CBS, Time Warner, Fox, Viacom, Disney Wall St. Review

BOTTOM LINE We are updating models and price targets prior to calendar year 4Q15 earnings season In this note we focus on TV network owners including CBS Discovery Communications Time Warner Fox Viacom and DisneyA common theme in our update is a slight downward revision in longterm margin expectations associated with the increasingly evident need for network owners to invest more heavily in increasingly expensive content and or product marketing and subscriber efforts as networkowned OTT services become increasingly common ways for media owners to distribute and monetize content At the same time the outlook for advertising looks better amp8211 or at least less bad amp8211 relative to expectations that most of Wall Street has had A positive environment for national TV advertising should be evident in the fourth quarter and a solid 2016 looks increasingly likely even excluding the benefit of the Olympics later in the year However over the very longrun we still think that advertising will probably continue to face revenue growth pressures so long as incumbent marketers remain highly cost focused and few new categories of marketers emerge to drive sustained acceleration for the mediumIncorporating updates for the current quarter which rely in part on our analysis of Nielsen data related to commercial inventory and longerterm model tweaks and ongoing revisions primarily around advertising and distribution fee growth as well as profit margins and nearterm foreign exchange trends price targets are generally slightly lower for companies in this sector with Time Warner39s price target up slightly and Viacom39s down more significantly than others in the groupWithin the group Viacom and Discovery both offer the highest price targets relative to current trading levels Viacom remains cheap by any measure but it understandably quottoxicquot for many investors lacking longer time horizons or tolerance for further turbulence yet to come Discovery is more palatable on most dimensions although we think that upside potential there is not without some risks either And while both companies can be knocked with the risk that neither produces a significant volume of quotmust havequot programming relative to peers potentially limiting revenue upside from OTT distributors both companies offer investors a more important benefit as either one could serve as acquisition fodder in the long runAdditional commentary related to current quarter expectations and key longerterm issues for each company follow in this noteVALUATION We value companies under coverage on a DCF basis Our YE2016 price targets equate to PE multiples of 15x for CBS 17x for Discovery 15x for Fox 16x for Time Warner 10x for Viacom and 18x for the Walt Disney CompanyRISKS Investors will need to consider the sector39s risks as including the hitdriven nature of producing television programming threats to TV advertising and an accelerated slowdown for the pay TV industryFULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE TV Update 12216pdfThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers

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CBS, Time Warner, Fox, Viacom, Disney Wall St. Review

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Brian Wieser

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