Last week, as the stock market tumbled as investors worried that the economy was heading towards a second dip of recession, a parade of media companies reported earnings.
During earnings calls, top executives from CBS, Comcast, Time Warner, Discovery and Crown Media told analysts looking for early signs of a slowdown that they hadn’t seen any pullback in advertising spending and that the scatter market remains strong.
That’s likely to continue this week as Walt Disney Co., Cablevision Systems, Scripps Networks Interactive, AMC Networks and even beleaguered News Corp. announce their quarterly financial results. (We’ll also see if Rupert Murdoch makes himself available to take questions from analysts and reporters.)
But sharp earnings gains and dull assurances that the ad sales remain robust have not been enough to assuage concerns of analysts and the rest of Wall Street.
The same analysts who had been deflating their views of media stocks because of over-the-top worries about over-the-top digital distribution are now focused on how an economic downturn would hurt revenues, particularly ad revenues.
“It’s safe to say that worries over cord-cutting have now been fully traded in for the fear concerning the macro economy,” said Michael Nathanson of Nomura Securities in a research note at the end of last week’s wild selloff.
The good news for media stocks: “Over the past week, there is a strong case to be made that for some companies, the rise of online video distributors has been a source of upside earnings surprises,” Nathanson noted. Viacom, CBS and Comcast exceeded revenue and profit expectations because of recent deals with the likes of Netflix and Hulu–once seen as threats to poison the media ecosystem. When Discovery and Time Warner reported, there were no such deals and no such positive surprise.
“Over the past year, we have started to see increasing evidence that there is nothing to fear but stupidity itself from the content owners,” Nathanson wrote, and most recent deals have wisely given digital distributors mostly used-up content to stream, rather than first-run series with the potential to generate hundreds of millions in syndication revenues.
There are still dangers as media companies figure out how to work with these new digital distributors. While there’s a chance some top-notch content could go over-the-top, “the more likely risk is that viewers change their behavior, adversely affecting networks that don’t offer live, exclusive, or premium content,” according to Nathanson. “In this light, we continue to think that live sports rights holders, first-run broadcast content and live news providers will be a beneficiary of increased ad dollars and affiliate fees as they take increased share of TV usage.”