Media’s Mid-Summer, Mid-Earnings Season Update: Surprises Abound

National CineMedia NCMI did not even have to wait until reporting results to see its stock swept away in a sea of investor pessimism amp8202one of its corporate owners AMC did the damage by preannouncing weak 2Q results on Tuesday afternoon pointing a finger at declines in the North American box office during the quarteramp160Fundamentally investors in cinema advertising tend to place a fair amount of weight probably too much on nearterm box office trends and the likely impact of the upcoming release slate on those trends As a result NCMI shares were down sharply on Wednesday to roughly 6 per share at one point On Wednesday afternoon NCMI took the step of announcing ahead of schedule its regular quarterly dividend NCMI typically makes dividend announcements when it reports its quarterly results This was a bit of a tonic for the stock which rallied on Thursday and a bit more on Friday By the numbers this year NCMI should earn its dividend which carries an eyecatching 13 yield if it hits the midpoint of its guidance As to 2Q results which NCMI is set to report after the close on August 7 there are a couple reasons not to fear the worst First when theater attendance is down cinema advertising operators have an advantage over theater operators namely the ability to run ads more often and on more screens to deliver to advertisers the contracted impressions That may have happened in 2Q especially as June box office attendance trends improved from those in April and May Second lower attendance reduces the theater access fee that NCMI pays to its founding members helping NCMIamp8217s bottom lineAfter negotiating the release of its 2Q results on Wednesday morning Sinclair SBGI shares faced a tougher test the next day namely reports that one of its key TV network partners 21st Century Fox FOXA might be planning a deal that could result in shifting Fox broadcast network affiliations to Ion from SBGIamp160Although TV broadcasters have generally reacted positively to loosening of broadcast station ownership rules under the Trump administration one possible downside of these changes is that it could become easier for network content providers and their owned ampamp operated station groups to maneuver for a higher take of retransmission fees from their affiliates The reported FOXAIon deal could be one such maneuver If a network content provider has a more credible threat to walk away from its existing affiliates such as by buying competing stations in the market and switching affiliations to those stationsamp8202amp8212amp8202almost certainly at better economics for the networkamp8202amp8212amp8202the existing network affiliatesamp8217 bargaining position could become more problematical Expect this issue to remain a concern for TV broadcast station investorsamp160It is difficult to please investors by selling less product and Viacom VIAB found this out with its earnings report on Thursday afternoon with which it disclosed about 3 percentage points of nearterm drag on its domestic TV network advertising growth from reduced advertising loads This drag pulled VIABamp8217s domestic cable network ad growth to down 2 Now the attentive knew that VIAB has been reducing ad loads as part of its effort to turnaround its flagship networks in the eyes of its younger and less adtolerant audiences However the size of the drag on ad revenue growth is probably about twice what investors have been assuming looks to continue and contributed to an outlook for little improvement in September quarter ad growth whereas investors had been expecting some A silver lining is that the easier comparison from resetting ad loads this year will make it easier for VIABamp8217s domestic networks to hit expectations for low single digit ad growth next year Concern about the affiliate fee growth outlook at VIABamp8217s cable networks seemed less relevant to its 14 stock price decline on Friday Investors have likely been assuming lowtomidsingle digit affiliate fee growth for next year and managementamp8217s comments on the call to expect midsingle digit affiliate fee rate increases which will be partially offset by subscriber declines would be generally consistent with that outlookOn Friday there was the announcement that GroupMamp8217s head of North America Brian Lesser is heading to ATampampT with the mandate to build an advanced advertising and analytics businessamp160The move highlights the efforts on the sell side of the TV advertising market to leverage data and targeting as video platforms have done Assuming that the close of ATampampTamp8217s pending merger with Time Warner occurs as expected amp8202Mr Lesser could soon have quite a bit more advertising inventory at his disposal with the addition of Turneramp8217s adsupported cable networks to ATampampTamp8217s portfolioThe future could hold some positivesamp160Time Warner reaffirmed on Wednesday with its 2Q results that it still expects the ATampampT deal to close by yearend a key plus for its investors The FOXIon reports could be seen as helpful for the big media companiesamp8202amp8212CBS and FOXA both big TV station owners will have the opportunity address the issue when they report this week In US outofhome advertising OUTFRONT posted better than expected growth and its outlook confirmed some checks that 2H could show a pickup thereThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writersamp160

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Media’s Mid-Summer, Mid-Earnings Season Update: Surprises Abound

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James Dix

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Media’s Mid-Summer, Mid-Earnings Season Update: Surprises Abound

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