Finance

Not a Happy New Year for Content Stocks

Squeezed on all fronts, programmers see 11% decline in 2015 — save for Netflix 1/11/2016 8:00 AM Eastern
TakeAway

Cable programmer stocks were hammered by both long- and short-term trends in 2015, with Netflix the sector’s sole source of share-price growth.

Programmers had another reason to thank Netflix in 2015 — without the subscription video-on-demand pioneer in the mix, cable-network stocks would have declined by 11% for the year.

 

Overall, the dozen cable-programming stocks were down a collective 1% for the year, fueled mainly by the 134.4% gain at Netflix. The subscription OTT firm more than doubled its Dec. 31, 2014, closing price of $48.80 over the ensuing 12 months, finishing 2015 at $114.38.

 

Netflix stock continued to soar throughout the year, driven by strong increases in subscribers (it reached 43 million in the U.S. in the third quarter, an increase of 880,000 customers) and growing buzz for its original shows (Netflix bested all other TV programmers with eight Golden Globe Awards in December). But some of its programming peers and partners were pounded for what some analysts feared was a growing reliance on SVOD licensing agreements, as well as for a declining subscriber base as more homes cut the pay TV cord.

 

The sector has been in a pressure cooker for the past several years as multiplatform viewing has fragmented audiences and led to lower ratings. The lid finally blew in August, when The Walt Disney Co. slightly reduced guidance and said it expected to lose a small amount of subscribers for its flagship ESPN network for the year.

 

PRESSURE POINT

 

That news triggered a massive selloff in the sector. At one point, every major cable media stock was down at least 10% on Aug. 5, with the sector losing a combined $60 billion in market capitalization over the period, according to Bloomberg. While only one of the stocks have recovered from those lows — Crown Media Holdings, which closed at $5.08 on Aug. 5 and $5.61 on Dec. 31 — others have continued to watch their value slowly erode.

 

There were some overall gainers, such as Crown Media, which rose 58.5%; Starz, up 12.8%; AMC Networks, rising 17.7%; and The Walt Disney Co., up 12% for the year. The rest of the sector lost ground, with the biggest losers being Viacom, down 45.3%; 21st Century Fox, falling 29.3%; and Scripps Networks Interactive, down 26.7%.

 

Disney, which revealed in its 10-K annual report that its networks lost about 3 million subscribers in fiscal 2015 (and 7 million since 2013), finished the year up 12%. That was partly due to enthusiasm over the release of Star Wars: The Force Awakens. As of last week, that film was on track to become the highest-grossing movie in U.S. box office history.

 

But the company and the sector had to weather a lateyear decline after BTIG media analyst Rich Greenfield downgraded Disney shares to sell. Greenfield said Disney likely wouldn’t be able to turn around a direct-to-consumer offering for sports programmer ESPN, as it had let on.

 

Greenfield has been a staunch critic of cable networks and the existing programming bundle. The distribution/content wars are likely to heat up this year, he predicted in a blog post.

 

“As cable operator profitability is increasingly driven by broadband, with Verizon illustrating that consumers do want fewer channels and more choice, we expect at least one high-profile channel group to be dropped by a major distributor in 2016,” Greenfield wrote.

 

A YEAR OF BAD TRENDS

 

While the trend toward skinny bundles and subscriber losses dragged on the sector in the last weeks of 2015, ratings declines and networks’ inability to accurately measure audiences pressured shares for most of the year.

 

There’s hope on the measurement front, though. Nielsen is expected to release its Total Audience Measurement product later this year, and Rentrak and Com-Score (which announced their merger in September and intend to close it in January) expect to have their own cross-platform measurement product in place by March.

 

Programmers face a two-fold dilemma, Telsey Advisory Group media analyst Tom Eagan said: subscriber declines and slumping growth in advertising revenue.

 

“Two of their main sources of growth — affiliate fees and ad revenue — are under pressure,” Eagan said. “The old axiom was add more cable networks and add more affiliate fees. Now, if you have any weak links, it becomes a source of drag instead of a source of revenue.”

 

Eagan was more optimistic about the advertising end of the business, mainly because of the new measurement products that are on tap, but said that’s only half of the story.

 

“You have to be able to monetize incremental viewers and it’s not going to be easy,” Eagan said. “The advertising story is an improving story; the pay TV decline story may be a little harder to navigate. I think the way to do that may be with OTT channels.”

 

In addition to attracting more customers to their OTT offerings, Eagan added that some advertisers are paying higher CPMs for OTT shows on services like CBS All Access because they reach a more targeted audience and represent a more efficient ad play.

 

“That could help offset some of the subscriber declines,” Eagan said.

 

Content Conundrum

 

Content-sector stocks continued to be pressured in 2015 by declining ratings and lost subscribers from cord-cutting and skinny bundles. The sector as a whole was down about 1%:

                                         12/31/14                    12/31/15                 % Change
Netflix . . . . . . . . . . . . . . . . . . . $48.80 . . . . . . . . . . . . . . . .$114.38 . . . . . . . . . . .134.4%
Crown Media . . . . . . . . . . . . . . .$3.54. . . . . . . . . . . . . . . . . .$5.61 . . . . . . . . . . . . 58.5%
AMC Networks . . . . . . . . . . . . $63.77 . . . . . . . . . . . . . . . . $74.68 . . . . . . . . . . . . 17.1%
Starz . . . . . . . . . . . . . . . . . . . . $29.70 . . . . . . . . . . . . . . . . $33.50 . . . . . . . . . . . .12.8%
Disney . . . . . . . . . . . . . . . . . . . $94.19 . . . . . . . . . . . . . . . $105.08 . . . . . . . . . . . . . 12%
Liberty Media . . . . . . . . . . . . . $35.27 . . . . . . . . . . . . . . . . $39.25 . . . . . . . . . . . . 11.3%
QVC Group . . . . . . . . . . . . . . . . $29.42 . . . . . . . . . . . . . . . . $27.32. . . . . . . . . . . . . .-7.1%
CBS . . . . . . . . . . . . . . . . . . . . . $55.34 . . . . . . . . . . . . . . . . $47.13 . . . . . . . . . . . . -14.8%
Discovery. . . . . . . . . . . . . . . . . $34.45 . . . . . . . . . . . . . . . . $26.68 . . . . . . . . . . . -22.6%
Time Warner Inc. . . . . . . . . . . . $85.42 . . . . . . . . . . . . . . . . $64.67 . . . . . . . . . . . -24.3%
Scripps Networks . . . . . . . . . . $75.27 . . . . . . . . . . . . . . . . $55.21. . . . . . . . . . . . -26.7%
21st Century Fox . . . . . . . . . . . $38.41 . . . . . . . . . . . . . . . . $27.16. . . . . . . . . . . . -29.3%
Viacom. . . . . . . . . . . . . . . . . . . $75.25 . . . . . . . . . . . . . . . . $41.16. . . . . . . . . . . . -45.3%

SOURCE: NASDAQ website

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