OnScreen Media Summit: Some Bright Spots Left For Cable

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New York – While the recession and the general economic malaise have put a hurting on cable stocks this year, a panel of experts here said that despite the pressure there are still some bright spots in the sector.

Collins Stewart media analyst Tom Eagan, speaking on a panel at the "B&C-Multichannel News OnScreen Media Summit" here, said that cable stocks are trading at multiples equal to 4.5 times to 5 times 2009 estimated cash flow. During the last recession, he said, cable multiples were about 10 times forward looking cash flow.

 “They are trading at half the level they were, although they have much better balance sheets,” Eagan said. But the analyst warned that the fourth quarter will be a very important one for cable operators, noting that satellite giant DirecTV has hinted that they are seeing increased demand for all of their services, while cable operators like Time Warner Cable have taken a more bearish stance.

While the fourth quarter could be a rough one for cable, Eagan said that fortunes could turn in the first quarter of 2009, when the February federally mandated digital transition takes effect. Eagan estimates that about 1 million additional customers could flock to cable systems to avoid being shut out of television service.

Comcast vice chairman Julian Brodsky said that Eagan was being conservative, estimating that cable could see as many as 2.5 million additional customers as a result of DTV.

“I think it’s a shoo-in for 1 million [additional customers],” Brodsky said of the digital transition. He added that despite the concerns for the fourth quarter, cable has shown its resiliency in the past and should do the same today.

“Living quarter to quarter is no way to live,” Brodsky said. “The balance sheets have never been better; there is no need to go to the capital markets for at least the next five years. It couldn’t get any better than that. There will still be free cash flow, operating cash flow through 2010. How many industries can say that?”

While Eagan and Brodsky were optimistic for cable, one broadcaster has a gloomier view.

“I think we are going to see some times the younger generation haven’t seen [before],” said Ion Media Networks chairman Brandon Burgess. “I’m a little more skeptical. … It’s going to be a game of market share.”

Burgess added that ION has a different focus than many other broadcasters, attempting to capture additional revenue streams through digital channels, including those targeted at children, minorities and the urban market.

Click here for more coverage of the OnScreen Media Summit.

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