The big ratings numbers that football has been pulling in leading up to the Super Bowl leads to the conclusion that the networks that completed those billion dollar passes to the NFL are winners. But who are the losers?
Analyst Anthony DiClemente of Barclays Capital expects MSOs to agree to pay higher affiliate fees to sports programmers. Which means that “we believe the non-sports programmers could be at a disadvantage in competing for affiliate fee increases in what is increasingly a zero-sum game,” he wrote in a report released Friday.
While NFL programming is essential, other programming isn’t so much. That means DiClemente is taking a closer look at how much Discovery Communications, Viacom and Scripps Networks are worth.
“We are incrementally more cautious on Discovery stock near term,” he says. “In addition to our concerns about its premium valuation multiple, relatively high exposure to the euro, and lowest return of capital yield in the group, we believe its core networks may have difficulty securing its sought after rate hikes, especially if the MSOs end up shouldering a significant portion of incremental sports rights costs.”
DiClemente has similar concerns about Scripps Networks because most of the carriage agreements for Travel Channel expire this year. “While we believe Travel Channel has high-quality programming with a strong appeal to its target demo of affluent females, we now believe there is more risk to the significant rate increases that Travel will no doubt seek from the affiliates.”
Without significant sports programming, Viacom might also have trouble securing rights increases from cable operators, especially if Nickelodeon’s ratings continue to sag. “However, with its best-in-class return of capital policy, and a relatively low exposure to advertising cyclical revenues, we find Viacom shares attractive at current levels,” DiClemente says.