Haves and Have-Nots

Media earnings numbers vary widely, even within a company

Both Judy MacGrath and John Sykes like music. They both worked at MTV.
And now they both run hip units of Viacom. But in this earnings quarter,
that's where the parallels end.

Some Segments Are Soaring
Third-quarter media-company financial results Revenues
Company Division Chng.*
* Change from year-ago period. **Fox Network reduced
its operating loss from $90 million to $9 million.
SOURCE: Company
reports; Merrill Lynch; Morgan Stanley
LibertyCable nets (Discovery)+47.0%
FoxCable-network programming+44.1%
Interactive Corp.Home-shopping net+22.7%
Time WarnerAOL+21.3%
UnivisionSpanish TV stations+16.5%
Time WarnerMagazines+14.8%
ComcastCable systems+14.5%
ViacomCable networks+13.0%
Time WarnerCable systems+9.6%
Time WarnerNetworks+8.0%
CoxCable systems+8.0%
ViacomBroadcast TV+6.3%
Radio OneRadio stations+2.9%
QVCHome-shopping net (QVC U.S.)+2.0%
CharterCable systems+1.5%
FoxTV stations-0.4%
Time WarnerMovies-1.1%
SinclairTV stations-6.2%
Time WarnerCompanywide-11.9%
StarzPay-cable nets (Starz)-13.9%
ViacomRadio stations-16.2%
FoxBroadcast network**
Company Division Chng.*
LibertyCable nets (Discovery)+18.0%
FoxCable networks+16.0%
UnivisionSpanish TV stations+15.6%
ViacomCable networks+13.8%
LibertyPay-cable nets (Starz)+12.9%
CoxCable systems+11.0%
ComcastCable systems+10.6%
Time WarnerCable systems+9.8%
Time WarnerNetworks+8.4%
CharterCable systems+7.7%
Time WarnerCompanywide+4.9%
ViacomBroadcast TV+4.6%
Radio OneRadio stations+3.6%
Interactive CorpHome-shopping net+3.6%
LibertyHome-shopping net (QVC U.S.)+3.4%
Time WarnerMagazines+3.0%
Time WarnerMovies+1.4%
Time WarnerAOL+1.2%
FoxTV stations-0.8%
FoxBroadcast network-3.0%
ViacomRadio stations-4.1%

McGrath, chairman of MTV Networks, may be having more fun these days,
with 13% revenue growth, while Sykes, chairman of Infinity Radio, is faced with
pumping life into sales that grew only 3% last year.

A sharp contrast among different sectors of the media business is one of
the things that stands out as this quarterly earnings season draws to a close.
(Weary Harris Nesbitt broadcasting analyst Lee Westerfield grouses that he had
eight earnings conference calls in a single day.)

Despite the slack economy, some sectors of the businesses—particularly
cable networks—are roaring, growing revenue and earnings at a strong 10%-15%
annually. Others—sometimes competitors, sometimes siblings in the same
company—are stuck in the lowlands of single-digit percentage growth.

The economy aside, some sectors are posting big gains because the winds
of consumer demand are blowing their way (think DVD divisions of movie
studios). Some seem to have what Wall Street calls “secular” problems that
will continue even if the economy turns around. At the moment, the radio
business is hurting from a combination of iPods, too much competition and
skittish advertisers.

What unifies some of the strongest performers is that they have a clear
sense of mission and what their audience wants. That's certainly true for Fox
News, which helped drive big gains at News Corp.'s U.S. cable-networks unit.
The networks posted a fat 16% increase in revenue and a 35% jump in operating
cash flow. Fox News Channel Chairman Roger Ailes has a lot to do with that,
riding the election to new ratings and advertising heights. Credit also goes to
FX President Peter Liguori, who is on a similar growth curve.

Many cable networks are on that track. Among them: Viacom growth engine
MTV Networks. Discovery Communications' U.S. networks are growing so strongly
that earnings jumped despite ratings woes at TLC and its cornerstone
Trading Spaces.

Similar clarity of vision can be found at broadcaster Univision
(although it's having problem selling ads in a weak scatter market), as well
as at Comcast and Cox Communications (VOD is a hot product, and both are
improving customer service).

Conversely, the laggards seem to have lost their way. For example,
Fox-owned stations can really do only as well as the Fox network, which suffers
when American Idol or Major League Baseball
aren't in season. Sales and operating income at Fox stations dipped about 1%
during the quarter, even as the election showered hundreds of millions of
dollars on other broadcasters. Fox stations were largely passed over in the
spending frenzy because political-ad buyers focus on the two top-rated
newscasts in a market; Fox stations' rarely hit that mark.

AOL has a similar problem of finding a clear path to its customers. The
division's 20% earnings growth came about largely from cost-cutting, rather
than strong sales; revenue grew a measly 1%. The online service is in the
throes of an identity crisis, and AOL has little chance of expanding its
subscriber base until it figures out who it is.

But a tight focus on a specific audience doesn't guarantee profits.
Broadcaster Radio One caters primarily to black audiences, but its 4% sales
growth was no better than that of other radio-station groups.

Perhaps the most confounding report this quarter came from DirecTV. The
DBS service's revenue and operating cash flow are moving dramatically, but in
opposite directions. Revenue soared 38% as the News Corp.-controlled service
continued to embarrass cable operators by stealing nearly half a million

But that subscriber growth comes at a huge cost. To lure customers away
from cable incumbents, DirecTV is spending so much in advertising, commission
and subsidies that operating cash flow plummeted 38%. The company's cash-flow
margin plunged from 18% at one point last year to just 6%.

At some point, DirecTV CEO Mitch Stern will have to curtail the heavy
spending. When he does, the big question is whether the company's growth will
look like Judy McGrath's or John Sykes'.