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Putting Their Best Faces On - Broadcasting & Cable

Putting Their Best Faces On

Earnings season kicks in amidst disagreement over turnaround
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General Electric continued media earnings season on July 17, with its NBC Universal division reporting a 41% decline in profit to $539 million for the second quarter. The company said two non-recurring items made results look worse than they actually were. NBCU took a writedown on its stake in Ion Media Networks, and had the benefit of the sale of its Sundance Channel interest in the year-ago quarter.

Whatever the mitigating circumstances, 2009 is likely to be remembered as a reset year for all media players. “Carnage is going to be the order of the day,” says Dennis Miller, general partner at Spark Capital, who has been speaking to marketers and media agencies. “The outlook for television on a network and local basis, when you have key verticals that have cut back dramatically, shows no signs of abating at this point.”

Shedding some light

Second-quarter calls should shed some light on how station group bankruptcies and a probably negative upfront ad market will affect the rest of the year. Even with better comparisons against last year's writers' strike, broadcast units are still expected to report more ad revenue dropoff.

In the quarter ending June 30, the Big Four networks reported an 11% decrease in live ratings in the 18-49 category, according to the latest report from Michael Nathanson, senior analyst at Bernstein Research. (The networks sell advertising based on commercial ratings, known as C3, which can often be higher than live ratings since they include some DVR playback.)

Any positive news on calls will probably again be saved for cable operations. Discovery and Scripps Networks will be among the highlights, if ratings translate to higher ad revenue. Station group owner Gannett's latest results were viewed positively; overall profit beat estimates, though station revenue dropped 21%.

Don't count on '09 snapback

Expectations that media economics will improve in the back half of 2009 could be dashed. One big reason: Syndication contracts may be reworked in bankruptcy courts as station groups continue to head for Chapter 11. On first-quarter calls in May, several media executives including Rupert Murdoch, Bob Iger and Leslie Moonves said they saw business improving slightly. That sentiment was echoed by NBCU chief Jeff Zucker just a few weeks ago, but the latest ad forecasts from ZenithOptimedia and Interpublic's Magna have postponed hopes of a return to growth until late 2010 or 2011.

Wedbush Morgan broadcasting analyst James Dix thinks CBS could lower full-year guidance on its earnings call. “It seems like people have lowered expectations for second quarter because local media haven't picked up as much as people were thinking,” he says. “Some initial thoughts shared on the first quarter [about] stabilizing or improving have melted away a bit.”

UBS analyst Mike Morris says that CBS Corp. will see a decline; he is expecting a 16% fall in ad revenue in the second quarter. But Morris thinks CBS is well positioned to capitalize on any turnaround in the ad market.

News Corp.'s fiscal fourth-quarter earnings will be the first for Chase Carey in his new role as vice chairman and COO. Bernstein's Nathanson is lowering full-year estimates for 2010 because of a likely $40 million reduction in operating income, “mostly due to a reduction in the Fox broadcast network.” Nathanson is penciling in a $189 million operating loss at Fox network for full year 2010, as opposed to an estimated $164 million loss for full year 2009. Cable, and Fox News in particular, are again expected to lead earnings.

Nathanson is more positive about Disney, though he predicts broadcast network revenue will drop 10% while pre-tax earnings will fall 57%, largely due to a decline in broadcast TV station revenue with low-single-digit revenue declines at the ABC network. Cable network revenue is expected to increase 5.5%, though ESPN is expected to see ad declines again.

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