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Merger-Mania Could Depress Big Media Stocks: Analyst

By | Wednesday July 23, 2014 @ 8:23am PDT

Merger-Mania Could Depress Big Media Stocks: AnalystCowen and Co’s Doug Creutz advises investors today to “call a ‘time out’” on Big Media stocks in a break with the prevailing view on Wall Street that an upcoming round of mergers could help companies, or at least not hurt them. He fears that Fox’s bid for Time Warner will lead to “a land grab for content assets.” And companies that need cash for acquisitions probably won’t continue to repurchase shares and pay big dividends — strategies that have helped to keep investors interested in traditional media. The analyst says he now takes a ”more negative view” of Big Media, and downgraded Fox (to underperform from outperform), Viacom, and Time Warner (both to market perform from outperform). “Historically, this group has been uninvestable when M&A activity has been significant.”

Creutz observes that when Fox CEO Rupert Murdoch has had dealmaking on his mind “the shares of his company have underperformed the market.” And the analyst says he’s “not a believer that a combination with Time Warner would create significant value.”

It’s too risky to bet on traditional media, Creutz says, especially at a time when their stock prices are “near multi-year highs.” The advertising slow down in Q2 “feels like it was a little worse” than previous soft patches. It could become “a more significant negative” if the economy weakens. The pay TV cash cow could be threatened as “new over the top [Internet] distribution appears to be opening the door for insurgent content providers to potentially take market share.” And Creutz notes that the “dismal” … Read More »

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Content Is King, But It Won’t Be For Long: Analyst

Content Is King, But It Won’t Be For Long: AnalystThis won’t go over well with the media moguls hobnobbing at the Allen & Co retreat in Sun Valley. But it’s the thesis behind the “neutral” rating that Barclays Capital’s Kannan Venkateshwar assigns to Big Media in his smart new 100-plus-page inaugural report on the industry. The major players – CBS, Discovery, Time Warner, Fox, Viacom, and Disney — make most of their profits from television. And although revenues in the field have grown over the last five years, “the source of this growth in most cases (with a few notable exceptions) has been through price inflation and an increase in the advertising inventory rather than a more sustainable growth in ratings,” he says. That spells trouble as Netflix, Amazon and others also produce content for the Web, and pay TV distributors including Comcast and DirecTV strike merger deals that make them stronger. They focus on shows and search engines — not networks and schedules. And as they forge stronger ties with subscribers, “traditional media companies get pushed further back into the value chain, further away from a direct relationship with the consumer.”
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Media Stocks Join In Wall Street’s Fireworks Market

Media Stocks Join In Wall Street’s Fireworks MarketThe bull market that began in 2009 continued its stampede today in abbreviated trading ahead of Independence Day: The Dow Jones Industrial Average increased 0.5% and crossed 17,000 for the first time following a strong June jobs report that showed the unemployment rate dropping to 6.1%, its lowest point since late 2008. Media companies joined in the rally. The Dow Jones U.S. Media Index, up 0.7%, hit an all time high. So did Disney (+0.5%), Time Warner Cable (+0.7%), Charter (+0.3%), and Nielsen (+0.6%), while Time Warner (+0.7%) and Gannett (0.7%) touched 52-week highs.

Fox (+1.4%) led the Big Media pack followed by Discovery (+0.8%), Time Warner, Disney, Viacom (+0.2%), Comcast (+0.6%), and CBS (no change) while Sony dropped 0.5%. Read More »

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Overseas Appeal Of Sequels, Superheros And Animation Should Boost Big Media Stocks: Analyst

By | Wednesday July 2, 2014 @ 9:08am PDT

Overseas Appeal Of Sequels, Superheros And Animation Should Boost Big Media Stocks: AnalystBad news for those of you who are sick of Hollywood’s flood of sequels, superheros, and animated films. Nomura analyst Anthony DiClemente says we’re going to see a lot more of them — and that’s a good thing for studios. He raised his stock forecasts for Disney, Fox, and Time Warner this morning, arguing that their efforts to appeal to overseas audiences should enable them to profit as international box office receipts grow an average of 5.5% a year to $57.6B in 2022.

