As earnings season gets warmed up, the market is getting mixed signals about the health of the TV and media business.
Looking at Time Warner Cable’s 3Q results released Thursday, analyst Todd Juenger of Sanford C. Bernstein, sees potentially encouraging trends in the number of pay-TV subscribers.
Investors have been worried that cord cutting, cord shaving and the rise of cord nevers would impair the high-margin pay-TV business. Juenger in a report Thursday said that with the latest numbers in from Time Warner Cable and Charter Communications, it looks like video subscribers are down between 1 and 2 million on an annual basis—a number investors have indicated they can live with.
"Media bulls will point to better than expected pay-tv sub count, combined with an expected slight improvement in Q3 TV advertising (which we think is mostly driven by an inventory squeeze). Bulls will argue this rate of sub decline is already priced into the stocks, and some surprise upside in advertising could be a nice kiss of upside (and ray of hope)," Juenger says.
Juenger himself isn’t that sanguine. He says that for media stocks to rise, investors have to be sure that the next few quarters will be, at worst, like this one, as opposed to second quarter, when the erosion of pay-TV subs was scarier.
The other big concerns surrounding media companies is about ad revenues, and analyst Rich Greenfield of BTIG Research is concerned that the sudden spending surge by daily fantasy sites DraftKings and FanDuel could be masking the industry’s performance with its core clients.
“We believe investors need to focus on the impact daily fantasy ad spend is having on broadcast and cable networks,” Greenfield said in a note Thursday. It is particularly important as more jurisdictions examine whether fantasy sports is in essence illegal sports gambling.
“While we have seen TV advertisers come and go over the years, we are particularly concerned by the surge in Daily Fantasy TV advertising because of the speed at which daily fantasy’s ad spend has built. We wonder if daily fantasy ad spend is masking the underlying trends in television advertising caused by the dramatic year-over-year declines in linear TV ratings and the shift of ad dollars to digital/mobile platforms,” Greenfield said.