Poor showing from pay-TV giants
CBS and 21st Century Fox failed to allay investors’ concern over the health of the pay-TV industry, reporting quarterly earnings marked by shrinking US advertising sales.
CBS and 21st Century Fox failed to allay investors’ concern over the health of the pay-TV industry, reporting quarterly earnings marked by shrinking US ad sales and profits propped up by stock buybacks.
CBS, owner of the most watched US TV network, posted lower secondquarter profit and said revenue barely budged as ad sales slumped.
Fox’s earnings also fell, with domestic advertising down and gains outside the US hurt by the strong dollar. It said next year’s profit will not meet earlier projections.
The reports add to signs that payTV, a source of subscriber fees and advertising sales for giants such as Fox and CBS, is losing out to growing online providers such as Netflix and YouTube. Walt Disney cut its forecast this week for profit from cable networks, including ESPN, while Time Warner issued a projection that suggested Wall Street estimates for the second half of this year are too high. That triggered the worst drop in media stocks in four years.
“The second-quarter results from the big media firms have reinforced a narrative that advertising and affiliate fee growth may be at risk as the pay-TV bundle begins to unravel,” said Paul Sweeney, a Bloomberg Intelligence analyst. “Internet platforms increasingly represent viable alternatives for advertisers.”
Standard & Poor’s 500 index slumped 6.3% on Wednesday, led by a 12% loss for Discovery Communications and declines of 9% at Disney and Time Warner. It was the biggest drop since August 2011.
CBS fell 1.8% to $49.50 in extended trading after results were announced. The stock lost 4.6% to $50.42 at the close in New York, the worst one-day performance since June 2012. Fox, which lost 7% during regular trading, retreated another 4.4% to $30.50 after hours.
CEO of CBS Leslie Moonves, on a call with investors on Wednesday, said advance ad sales for the 2015-16 TV season were not as robust across the industry. Still, he predicted CBS would lead in audience ratings next season and said the company would reach $2bn in annual affiliate fees sooner than forecast.
CBS reported second-quarter operating income was down 12%, reflecting spending on new programmes and the cost of online initiatives, such as the new CBS All Access Internet service.
Ad sales shrank 2.6%, while revenue from the licensing of older shows slumped 9.7%. The 28% jump in affiliate and subscription fees was largely driven by the Floyd Mayweather-Manny Pacquiao fight on Showtime, CBS said.
And while adjusted profit, at 74c per share, beat analysts’ estimates, the company has spent $1.8bn this year repurchasing stock, which boosts earnings per share.
Fox said on Wednesday financial 2016 profit, or earnings before interest, taxes, depreciation and amortisation, would not meet its February forecast in the mid-$7bn range.
For the fourth quarter ended June 30, Fox’s domestic cable ad revenue decreased 2%. International ad sales, up 14%, would have risen more if not for the strong dollar, the company said. Advertising at the Fox broadcast network declined 14%.
Affiliate revenue for the US cable networks rose 12%, reflecting gains at Fox Sports 1, regional sports networks, Fox News and FX Networks. Internationally, that revenue dipped 2%, hurt by the stronger dollar.
Like CBS, Fox posted earnings that beat estimates. Results were buoyed by $5.94bn in stock repurchases in the past 12 months, and Fox said it has authorised another $5bn.
Fox’s revenue, at $6.21bn, missed the $6.42bn average of estimates compiled by Bloomberg. Net income from continuing operations fell to $116m from $966m a year earlier.
Addressing concerns about shrinking pay-TV subscriptions in the US, James Murdoch, who succeeded his father Rupert as CEO last month, told investors during a call: “Even in the context of an expected 1% annual industry decline in the number of base domestic subscribers, we fully expect our total paid subscribers in the US market and globally to grow.”
Results reinforced a narrative that advertising and affiliate fee growth may be at risk as the pay-TV bundle begins to unravel