Media, pay-TV stocks struggle amid revolution
Amid the fast-spinning TV revolution, content companies were quickly crowned as kings. Owning and creating TV shows and movies theoretically would shield them the fallout stemming from the exodus of viewers to Internet streaming. Not so fast. After a spate of disappointing earnings reports, investors are dumping media stocks seemingly as quickly as TV viewers are ditching cable. The S&P Media Index fell 7.8% in the last week. And it was the worst week for media stocks in seven years, according to CNN Money.
Shares of Time Warner, Disney, Viacom and 21st Century Fox all fell Thursday after they revealed trends that show cordcutting ’s impact extending far beyond cable companies. Having desired and popular properties such as The Avengers and NCIS — and coveted channels such as ESPN — hasn’t insulated media heavyweights from investors looking to place their bets on the future of TV.
The one superpower to stand tall amid all this shakeup, Netflix, neither connects consumers to the Net nor is a pure content company. But shares of the streaming video provider are hitting their peak, even drawing praise from a fierce rival.
“The balance in power in content has moved. It’s totally shifted to Netflix,” Dish Network CEO Charlie Ergen said Wednesday in an earnings call while reporting that Dish lost more than 81,000 subscribers during the second quarter. “Netflix is the most powerful content aggregator in the world today. ... I don’t think there’s anything they couldn’t buy that they wanted on original content, for example.”
A large chunk of media companies’ revenue comes from affiliate fees paid by pay-TV providers — calculated on a per-subscriber basis — to carry their channels. Other content licensing fees for on-demand services and reruns bring in a steady stream of revenue. But the cozy relationship has been marred by a growing base of viewers who decide to go without a cable or satellite service. In the 12 months ending March 31, pay-TV operators lost about 323,000 subscribers, according to research firm Strategy Analytics.
“The rate of traditional Pay TV cord-cutting does indeed appear to be accelerating, but the TelCos and Dish Network were all dramatically worse than expected,” MoffettNathanson analysts wrote in a note to investors Wednesday after Dish’s earnings announcement. “The running total for the sector is not good.”