Value and Vision: Identifying Media Growth Stocks in a Depressed Economy

quotCBS reported significantly below consensus 1Q2009 results and issued a 2009 EBITDA outlook with a credible low end but a mid and high end that embed material back half ad trend improvements which we believe may be challenging to achieve We believe the midhigh point of the company outlook requires the CBS TV network39s 9 ad decline trend to improve significantly While CBS should be a share taker and grow modestly in 2010 we don39t have conviction in back half YoY growthquot So reports Mark D Wienkes of Goldman Sachs Also reporting on CBS James Dix of Wedbush Morgan Securities comments quot1Q missed big time and 2Q seems little better in our view but nonadvertising growth in 2H should cushion the blow no change to 12month target of 700Even excluding favorable variances in 1Q08 EBITDA was down 50 YoY in 1Q to 2498m below the Street range Our take from management39s seeing early signs of an improving local and national marketplace is that 2Q revenue will be down similarly to 1Q which is generally in line with our prequarter checksamp8230 we see no reason to step up to buy after the recent runup and expect the shares to trade off on 1Q results and new fullyear 2009 EBITDA guidance whose midpoint is below our estimates and the Street quotCredit Suisse39s Spencer Wang adds in his report on News Corp quotWhile NWSA shares remain inexpensive 5x EVEBITDA we maintain our Neutral rating given relatively high print and broadcast TV exposure and our concerns about the pace of financial improvement at Fox Interactive Media FIMquotAmong the leading broadcast companies CBS is the most exposed to both structural and economic issues impacting the media and advertising sector and investor insights on CBS are therefore considered the most relevant to study to gain a meaningful perspective on the state of the industry from investors39 pointofview But are they Across the board investor attitudes toward the major network companies are consistent with Wienkes39 lack of conviction that backhalf yearoveryear growth will materialize and Wang39s view on News Corp that quotneutralquot ratings should be maintained There was a time when CBS39 Les Moonves39 preUpfront exuberance and Rupert Murdoch39s insights were considered relevant and trustworthy But no more POV on CBS is still considered relevant to analyses of addependent TV companies But it remains relevant for shortterm valuations only Where can investors look to gain more relevant and reliable insights on the longterm future of the television industry and better context for both short and longterm corporate valuations Which media stocks offer investors the greatest longterm growth opportunities Continue reading for the answerWhere can investors look to gain better insight for longterm media company valuations The answer is Disney DIS The CEO of a major broadcast or cable network company who retains the most credibility on Wall Street these days is Disney39s Bob Iger primarily because he consistently and accurately forecasts his company39s economic realities has a clear perspective on the industry39s secular and economic realities and most importantly shares a reasonable vision of the short and longterm future of his company and the media business And Disney delivers on that vision While Disney39s share price is certainly impacted by economic and secular issues Disney39s decisions seem to be guided by a consistent vision of the future and Disney39s role within that future Time Warner39s Jeffrey Bewkes also meets those same criteria but his stature on Wall Street hasn39t yet achieved Iger39s level of sustained credibilityVision amp8211 either short or longterm is in very short supply in the media and advertising business today Maintaining and promoting a positive outlook for ad spend in the second half of 2009 is not only unrealistic but misleading and inconsistent with the facts Media agency Carat in its March 2009 Marketplace Update Report explains quotIt is widely believed that the US advertising marketplace has never experienced such a dramatic pullback in spending across all media Additionally it will probably take many months before there are any viable signs of recovery Regardless of when the recovery does happen the advertising market will never be the same Clients have placed tremendous pressure on agencies to realize cost savings and future spending will be more highly scrutinized Most categories will see their spending decline in 2009 However there is always the potential for them to pump more money into the marketplace if there is a rebound in the economy The depressed economy may also provide an opportunity for clients to not only to negotiate more efficient pricing but also to secure more flexible terms and conditionsquotCarat39s focus on negotiation for more efficient pricing and more flexible terms reflects the typical perspective of the media buying community A downward cycle creates opportunities to push down prices In his new featured blog at wwwMediaBizBloggerscom ABCTV sales chief Mike Shaw httpwwwjackmyerscomcommentarymikeshaw argues for an increased emphasis on waste reduction and value enhancement in this year39s Upfront negotiations quotThe challenge to reduce waste in the message delivery process is the single most important factor facing agencies and their clients this year Of course it39s not like a buying strategy that minimized waste shouldn39t have been the key decision driver in the past But when times were good it was possible to take a more liberal approach and get away with it because the universe of prospects was larger And the people making the decisions were not held to the same standard of accountability Cheap was good Waste went with the territory And I39m talking about all media not just television The focus this year will be to put your message above the value linequot httpwwwjackmyerscomcommentarymikeshaw43905792htmlIn arguing for a focus on quotvaluequot Shaw explains what should be obvious there is a difference between the impression delivered to consumers whose economic realities require they purchase generic products drive used cars and acquire few amp8211 if any discretionary products and services and those consumers who retain discretionary income and are more open to brand marketing communications Shaw correctly perceives that in the past mass media ad buying has been primarily focused on mass reach and frequency with little meaningful distinction among media options on qualitative valuebased terms Phil Guarascio when he ran marketing for General Motors in the 1990s regularly pointed out it was more cost efficient to reach 1000 people through mass media and assume GM39s 100 potential car buyers would be among them than it would be to find and target those 100 potential buyers and reach them in a more focused manner Today those 100 potential GM car buyers have been reduced to 30 maybe even 20 or 10 At the same time qualitative data is far more accessible and Nielsen ratings less relevant The same mass media strategies no longer should apply to media selling and buying amp8211 and they certainly should not be considered relevant indicators for investment decisionsYet Guarascio39s mass media model remains intact today albeit with increased contentbased targeting Mike Shaw39s arguments for increased emphasis on qualitative models within the mass media construct are critically important to the future vitality of the media and advertising industry Most networks and agencies are approaching this year39s Upfront market with little differentiation in tactics from past years There are tweaks bells whistles and quotLive 3quot considerations But negotiations will continue to go forward based on Nielsen currency and agegender audience delivery as the primary criteria In this economy with DVR penetration in more than 30 of US households with the consumer economy depressed with media fragmenting in microslivers with agencies under tremendous pressure to reduce media pricing and with a wealth of relevant data available for improved decisionmaking amp8211 Shaw39s recommendations make tremendous senseYet the reality is that most media sellers and buyers will fall into traditional patterns and rely on outdated mass media ratings and impressionsbased formulaic strategies Investors need to be cautioned to look beyond the ratings and look beyond Upfront spending results to gain real perspective on which media stocks have the greatest longterm viability There is very little appetite among investors for media and advertising stocks until the general economy rebounds so the most relevant issue is which media stocks are the best longterm plays Investors need to determine which media companies are proposing investing in and espousing visionary perspectives on the marketplace Which offer an analytical pointofview that extends beyond ratings and costperthousand among women or men 18 to 49 or even 25 to 54 Which are focusing on value and vision terms that are desperately needed if the media category is to regain Wall Street respectJack Myers advises media companies agencies and marketers on longterm revenue growth opportunities and business models ABCTV is a client of Myers Media Services LLC Jack can be reached at jmjackmyerscom

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Value and Vision: Identifying Media Growth Stocks in a Depressed Economy

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