Media giants tip-toe to recovery

With major exception of Disney/ABC, quarterly earnings are beginning to look up again
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Call it a recovery in progress. That seems to be the case if the recent mid-year earnings reports from a number of media companies are any indication.

It's also true for under-the-microscope AOL Time Warner, although its double-digit revenue and cash-flow gains for the quarter have been overshadowed by two separate inquiries into the company's accounting practices—one by the SEC and the other by the U.S. Department of Justice. If the inquiries turn up problems, the company's full recovery could be years, not months, away.

Of the big three networks, Disney's ABC appears to the only one where the recovery hasn't really started yet, at least based on earnings for the first half of the calendar year. But within the last two weeks, both Viacom and GE reported solid gains for CBS and NBC, respectively, for the quarter ended June 30.

Viacom said its television group, led by CBS network and owned TV stations, had a 4% revenue gain and a 7% operating income gain. GE reported NBC's 2Q numbers last week, showing a 9% increase in revenues and an 11% increase in operating profit. Big assets: An improved ad performance, the addition of Telemundo and the absence of the failed XFL.

NBC's second-quarter revenues were $1.987 billion up $156 million over 2Q 2001. Operating income totaled $545 million.

ABC continued to suffer, it reported last week. Revenues at Disney's broadcasting unit (the ABC network, TV stations, ABC radio and Buena Vista Television) were down 16% (pro forma) to $1.2 billion for the quarter.

Operating income for the unit was down 69% to $76 million. Disney's cable unit (ESPN Networks, Disney Channel, ABC Family, Toon Disney and Soap Net) showed a 12% drop in operating profits to $212 million, on a 1% revenue gain for the quarter to $923 million.

The two units combined, which make up Disney's Media Networks segment, showed a 10% revenue dip and a 40% drop in operating profit. For the first nine months, Disney Media Networks revenues were down 7% to just over $7.3 billion with a 47% drop in operating profit to $843 million.

"The timing, strength and pace of economic recovery are still uncertain," said Disney CFO Thomas Staggs, who added that Disney 4Q earnings would also be down versus the same period a year ago.

Disney president Bob Iger said he was very encouraged about the company's prospects in the coming quarters. He cited ABC's upfront market, which he said totaled $2.1 billion and "exceeded internal projections in every daypart. We're optimistic that the strength of ABC's upfront sales is not only an early sign of a decent ad market but an important leading indicator of the potential of ABC's new fall schedule."

Other media companies with a better story to tell avoided overstating gains over last year—the worst since the recession of 1991-92. Hearst-Argyle Television reported an 8% gain in broadcast cash flow to $88 million for 2Q, on a 3% revenue gain to $182.3 million. But Hearst-Argyle's CEO David Barrett was cautious in his statements to analysts and investors last week. Its 2Q performance represented "a second step in the recovery we're working to accomplish this year," he said, noting that 1Q earnings were also up. For the first six months, the company reported a 10% broadcast cash-flow gain to $149 million on a 4% revenue climb to $337 million.

Other broadcasters reporting last week also showed year-to-year gains, including Acme Communications, Granite Broadcasting and Sinclair Broadcast Group. All three groups reported higher revenue and broadcast cash flow in 2Q 2002 versus the same quarter in 2001. Acme said revenue was up 11% to almost $21 million, while cash flow was up 4% to 4.7 million. For the first six months, revenue was up 7% to almost $38 million, though cash flow was down 8% to $6.8 million. Granite said its 2Q revenue was up 6.7% to $32.5 million; cash flow was up 64% to $7.6 million. For the first six months, revenue was up 33% to $76 million; cash quadrupled to $22 million. Sinclair reported a 2% gain in both revenues and broadcast cash for the quarter.

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