Disney, Fox, and Time Warner have “increasingly shifted film production towards genres that resonate well within these markets,” he says. Sequels accounted for 76 of the 107 top grossing films in the 10 largest markets over the last 12 years. The hot genres also tend to be the most profitable: The average animated film from 2004 to 2013 generated a gross margin of 52%, followed by action with 40% — well ahead of drama at 30% and comedy at 22%.
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Media Stocks Beat Overall Market In Q2 As Charter Leads And WWE Lags

By | Monday June 30, 2014 @ 2:06pm PDT

Media Stocks Beat Overall Market In Q2 As Charter Leads And WWE LagsMedia investors did OK in Q2, as long as they diversified — or were lucky. The quarter ended today with the industry, as measured by the Dow Jones U.S. Media Index, up 6.5% from the end of March. That gave investors a slight edge over those who stuck with the Standard & Poors 500, which was up 4.7%. Big Media companies were evenly split above and below the benchmarks, but mostly just making up for their Q1 gains or losses. Fox led the pack this quarter with shares +9.9% (up from a 9.1% drop in Q1) followed by Time Warner (+7.5% vs -6.3% in Q1), Comcast (+7.3% vs -3.7%), and Disney (+7.1% vs +4.8%). They handily beat Viacom (+2.0% vs -2.7%), CBS (+0.6% vs -3.0%), Discovery (-10.2% vs -8.5%) and Sony (-12.3% vs +10.6%).

More broadly, Charter takes the prize as the top performing media company on our watch list with shares +28.6%, reversing a 9.9% drop in Q1. Investors warmed to the company after it cut a deal with Comcast to acquire and swap subscribers, virtually guaranteeing that Charter will become the No. 2 cable operator if the industry giant buys Time Warner Cable. Others up at least 20% in the quarter include Sinclair Broadcast Group (+28.3%, vs -24.2% in Q1), Netflix (+25.2%,vs -4.4%), Cinemark (+21.9%, vs -13%), and Apple (+21.2%, vs -4.3%).

But WWE, the media leader in early 2014, hit the mat as the Street soured on the company’s new online streaming channel that seems to compete with traditional TV. … Read More »

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Ready For Media Merger Mania? An Analyst Examines Some Possibilities

By | Thursday June 5, 2014 @ 3:40pm PDT

merger acquisition handshakeThis is the time of year when deal speculation usually percolates: Moguls always have mergers on their minds as they prepare to huddle in early July at Allen & Co’s Sun Valley gathering for the media elite. And content companies have to be thinking more seriously than usual about their options. Their bargaining power could soon diminish if Washington regulators allow Comcast to buy Time Warner Cable, AT&T buy DirecTV, and — perhaps — Sprint buy T-Mobile.

What deals make sense? Janney Capital Markets’ Tony Wible tiptoed out on a limb today by making a serious attempt to answer the question — with some potentially surprising conclusions. Here are the ones that seem to offer the greatest strategic and financial benefits:

CBS and Viacom: A re-combination of Sumner Redstone’s companies “increases CBS’ exposure to affiliate fees, allows it to leverage sports/retrans across networks, provides studio content, and greatly increases its European ad exposure,” Wible says. The companies also could look for ways to harmonize Showtime with Epix (which Viacom owns with Lionsgate and MGM). A possible problem? It would be “a massive deal for CBS” which has a lower market value than Viacom.

Discovery and Scripps Networks: It would “greatly increase [Discovery's] share around non-scripted programming” although Scripps’ home, food, and lifestyle fare “may not export into international markets as seamlessly, which has been an important part of [Discovery's] current growth strategy.”

