The Supreme Court decision against streaming upstart Aereo boosted broadcast stocks, particularly CBS.
After the Aereo decision was announced, CBS stock jumped 5%. CBS is the media company most dependent on its broadcast network. CBS finished the day up 3.6% at $62.48 a share.
Also showing gains were NBC owner Comcast, closing up 1.08% to $53.21; ABC owner Walt Disney Co., up 1.48% to $83.90 and Fox owner 21st Century Fox, ahead 2.2% to $34.08.
Local broadcast stocks showed bigger gains. Gray Television was up 8.4% to close at $12.20; Media General gained 10% to $20.33; Nexstar climbed 13.5% to $48.81 and Sinclair jumped 15.6% to $33.80.
Wall Street had largely been anticipating a win by the broadcasters in the case. But even had Aereo won, analysts saw little short-term financial damage for the current TV business model.
“With the Supreme Court ruling against Aereo, we see virtually no implications in the short term and mixed implications in the long-run for broadcast station and network owners, with no change to our CBS price target,” said Brian Wieser, analyst at Pivotal Research.
“The biggest issue from this outcome, in our view, is the industry-wide risk that can follow from the stifling of technology-driven innovation,” Wieser said in a report.
But the ruling soothed some investor concerns.
“A significant risk overhang for TV broadcast companies has been removed as a result of the U.S. Supreme Court's landmark decision that Aereo violated broadcaster copyrights," according to Fitch Ratings. “This is especially true for broadcast affiliates whose stable, high-growth and high-margin retransmission revenues have become an important and valuable source of revenues.”
Fitch added that local broadcast affiliates also depend on networks for primetime programming. “Today's decision removes the near-term risk of broadcast networks converting to cable networks. The potential loss of retransmission fees and increased program costs would have weakened credit profiles. Fitch notes TV broadcast companies will continue to face long-term risk associated with technological changes/innovation within the industry” the credit rating agency said.
In a recent report, analyst Marci Ryvicker of Wells Fargo Securities, wrote that if Aereo lost at the Supreme Court, Aereo might cut its losses and shut down. Or might come to an agreement with the broadcasters and pay something like retransmission consent as cable operators do. Or Aereo might go back to the courts. She saw a decision boosting local broadcast stock by 12% and CBS by 6%.
What would have happened if Aereo won? “ In the short and medium term, absolutely nothing—given current retrans/carriage contracts, telecommunication laws, and the fact that five of the major pay-tv operators (covering about 65% of the market) are currently in front of the regulators trying to get mega deals approved,” Ryviker said. “Yes, long-term forecasts could change should telecom laws eventually be rewritten and/or broadcast nets alter their business model (straight to cable or 2 feeds). We just have no clue as to how much or when.”