of their profits from cable networks — and that business has a safety net: Channels still have enough muscle to negotiate guaranteed price hikes from pay TV distributors. For example, Disney’s cable channels are seeing “tremendous price growth,” CEO Bob Iger says. News Corp COO Chase Carey says his networks “have continued to achieve or exceed our targets.” And Discovery CEO David Zaslav says his execs will “be pushing hard to make sure that we get fair value” in carriage deals. CBS chief Les Moonves also crowed about the retransmission consent payments flowing to his broadcast stations. He’s “confident there is significant upside” because “each new deal means increased fees.”

Viacom illustrates the importance of these bullish cable network forecasts. Even though it arguably reported the industry’s most disappointing Q2 revenue and earnings results, the stock is up 8.2% since the announcement. That’s due in part to CEO Philippe Dauman’s claim that Viacom won a substantial price hike from its recent battle with DirecTV. “The battle he conducted against DirecTV was spectacular,” Chairman Sumner Redstone says. “Philippe has the same passion to win that I’ve always had.” But DirecTV CEO Michael White says programmers demanding these big increases celebrate Pyrrhic victories. “The customer at the end of the day is the one getting squeezed and bearing the brunt of these exorbitant price increase demands that are just not sustainable,” he says. (more…)

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