Disney and Discovery: Disney would gain viewers in Europe, and would especially enjoy blending ESPN … Read More »

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Media Stocks Pulled Down As Investors Unload Tech Holdings

By | Friday April 4, 2014 @ 1:17pm PDT

Stock arrow downThe tech-heavy NASDAQ fell 2.6% today, apparently reflecting fears that many companies — after soaring in 2013 — will report disappointing info on Q1 sales. The concern has been building: Netflix, for example, is down 25.7% over the past month. But it seemed to spread today, and soured the rest of the market with the Standard & Poor’s 500 -1.3% and the Dow Jones U.S. Media Index -1.7%. Viacom, down 2.8%, was the hardest hit Big Media company followed by Fox (-2.6%), Comcast (-1.8%), CBS (-1.7%), Disney (-1.5%), Discovery (-0.8%), Time Warner (-0.4%), and Sony (-0.3%). News Corp was the only gainer in the group, rising 0.1%. In the broader media universe, Barnes & Noble fell 5.4% — for an 18% drop in the two days since Liberty Media said it will sell 90% of its holdings in the book retailer. Tech-oriented media companies followed including Netflix (-4.9%), Pandora (-4.9%), Google (-4.7%), Facebook (-4.6%), Yahoo (-4.2%), RealD (-4%), and Amazon (-3.2%). Only a few media stocks appreciated. They include Madison Square Garden (+0.4%), which sold its Fuse TV network, and Scripps Networks (+0.5%) after Wunderlich Securities’ Matthew Harrigan changed his recommendation to “buy” from “hold.”

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WWE Leads Q1 Media Stock Gainers While DreamWorks Animation Falls

By | Monday March 31, 2014 @ 2:22pm PDT

Market arrows up downThe markets closed the books today on Q1 trading, and it began with a shrug for media stocks. The Dow Jones U.S. Media Index fell 2.4% over the three-month period, behind the benchmark Standard & Poor’s 500, which was +1.3%. Sony was the top-performing Big Media company, with shares +10.6%. It was trailed by Disney (+4.8%), Viacom (-2.7%), CBS (-3.0%), Comcast (-3.7%), News Corp (-4.4%), Time Warner (-6.3%) and Fox (-9.1%). There’s a much wider gap between the best and worst performers among other media companies we track most closely. World Wrestling Entertainment led the pack, helped by its launch of WWE Network, a $9.99 a month live streaming video service. Its shares appreciated 74.2% — followed by Barnes & Noble (+39.8%), RealD (+30.8%), and Cinedigm (+26.7%). At the bottom we find DreamWorks Animation (-25.2%), National CineMedia (-24.9%), and Sinclair Broadcasting (-24.2%).

Here’s how individual companies fared: Read More »

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Media Stocks Slip As Investor Fears About China And Ukraine Grow

By | Thursday March 13, 2014 @ 1:52pm PDT

The industry couldn’t withstand the downdraft across the financial markets today as reports in China showed weaker-than-expected industrial growth and as Russian troops began military exercises near the border with Ukraine. Stock arrow downThe Dow Jones U.S. Media Index fell 1.4%, nearly matching the drop in the Dow Jones Industrial Average and ahead of the 1.2% fall in the Standard & Poor’s 500. All of the Big Media companies we track lost ground. News Corp shares fell 2.8% followed by Fox (-1.8%), Disney (-1.8%), CBS (-1.4%), Viacom (-1.3%), Sony (-1.2%), Comcast (-1%) Discovery (-0.9%), and Time Warner (-0.9%). Biggest losers across media and entertainment included Sinclair (-4.9%), Scripps (-4.7%), Crown Media (-4.6%), DreamWorks Animation (-4.2%), and Lionsgate (-3.2%). Only a handful gained ground including exhibition companies AMC Entertainment (+2.5%) and Carmike (+0.8%); programmers Starz (+1.0%) and World Wrestling Entertainment (+0.3%); and Amazon (+0.2%), which announced today that it has raised the price of its Amazon Prime program for the first time in nine years.

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Who Won Big Media’s Q4 Earnings Season?

By | Friday February 28, 2014 @ 3:05pm PST

Netflix was the clear winner and Twitter an equally clear loser in what was Market arrows up downgenerally a pretty good earnings season for media companies based on the market reactions to execs’ quarterly reports and commentaries. Among 25 of the biggest or most interesting companies that I track, 17 beat the overall market in the trading day after they announced their results while eight lagged. I calculated the results by looking at how much each stock rose or fell in the trading day after the company reported. Then, to reduce the effects of changes in the market, I subtracted any gains or added back any declines in the day’s movement of the benchmark Standard & Poors’ 500. The results show that Netflix was +17.4% after it exceeded analyst expectations for its revenues, profits, and domestic streaming subs in the last three months of 2013. But Twitter’s -25.4% indicates that its first earnings report was a bust as CEO Richard Costolo, faced with disappointing sub growth numbers, vowed to make the service easier for newbies to use.

