4Q Earnings Season Might Look Bright

But that's only because it's compared with 2001—and 9/11

Earnings season is getting into full swing, and the message for media companies will be simple: "easy comps." Except for cable operators, media companies reporting results for the fourth quarter of 2002 will have easy comparisons with the same period of 2001, the three months immediately after 9/11. Those attacks, of course, hammered TV stations and networks as advertisers panicked and canceled ad plans.

But it has been clear for months that the TV ad market has sharply rebounded, so most segments of the TV business should post strong results as numbers come in. And, of course, 2002 was an election year, so political advertising gave TV stations a big bump.

Case in point: Look at Tribune Co., which posted last week. Revenues at the company's TV group during the fourth quarter seemingly soared 22% above sales during the same period in 2001.

But that means the company simply recovered the ground it lost in 2001. TV ad sales in the 2002 quarter totaled $339.5 million, much better than 2001's $278.8 million. But look back two years to 2000, when Trib's TV stations generated $332.3 million. So 2002 was just 2% more than two years ago. Not much to brag about.

Same with earnings. Trib TV's fourth-quarter operating cash flow zoomed 44% over 2001. But it was still 1% short of 2000's cash flow.

Suntrust Robinson Humphrey analyst Jon Jacoby expects Belo's station group to post a 22% gain in revenues and a 46% gain in operating cash flow. Hearst-Argyle's sales should rise 17% while cash flow should jump 33%. LIN Television should post similar gains.

For the most part, though, what investors and other media executives will be focusing on in round after round of earnings releases and conference calls is a better picture of the clouds looming over some major media players.

With Ted Turner and Steve Case out at AOL Time Warner, the next dramatic question becomes: Will Mel Karmazin's future at Viacom be resolved by the time of the company's earnings release on Feb. 12?

Or try these: Will Liberty trigger the breakup of its partnership in QVC with Comcast? And does Liberty want to buy out Comcast or sell its 43% interest?

"I don't see a lot of surprises," said Goldman Sachs media analyst Richard Greenfield. "Certain issues are going to be more important than the specific results."

Of course, if the Bush administration decides to invade Iraq, advertisers and investors are likely to be in such a panic that the best—or the worst—financial news is unlikely to matter.

Tribune Co. CEO Dennis Fitz-Simons contends that TV stations could find short-term benefits if the big networks go to full-time war coverage and reduce or eliminate commercials. "This could actually turn out to be a positive for the spot business as advertisers need to get their messages out. They might come to individual markets as the network marketplace tightens up for some period of time through lack of inventory availability as the networks go wall-to-wall."

The big exception will be cable. Some cable operators shocked long-time investors by losing subscribers during the first three quarters of 2002. The fourth quarter is traditionally their strongest for basic growth. Further declines will not be received well.

Investors are particularly interested in signs of what Comcast is accomplishing in turning around the newly acquired AT&T Broadband properties and whether Cablevision has resolved some of its operating problems.