Q2 Earnings Calls Hedge Bets on Recovery

Outlook improves but clear sign of industry upswing still on hold

While calendar second-quarter media earnings calls have not been as bleak as those in the first quarter, a clear-cut indication of an industry upswing remains on hold.
The overall conversation still hinges on the extent of across-the-board declines. Only Cablevision's Madison Square Garden spinoff and Time Warner's own spinoff of AOL have ginned up any excitement about the business lately.
Wall Street, however, has its klieg lights trained on the ad picture, and any likely emergence of acquisition strategies. Results out of Viacom, Time Warner and Disney all suggest that ad revenue has hit a bottom, and that things will be slightly less dire for the next few quarters.
"I still think there will be sequential improvements because advertisers have been holding back," says Miller Tabak media analyst David Joyce, adding that he's expecting the ad money to begin flowing again. "Various macro-economic factors point toward us emerging from the recession."
Ad revenue at Viacom's cable networks was down only 6%, a 3% improvement on the first quarter. CEO Philippe Dauman reported on the firm's analyst call that MTV had almost completed its upfront, and that pricing wasn't as bad as expected.
"I think the feeling on the part of advertisers that perhaps they could extract dramatic reductions in prices because the economy was going to hell in a handbasket, that has dissipated and we see signs of a recovery," Dauman said.
Time Warner's domestic entertainment channels even saw a small uptick in ad revenue, though overall the number was dragged down by CNN, which is suffering from tough comparisons against last year's influx of political money. "Ad revenue was down 3%, and that's a little better than we expected coming into the quarter," says Time Warner CFO John Martin.
Disney, meanwhile, says its ABC network saw mid-single-digit declines, while ESPN posted almost a 10% falloff.
Whatever the broader economic stagnation, each firm is building out its own growth drivers, largely deriving from reorienting existing properties. When asked about acquisitions, Disney CEO Bob Iger acknowledged, "We are definitely focused on a build strategy, and the buy strategy remains the same."
Disney CFO Thomas Staggs is enthusiastic about the rollout of a series of local ESPN-branded Websites that will compete for ad dollars with newspapers and station group coverage of local sports (see "Stations Set to Tackle ESPN," July 27). According to Staggs, the Chicago launch was so successful that it will serve as a model elsewhere: "That's basically one example of taking a brand that many people feel has maturity and whose growth trajectory is going to slow down, and investing modestly to find an opportunity that can create some growth."
Dauman discussed plans to make Viacom's movie channel Epix available on Verizon's TV service and mobile platforms. At Time Warner, caution is the watchword, according to Martin. "We think steady return to shareholders through a mix of dividends and share buybacks is preferable, and we are taking somewhat of a measured approach to our capital deployment," he says.
Time Warner CEO Jeff Bewkes is looking to international expansion as an area of focus. This week, News Corp and CBS Corp. will offer their own takes.