On The Fly: What to watch in media networks earnings reports
The owners of several of the country's biggest media networks are scheduled to report quarterly results over the next week, with NBC owner Comcast (CMCSA) scheduled to report before the market open on July 27, HBO and Turner parent Time Warner (TWX) set to report before the open on August 3 and 21st Century Fox (FOXA) reporting quarterly results after the close on August 3. What to watch for: 1. COMPETITION: Traditional television continues to be assailed on a number of fronts, both from the rise of internet TV and Subscription Video On Demand, or SVOD, offerings as well as from the shift of advertising budgets to online and mobile channels. Recently, Netflix (NFLX) said that in the U.S., CBS All Access (CBS), Amazon Prime Video (AMZN), Hulu, YouTube Red (GOOG), and "many others" are all growing. However, Netflix contends that all of these SVOD services are "growing primarily against linear TV hours and that competition did not contribute materially to [the company's] miss in Q2." However, with last quarter's report, Comcast chairman and CEO Brian Roberts said he was "incredibly pleased" with the "strength and momentum" being seen across the company's businesses, adding that NBCUniversal "had a terrific quarter," fueled by strength in broadcast and improved performance from its cable networks. 2. AD MARKET SHIFTS: Comcast reported that Q1 advertising revenue grew about 12%, reflecting an increase in political ad revenue, higher rates and the timing of programmers spending on advertising. Time Warner, meanwhile, reported that its Turner revenues rose 7% in Q1, due to increases of 11% in subscription revenues and 5% in ad revenues. Advertising revenues benefited from domestic growth, primarily due to Turner's news business, and local currency growth at Turner's international networks, partially offset by the impact of foreign exchange rates, Time Warner said. Earlier this week, animal pharmacy PetMed Express (PETS) revealed it has eliminated all TV advertising and reallocated funds to online and print marketing, leading a Wall Street analyst speaking on the company's earnings call to opine that the company is a poster child for "the efficiency of online versus TV." MKM Partners analyst Rob Sanderson wrote on May 13 that the advertising shift towards digital not only continues to accelerate but continues to benefit Facebook (FB) more than any other company, and there remains a "long way to go." 3. DEALMAKING: In the face of this shifting landscape, and while the cost of capital is extremely low, the total announced value of U.S. entertainment industry mergers and acquisitions during the first half of 2016 hit a multiyear high of $18.8B. Comcast has been among the buyers, agreeing in April to acquire DreamWorks Animation (DWA), while that total also reflects Lionsgate's (LGF) deal to acquire Starz (STRZA, STRZB) for $4.4B in cash and stock. John Malone, chairman of Liberty Media (LMCA), was said to be among those who were actively on the hunt at this year's Allen & Co. Sun Valley media conference, The Wall Street Journal said, adding that CBS may also be looking for a deal. Potential targets could include AMC Networks (AMCX) and MGM as well as Scripps Networks Interactive (SNI), the Journal added, citing analysts. The biggest potential buyer of anything, Apple (AAPL), has claimed that it isn't buying any studio "at this point." In an interview published by The Hollywood Reporter, Apple senior VP Eddy Cue said the company is not in the business of trying to create TV shows and is "not trying to compete with Netflix or compete with Comcast." In response to reports that he was responsible for Apple holding acquisition talks with Time Warner, Cue said: "There's always a lot of speculation across many different companies, and some of that relates to the fact that we have a lot of money and... can afford to make acquisitions. So we have a lot of discussions with [Time Warner], but I don't want to speculate. We're not -- at this point, certainly -- actively trying to buy any studio."