The media and content business has long been one of our favorites, for several reasons:
They have a nice dual revenue stream of carrier affiliate fees and advertising. The former gives these firms a reliable, predictable, and steadily rising stream of cash flows. The latter allows them to capitalize in strong economic climates (which are far more common than recessions where it hurts).
Strong and reliable cash flows give media companies a variety of options to reward shareholders. Most pay a dividend and buy back copious amounts of shares. The predictability of cash flows also allow them to “lever up” with debt to pursue growth.
Most own their programming. This allows them to benefit from monetizing it across various distribution sources (cable, over-the-air, streaming, Blu-ray, etc.).
These factors have helped media companies become great investment candidates, with low volatility and rising stock prices over the past decade.
That has come to a screeching halt this summer.
Cutting The Cord On Media Stocks
Take a look at the recent carnage across several current Magic Formula media stocks (plus Disney, the segment leader):
| Company |
Last 30 Days |
2015 To Date |
| Disney (DIS) |
-5.07% |
+16.10% |
| Viacom (VIAB) |
-25.67% |
-39.57% |
| Scripps Interactive (SNI) |
-10.04% |
-21.93% |
| Discovery (DISCK) |
-10.05% |
-17.70% |
All of them have been pummeled after the June quarter, and all but Disney have been crushed for the year. What is going on?
Across the board, we hear the same story:
Disney saw affiliate fee increases, but suffered a 15% revenue drop in their broadcasting business due to “lower advertising revenue” and “declines in subscribers”.
Viacom's affiliate revenues were up 2%. But domestic ad revenues fell 9% due to “weak domestic ratings”.
Scripps enjoyed 3.5% affiliate fee growth. But ad revenue was up just 1.4%, with the company citing “audience delivery issues”, which translates to low ratings and reduced audiences.
Same story for Discovery. 12% distribution (affiliate) growth with higher rates. But ad revenues were flat, with better pricing but lower audiences.
