Media Cos. Emphasize Caution2/08/2009 5:00 AM Eastern
As the doom and gloom surrounding the overall economy continues to build, three of the biggest cable programmers — The Walt Disney Co., Time Warner Inc. and Scripps Networks Interactive — reported fourth-quarter earnings last week, painting an increasingly cloudy picture for the advertising market in the coming months.
While results for the most part were in line with expectations, there were a few surprises — perennial Disney ad powerhouse ESPN showed declines in the quarter, for instance — and most executives were cautiously optimistic for the future. But the emphasis was on caution, as the uncertainty surrounding the economy and the advertising market is preventing many companies from making any predictions as to when a turnaround may occur or what the landscape may look like once it does.
“When the economy rebounds, the normal we see is not necessarily going to be the normal we're used to,” said Disney CEO Robert Iger on a conference call with analysts last Tuesday.
Iger has a reason to be cautious: Net income for the quarter was down 32% to $845 million and segment operating income plunged 36% to $1.4 billion. Revenue was down 8% in the period to $9.6 billion.
At Disney's Media Networks, revenue dipped 5% to $3.9 billion and operating income dropped 29% to $655 million, largely due to declines at its ABC broadcast network. Cable, which includes ESPN, ABC Family and the Disney Channel, increased revenue by 2% in the period, but operating income, led by declines at Disney Channel and ESPN, fell 12% in the period to $517 million.
Disney said the declines were due to lower DVD sales at the Disney Channel due to comparisons to High School Musical 2 in the prior-year quarter, and lower advertising revenue and higher programming costs at ESPN.
While Disney did not detail the declines at ESPN, chief financial officer Tom Staggs said on the call that ad sales at the sports network were down in the high-single digits, adding that softness in the automotive and consumer electronics sectors played a role. Staggs said that pacings for the fiscal second quarter at ESPN were slightly behind first quarter comparisons.
Disney, which reported earnings after market close on Feb. 3, took a beating the next day — its stock fell 8% ($1.62 per share) to $19 each on Feb. 4
Miller Tabak media analyst David Joyce said that the impact on Disney shares is a signal that no company is immune to the economic woes.
“It had been one stock that had been held up as the quality name because they have been talking for a year or two now about the 'Disney Difference' — the quality of their brands and content and entertainment,” Joyce said. “They're not completely immune.”
At Time Warner Inc., the mood was slightly rosier: The media giant weathered a big loss in the period ($16 billion), but that was mainly due to a one-time non-cash charge tied to the pending split off of its cable unit.
On a conference call with analysts, Time Warner chairman and CEO Jeff Bewkes said that while the economy is not showing any immediate signs of improvement, he believes that his company will outperform its peers.
Bewkes said that although Time Warner has aggressively reduced operating expenses and expects capital expenditures to be flat in the coming year, “We are going to invest more on content development this year than last year.”
Cable network revenue rose 9% to $2.9 billion in the quarter from $2.7 billion in 2007, but operating income before depreciation and amortization at the unit declined 20% to $682 million from $857 million in 2007, largely because of a one-time $270 million charge taken in connection with a trial court judgment against Turner Broadcasting Systems related to the sale of its winter sports teams in 2004. Without that charge, OIBDA at the networks would have risen 10% in the period.
On a conference call with analysts to discuss fourth quarter results, Bewkes said that performance at the networks has been strong — he said advertising revenue was up 7% at the division during the quarter, outpacing its peers. And though the advertising outlook is bleak for this year, he again expects Time Warner to better its counterparts in the cable industry.
At Scripps Networks, revenue was up 3.5% to $412 million in the quarter, fueled by gains at its Lifestyle Media Networks, including Food Network and HGTV. But CEO Ken Lowe was cautious about the future.
“Going forward, we are optimistic about the future for all of our media businesses, but let me make it very clear: we have no illusions,” Lowe said on a conference call with analysts Thursday. “If the economists are right, the marketplace we're competing in is going to be challenging for some time to come.”
Scripps declined to provide financial guidance for the year, primarily because of the lack of visibility for the ad market. On the call, chief financial officer Joe NeCastro said that lack of guidance should not be interpreted as a sign that things are going to get worse, just that the company lacks confidence in making predictions given the uncertainty surrounding the ad market. NeCastro did say that Scripps expects affiliate fees at its cable networks to rise between 9% and 11% for the year, adding that programming costs increases should be in the same range.
|Tale of the Tape|
|Three of the largest cable programmers released quarterly results last week. Below is a snapshot of cable results for each.|
|SOURCE: Individual companies|
|Disney Cable Networks||FY1Q09||FY1Q08||% Change|
|Revenue||$2.5 billion||$2.4 billion||2%|
|Segment op. income||$517 million||$586 million||(12%)|
|Time Warner Cable Networks||4Q08||4Q07||% Change|
|Revenue||$2.9 billion||$2.7 billion||9%|
|OIBDA||$682 million||$857 million||(20%)|
|Scripps Networks Lifestyle Media||4Q08||4Q07||% Change|
|Revenue||$340 million||$317 million||7%|
|Op. Income||$176 million||$175 million||0.7%|