Here’s how the group stacks up: Read More »

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Media Stocks Buffeted By Investor Concerns About Emerging Markets

By | Friday January 24, 2014 @ 3:06pm PST

The Dow Jones U.S. Media Index fell nearly 2% today as Wall Street dealt with the biggest single-day stock selloff it has seen since June. The stock arrow downbenchmark Standard & Poor’s 500 fell 2.1% as investors bailed out of stocks and currencies from emerging markets including China, South Africa, and Turkey. All Big Media companies lost ground today with Disney (-2.8%) followed by Viacom (-2.5%), CBS (-2.2%), News Corp (-2.2%), Time Warner (-2.0%), Fox (-1.5%), Discovery (-1.4%), Comcast (-1.3%), and Sony (-0.4%). In the broader group of companies that we track, big losers included New York Times (-5.5%), DreamWorks Animation (-4.3%), Best Buy (-4.0%), Facebook (-3.9%), Yahoo (-3.8%), Google (-3.2%), and Pandora (-3.2%). Only a handful of companies advanced including SFX Entertainment (+2.7%), RealD (+0.8%), and Regal Entertainment (+0.5%). Two stocks that have been rising of late touched new 52-week highs during the day: AMC Entertainment (which closed +0.5%) and World Wrestling Entertainment (+0.4%).

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With Netflix In The Lead, Media Stocks Handily Beat Overall Market In 2013

By | Tuesday December 31, 2013 @ 2:44pm PST

Stock Arrow Up 1Shares in the streaming video company appreciated 297.6% during the latest 12 months, well ahead of everyone in the companies we track — including media  industry giants, where CBS (+67.5%) led the pack. But you shouldn’t hear many complaints. The Dow Jones U.S. Media Index rose 12.3% in Q4, and 47% for the entire year, as investors became increasingly comfortable about the prospects for information and entertainment companies in a period of strengthening ad sales, low interest rates, and prodigious stock repurchases and dividend payments. The sector was well ahead of the benchmark Standard & Poor’s 500, which was up 9.9% in Q4 and 29.6% for the year. Big Media companies will look back at the year fondly. After CBS, the top performers were Viacom (+65.6%), Sony (+54.4%), Disney (53.4%), Time Warner (+45.8%), Discovery (+42.4%), Comcast (+39.1%), and Fox (+37.9%).  But lots of other companies did much better. Industry winners after Netflix include Best Buy (+236.5%), Pandora (+189.8%), Sinclair Broadcasting (+183.1%), DreamWorks Animation (+114.2%), and Live Nation (+112.2%). The year’s underperformers include RealD (-23.8%), Barnes & Noble (-0.9%), Apple (+5.4%), and TiVo (+6.6%). Read More »

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Studios And Others Are Unprepared For The Shift To “Must Experience TV”: Study

By | Tuesday December 17, 2013 @ 11:39am PST

Here’s the most unintentionally creepy forecast in consulting firm EY’s thought-provoking Future Of Television report out today. EY logoIn making the case for producers to adjust to advancements in technology and data gathering, EY observes that we’re approaching a day when the TV will figure out what kind of programming to show. For example, if it recognizes by heart rate and breathing info that a person is working out then that “dictates upbeat music videos. Dopamine levels dropping? Viewer preference suggests it’s time to select something from a roster of favorite comedies to cheer the viewer up.” That’s extreme, but illustrates why EY — following “thousands of hours of dialogue with media executives and thought leaders” — believes that many media companies “have not yet begun to address” the profound changes ahead. The report says that there’s “a tremendous opportunity for a visionary producer to better use second, third and fourth screens as part of the narrative,” perhaps by having characters appear on different screens while they talk to each other. EY also says that viewers in the era of “must experience TV” will want to help craft stories, much the way they do with video games. “Story is everything, but a story with a personal connection is unbeatable.” Producers also must think more about creating events that will appeal to users of Twitter and other social media. People want to “feel included in something larger than their living room.” And … Read More »

