A Solid Upfront Buoyed TV Stocks

A solid if slow-moving $19 billion upfront marketplace that segued nicely into a stream of upbeat quarterly numbers has propelled TV media stocks to new heights as darlings of Wall Street. Despite business shifts and public rifts, shares seem set to keep rising if the economy cooperates. “It’s pretty much as good as it gets for the big media companies,” said Piper Jaffray analyst James Marsh. Eighteen months ago, doom and gloom pervaded the outlook of most media players. “Now, we’ve done a 180.” A basket of nine TV stocks, comprised of Time Warner, Walt Disney, 21st Century Fox, Comcast, Viacom, CBS, Discovery, AMC Entertainment and Scripps Networks, is up over 30 percent year to date, doubling the 15 percent growth rate of the S&P 500 and Nasdaq’s slightly better 17 percent pace. TV-company shares were stellar through May then pulled back, briefly it turned out, as investors worried about the economy in general and how lower prime-time ratings last season would impact the upfront. “The upfront sends a message about the health of the market. As long as corporate profits are moving in the right direction, the upfronts do fine,” said Marsh. They did. “It [was] a great upfront. Up mid-high single digits—when ratings were down mid-high single digits,” added David Bank of RBC Capital Markets. The solid returns at most of the broadcast and cable networks have helped the market stave off long-term worries, like when over-the-top could upend TV’s business model, and to look past a nasty carriage battle between CBS and Time Warner Cable. Wall Street continues to focus on the positives: dual revenue streams from pay TV, continued strong affiliate pricing power; swelling coffers from streaming deals; retransmission fees; no major decline in cable households, or significant cord cutting. The comfort of the upfront is that there are still relatively few, if any, alternative solutions available to advertisers despite dramatic shifts in prime-time viewing habits. Prime-time audiences have been declining for three decades, but last season’s ratings drop was off the charts, due in part to time-shifted viewing on DVRs up to seven days out not measured by Nielsen. “Advertisers said, ‘OK. People are not watching live and are not captured in those ratings. We’ll give you an adjustment,” said Piper Jaffray’s Marsh. “It was a giant negotiation.” In a nod to the changed TV landscape, NBCUniversal ad chief Linda Yaccarino sold the company’s massive portfolio of broadcast, cable and digital properties all together into the upfront for the first time. The deals were more complex and took longer. Meanwhile, it’s not lost on Wall Street that people are watching more TV overall (despite the drop in live prime-time ratings) and that creatively the industry is on a tear. (After all, fund managers enjoy binge-viewing as much as the rest of us.) For example, CBS CEO Les Moonves called Under the Dome the biggest summer drama since 1992 (it’s also available on Amazon’s streaming service). The show is delivering solid ratings returns, even with Time Warner Cable dropping CBS’ signal in parts of New York, L.A. and Dallas. “You vacillate” as an investor, said one, because despite business challenges, “TV is the best it’s ever been. It’s truly excellent.” “More than ever, the fundamental product is really strong,” agreed another. “The issue is that personalization and distribution has a dramatic effect on advertising.” The last thing keeping media—and other stocks—aloft is a “Goldilocks” economic recovery: not too hot, not too cold, but just right for the market. That means the central bank won’t raise interest rates, which are near zero, anytime soon. Said one Wall Streeter: “It’s the story of the whole market, and media is very visible. Media stocks are tied to the greater macro story to a larger extent than people realize.”

Convergent TV

A Solid Upfront Buoyed TV Stocks

$19 billion in booked ad dollars leads to 30 percent value hike

Jill Goldsmith

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Jill Goldsmith