Media Companies Pinching PenniesMargins improve despite disappointing ad revenue growth 2/13/2012 12:01:00 AM Eastern
Still wary after the recession, it appears that formerly
big-spending media companies have gotten better at
So far during this quarter’s earnings reports, Viacom, Time Warner
and Walt Disney Co. have reported somewhat disappointing revenue
numbers, particularly when it comes to TV advertising sales. And
yet, all three managed to exceed analysts’ earnings projections. News
Corp. made its earnings numbers despite spending $87 million on
fallout from its phone hacking scandal. Lower programming costs
due to the NBA lockout
also helped Time Warner,
Disney and News Corp.
Many of the pinched
pennies wound up in the
pockets of shareholders.
“Finally by operating efficiently,
and seizing every opportunity
to monetize our
content, we continue to
generate significant free
cash flow and to make
good on our commitment
to return substantial capital to our shareholders, both in the form of
stock buybacks and dividends,” CEO Philippe Dauman told analysts
during Viacom’s recent earnings conference call.
A commitment to containing costs is important, even though most
companies see signs that the first quarter ad market will be better than
it was in the fourth quarter.
To be sure, media companies still spend millions on big-ticket items
such as their CEOs and football. But they have convinced analysts
they have a playbook for making money when they make significant
investments in content.
During Disney’s conference call, analyst Doug Mitchelson of
Deutsche Bank asked about the company’s new agreements with Comcast
and the NFL. The former sets the pace for future revenue growth,
while the latter represents a major expense for ESPN, a key asset. With
both being long-terms deals, Mitchelson asked: “Is it fair to say that
you have increased comfort in the ability for ESPN to continue to
expand margins over time?” “Yes,” responded Disney CEO Bob Iger.
The conference calls often give CEOs an opportunity to present
their views on some of the major issues facing the industry. And where
they stand is often defined by where they sit.
For example, with ESPN being the cable service subscribers pay the
most for, whether or not they are sports fans, it’s not too surprising that
Iger sees few benefi ts to the industry turning to an a la carte model.
“I think people want variety and they’re getting it today, and they’re
also getting substantially increased quality” under the current system,
Iger said. He added that, on average, subscribers get about 100 channels
for $60 per month.
With an a la carte system, “there would be channels that are of interest
to a lot of entities, in some cases niche channels, that would simply
go away, and I don’t think that would necessarily be good,” Iger said.
“Secondly, the channels that were left would see decreased distribution,
decreased ratings, decreased
and that would put a lot of
pressure on the rates that
they charge, so rates would
go up. The result would be
that consumers would be
spending more per channel,
and it’s quite possible that
the $60 100-channel package
would quickly become
a $60 50-channel package.”
Asked about the over-the-top
joint venture of Coinstar’s
Redbox and Verizon announced last week, Iger said he was puzzled. “I read the Verizon-Redbox [news]
about four times and I even turned it upside-down and sideways, and
I’m still not 100% sure I understand what they’re offering,” he said.
“But my sense is that it’s going to be another opportunity for us to sell
content to the marketplace.”
Time Warner CEO Jeff Bewkes, the earliest proponent of TV Everywhere,
which allows subscribers to view programming on devices
other than the TV for no extra charge, extolled the progress the industry
is making in heading off the over-the-top threat.
“Two years ago, TV Everywhere, or what many call authentication,
was only an idea with no technology underlying it and no industry
support,” Bewkes said. “It has come a long way. Today, authenticated
TV has been embraced by every major distributor and program.”
But News Corp. COO Chase Carey said he was frustrated by the
slow adoption of authentication. “In this world, you can’t spend three
or four years getting something going,” Carey told analysts. “I think
TV Everywhere, authentication, whatever you want to call it, is the
right solution to the marketplace, but we’ve got to execute better.”