Predictable Plots No ProblemFor Media Stocks on Wall Street

jlafayette@nbmedia.com | @jlafayette

One reason why the big media companies have become so popular on Wall Street is the predictability of their earnings. So analysts expect few surprises during the quarterly earnings reports that will come out over the next two weeks.

“What’s remarkable is how unremarkable we’re expecting it to be,” says David Bank, managing director at RBC Capital Markets.

The media industry has been riding a wave of steadily increasing revenue from cable affiliate fees, broadcast retransmission consent payments and reverse compensation from television stations, and digital subscription videoon- demand payments, most of which are locked up in long-term contracts. “That’s what I think portfolio managers want. They want a combination of growth and very credible visibility in that growth,” Bank says. “If you don’t screw it up, it’s a pretty good business.”

Bank adds that there’s no obvious storm clouds on the horizon, which means that for now, analysts and investors will be focusing on the longer term. “You’re going to be somewhat reactive to the quarter, but I need to know what the next four years of layering in retrans is going to look like. When are we going to really start seeing acceleration of reverse comp? What are those relationships on the broadcast side going to look like? How are the networks and the local station groups going to split the money?” Bank asks.

One thing that could change the industry’s dynamics would be a round of M&A in which companies that have been buying back their own shares decide that maybe they ought to be buying someone else’s.

Less About the Ads


Not so long ago, analysts would be anxious to hear about ad sales trends. But now, “the advertising component has become less important to the sector,” says Michael Nathanson, senior analyst at MoffettNathanson Research. The television business is all about national advertising, and national advertising is growing at about the same rate as domestic gross national product, Nathanson says.

But Nathanson adds that as the quarterly earnings roll out, some might forget that the comparisons to last year include the 2012 Summer Olympic Games, which for two weeks drove viewers and ad dollars to NBC.


“I’m expecting people to speak of third-quarter trends in a pretty positive light,” Nathanson says.

Last year also featured a heated election season, which pushed some national ad dollars away and led to three or four nights of commercial-free hours for debates in the fourth quarter. “I have a feeling that just because of the lapping of the election you’re going to hear people talking positively about the tone of the ad market,” Nathanson says.

For the short term, Nathanson doesn’t see too much negativity about the industry. With a handful of new programs, such as Fox’s Sleepy Hollow and NBC’s The Blacklist, opening the season strong, media companies will have a positive spin to put on their broadcast networks.

While media companies are doing fine, offering investors looking at a low-GDP growth world reliable and stable 5% to 6% growth, Nathanson’s concern is the health of the ecosystem. “We’re going to pay a lot of attention to the net addition of pay-TV homes to see if it’s gotten better, or if it stays the same,” he says.

Bank calls CBS his “top pick” in the sector. For CBS, it’s about the retrans story playing out over the next three to five years, he says. Bank also thinks that it will be interesting to see what Viacom has to say, now that its ratings are headed upward. Bank ranks Viacom shares as “outperform.”

Analyst Michael Senno of Credit Suisse rates 21st Century Fox as outperform despite investor concerns about ad revenue and ratings at the Fox broadcast network. The upside at Fox is sports, which will account for more than 50% of broadcast ad revenue in fiscal year 2014 (Fox’s fiscal year started in July). Senno also notes that ratings at the new cable channel Fox Sports 1 were up 74% in the third calendar quarter and are up more than 100% so far this quarter.

Nathanson also sees big things for AMC, whose commercial ratings were up 40% in the third quarter. He expects the company to report a 30% gain in ad revenue, thanks in part to the last episodes of Breaking Bad. “AMC is going to stand out,” he says.

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.