UPDATED: 5:00 p.m. ET
Media companies suffered above average declines as the stock market continued to drop Monday amid concerns about the economy.
The Dow Jones Industrial Average closed down 634.76 points, or 5.55%, to 10,809.85. It was the biggest one-day drop since 2008. The market had a tough week last week, but finished mixed on Friday.
David Bank, managing director for global media and Internet research at RBC Capital Markets, said that media stocks were taking big hits as the market declines because they had done better than most when the market was rising earlier this year.
Media companies have a lot of fixed costs, which means that when revenue rises, profits rise fast, but the opposite can happen when revenue goes down. "You factor in a recession and you've got the potential for some big downside to earnings," Bank says.
Among companies in the TV business, CBS was hit the hardest, sliding $2.45 a share or more than 10%. CBS reported strong earnings last week, but its stock has been dropping nonetheless. At one point Monday after, CBS shares were down more than 11%.
Cablevision Systems, which reports earnings Tuesday, was down more than 9% and phone-hacking scandal plagued News Corp., which releases its full-year financial results Wednesday, was down more than 7%.
Also taking a big hit was Crown Media, down more than 9% to $1.36 a share.
Viacom was down more than 8%. DirecTV and Scripps Networks Interactive fell more than 7%, and Comcast, Discovery and Disney were all down more than 6%.
In addition to general concerns about sluggish economic growth and persistently high unemployment rates, the market was also dealing with Standard & Poor's decision on Friday to downgrade its rating on the United State's debt from its highest grade of AAA to AA+.
Within the TV business, advertising revenue-especially local ad revenue-is usually more likely to decline with the economy than the more stable subscription revenue cable operators get from customers and cable networks get from distributors, says RBC's Bank.
That's why CBS' shares are getting hit hard, despite the fact that the fourth quarter ad market still looks solid. "We're discounting a pretty strong fourth quarter and pricing off earnings power in 2012, where visibility is incredibly limited," Bank said. "The way markets work, you err towards risk management."
But Bank said this market isn't about picking individual stocks to sell. "It's about the [macroeconomics]. The driving force is the S&P downgrade and the EC bailout of Ireland. We're selling the market," he said.