YEARENDER: Wall Street throughout 2011 became starry eyed when they talked about tech stocks. But they still had a soft spot in their hearts for traditional media companies all year long. Five of the seven companies in the Big Media group beat the Dow Jones Industrial Average’s 5.5% increase (through December 30th) — four of them by a lot. And they weren’t outliers: The Standard & Poor’s broadcasting index was +15.2% while the S&P movies and entertainment index was +10.2%. Many of the stocks were bolstered by the industry-wide improvement in ad sales. In addition, there was a general sense of relief — perhaps a pipe dream — that digital companies don’t yet pose a clear and present danger to the way traditional movie and TV companies do business. We’ll see how long that lasts.
Here’s how each of the Big Media companies fared in 2011, in order of how well the stock performed. Next to the company name is the percentage increase or decrease in the stock price this year as well as the price-earnings ratio (the stock price divided by the expected earnings per share) which is a rough measure to compare how cheap or expensive the stock is compared to its industry peers.
CBS (Stock: +41.3%, PE: 15.4) Once it became clear that U.S. advertising would continue to recover, investors started to pay attention to CEO Les Moonves’ sales pitch to bet on old-fashioned network TV shows. He held the line on costs while CBS cranked out dependably popular, easy to syndicate procedural dramas including CSI, NCIS, The Good Wife, and Hawaii Five-0. Meanwhile Moonves beefed up CBS’ revenues by striking deals to license series to digital streaming companies including Netflix and Amazon. He also continued to play hardball to collect retransmission consent fees from pay TV providers, and reverse compensation from CBS affiliates. Moonves became cocky during the upfront ad sales season, asking for an unheard of 18% price hike before settling for a highly respectable 14%. That sets CBS up nicely for 2012 when it will benefit from the influx of political ads, and the growing popularity of original shows on Showtime. It also enabled the company to raise its share repurchase effort by $1.5B. But the economy remains a concern. And Moonves will have to show investors that he can tap other revenue sources to keep CBS growing in 2013. Consensus estimated 2011 Earnings Per Share (EPS): $1.90, +82.7%.
News Corp (Stock:+19.9%, PE: 15.9) Investors strangely either dismissed the UK phone hacking scandal as a minor event at the global infotainment colossus, or a positive. They didn’t mind Rupert Murdoch’s decision to abandon his $12.6B effort to buy the 61% stake in BSkyB that News Corp doesn’t already own. Those who initially liked the transaction said it would use up cash and stop Murdoch from overpaying for less promising acquisitions the way he did with Dow Jones, MySpace, and his daughter Elisabeth’s Shine Group TV production company. Now they could count on the scandal to keep Murdoch sidelined while he closed News Of The World, sold MySpace, and agreed to $5B in share repurchases. Once freed of their concerns about Murdoch, investors focused on the company’s strong fundamentals. The cable networks, its biggest profit driver, led the way. Ad sales were up, and they benefited from the company’s big – executives said overdue — increases in pay TV fees for channels led by FX, Fox News, and regional sports services. Like with CBS, the Fox broadcast network saw additional revenues from retransmission consent and digital syndication deals. Although the movie studio didn’t have a megahit like Avatar, which helped the 2010 results, it more than held its own with solid results from Rise Of The Planet Of The Apes, X-Men: First Class, and Alvin And The Chipmunks: Chipwrecked. Estimated EPS (Fiscal year ending in June 2012): $1.38, +16.9%
Viacom (Stock: +13.8%, PE: 12.7) Viacom’s shares probably would have closed the year much higher if it weren’t for the startling, and still perplexing, recent decline in Nickelodeon’s ratings. The drop in its live plus same-day audience accelerated from -5.4% in 3Q to -15.7% in October and -18.1% in November. CEO Philippe Dauman called the Nick situation a “blip,” touted the channel’s new programming plans, and questioned Nielsen’s measurements. He also announced in November an eye-popping increase in Viacom’s share repurchase authorization to $10B from $4B. Investors still want proof that Nick and other Viacom networks aren’t running out of gas. That said, they liked a lot of other things that they heard from the company in 2011 including its strong upfront ad sales and new digital syndication deals. Movie service Epix became profitable. Paramount also had a great year at the box office with releases including Transformers: Dark Side Of The Moon, Thor, and Captain America: The First Avenger. Viacom probably will have to settle for less in 2012 as the Marvel titles shift to Disney. EPS (FY ended in September) $3.78, +25.2%.
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