TV Investors See Little To Cheer in New Year


Few television and radio executives and investors are shedding tears over seeing a nasty 2002 come to a close. But neither are they celebrating the coming of the new year.

"The big guys got slammed," said one weary Wall Street executive, who says he's run out of ideas other than noting that stocks have to rebound sooner or later. "I can't see any reason why anything gets better next year."

No one's expecting much growth in advertising spending. "TV ad growth isn't nearly as strong as everybody thinks," said Morgan Stanley media analyst Richard Bilotti, saying that estimates of 10%-plus growth this year were artificially inflated by panic spending from car companies. "Pull out autos and political spending and it's only up 3% this year."

The New Year is also filled with uncertainties, which tend to give investors pause and suppress stock prices. A war with Iraq could crush any prospect of a strong advertising rebound. And TV and radio companies do not know how far the FCC will go in loosening its ownership limits or what inroads personal video recorders and video-on-demand service will make.

Rule changes ahead?

Significant loosening of the ownership rules could give a boost to broadcast and cable stocks. Most FCC watchers believe the agency will relax the cap on the size of broadcasters' TV station portfolio and in which markets one company can own two stations. The commission is also likely to significantly loosen restrictions on cross-ownership of TV stations, cable systems and newspapers in the same market.

Such moves will most likely prompt newspaper companies to buy additional stations, rather than spur broadcasters to enter the publishing business. A couple of cable operators, like Cox or Comcast, might test the waters and buy a station in one or two cable markets and combine their local ad sales efforts.

The most difficult force to grapple with is the effect of on-demand programming, which threatens the advertising model. Between TiVo clones and cable operators' VOD-ready systems, about 12 million TV homes should have what UBS Warburg analyst Chris Dixon considers true appointment television.

The numbers will be too small to create to be a real threat. "But it's enough to feed anxiety and depress valuation multiples," Dixon said.

And there are other question marks. Will Mel Karmazin stay at Viacom to keep investor anxiety from diminishing his own holdings? If so, will Karmazin clash with Sumner Redstone? And what will happen to MTV Networks Chairman Tom Freston—Karmazin's heir apparent—or Paramount Chairman Jon Dolgen, whom Karmazin has denied cash for big-ticket movies.

Exexecutives are also watching whether Disney CEO Michael Eisner can turn around ABC and the theme parks and remain a cast member.

News Corp. Chairman Rupert Murdoch is clearly going to commence a yearlong process drive to acquire DirecTV, probably with the backing of Liberty Media Chairman John Malone. The year-end firing of Charter Communications' CFO indicates that indictments of former executives at that commay may be looming.

Down 24% in '02

On average, stocks tracked by BROADCASTING & CABLE dropped 24% during 2002. The B&C 10—the largest and most important players in broadcast TV, cable and radio—dropped 16.5%.

Of course, not everyone's crying.

Broadcast station owners were standouts, accounting for 9 of the 10 best-performing media stocks last year. (The bulk of the winners are also newspaper publishers.)

The Washington Post Co. came out on top, rising 39% for the year. Next was radio syndicator Westwood One, up 28%, followed by Media General (23%), Granite Broadcasting (21%), Tribune Co. (21%) and Sinclair Broadcasting (21%).

"What always happens when times are not so great, people tend to discount newspaper and local TV," said Tribune CEO Dennis FitzSimons. "But we also throw off cash in good times and bad."

The losers' list come from a broad media mix. The worst performer was satellite radio programmer Sirius, whose financial troubles sliced 96% out of its stock price, taking it down to just 52 cents.

Next was Charter Communications, whose own financial scandal triggered a 93% plunge. Charter was follwed by Gemstar-TV Guide International (-88%), DBS distributor Pegasus (-88%), personal video recorder maker Sonicblue (-88%) and cable hardware manufacturer Seachange (-85%).