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Unbundling Pay TV Would Devastate Big Media And Consumers: Analyst

By | Wednesday December 4, 2013 @ 1:03pm PST

It’s fun to see Wall Street analysts defend the pay TV oligopoly’s bundled pricing as a model of market capitalism — and a kind of public service. TVwithMoneyInItMAnd nobody does it better than Needham and Co analyst Laura Martin, who has some eye-popping estimates this week in her intriguing analysis of what might happen if consumers had the freedom to just pay for the networks they want. She figures that could result in the loss of at least 124 channels, $45B a year of TV ad sales, 1.4M jobs, $20B in annual tax payments, and $117B in market value for media company investors. The big problem: Channels need to reach at least 30M households in order to be measured by Nielsen, and most wouldn’t cross that threshold if they had to compete on their own. That would endanger much of the $56B that national advertisers paid content creators in 2012. To stay even at about 180 channels per subscriber, then, consumers would have pick up the slack — adding the advertisers’ expenditures to the $76B that subscribers paid (60% of which went to content creators with the remainder to distributors). The average annual bill would rise about 75% to $1,260. But that’s a fantasy: The goal of a la carte is to lower consumer payments. Surveys show that consumers want to pay about $30 a month. That leaves too little revenue to sustain the status quo. It costs an average of $280M a year to program an entertainment channel (from $1.1B for TBS to $50M for TV Guide Channel). While at least 124 would have to go, as many as 173 might disappear depending on other assumptions. The economic argument is so lopsided that “we foresee only a remote chance that the TV ecosystem will be unbundled in the U.S.,” Martin says.

Related:
Time Warner Cable Doesn’t Rule Out A La Carte Pricing
John McCain Introduces Cable A La Carte Legislation Read More »

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Media CEOs Are Optimistic About Economy, But Most Don’t Plan To Hire: Study

By | Tuesday December 3, 2013 @ 12:07pm PST

That’s the story of our times, isn’t it? Some 68% of media and entertainment executives say that the global economy is improving — up from 26% who felt the same way a year ago — according to consulting firm EY’s latest Capital Confidence Barometer for the industry. EY logoBut just 32% said that they plan to create jobs or hire talent over the next 12 months, a slight drop from last year’s 35%, in the September survey of a panel of 56 execs representing all global regions. The silver lining is that just 13% said that they’d reduce their workforce, half the number who anticipated layoffs in 2012. What will execs do, then, if they have extra cash? Some 30% plan to pay down debt (vs 39% last year), 24% will pay shareholders dividends (vs 4%), 22% will invest in organic growth (vs 40%), 15% will do deals (vs 13%), and 9% will repurchase stock (vs 4%). Although execs expect to play things safe, 74% anticipate an increase in mergers and acquisitions. The biggest risks to the industry: increased global political instability (42%), continuation of the Eurozone crisis (24%), continued slow growth in China (19%), and a failure to manage the withdrawl of U.S. quantitative easing (15%).

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Deadline Big Media Podcast 59: Talking Mobile With Boy Genius

By | Friday November 15, 2013 @ 2:29pm PST

Listen to (and share) Episode 59 of our audio podcast Deadline Big Media With David Lieberman. Deadline’s financial editor joins host David Bloom and Jonathan Geller of Deadline’s sibling site BGR.com in talking about the mobile business, starting with the fundamental face-off between Apple and Google over mobile business models. They also talk about the prospects for Samsung, Microsoft and BlackBerryT-Mobile’s radical new approach to the mobile phone business; a new study suggesting more than half of Internet bandwidth is consumed by just two sites, YouTube and Netflix; and the dubious future of next-generation video game consoles as Sony launches the PS4 today and Microsoft debuts the Xbox One in a week.

Separately, the two Davids pick through the most notable news from this week’s media earnings reports, including MGM’s 2012 gifts that keep giving, CBS and Dish Network doing a dance around the Hopper and Viacom’s debt to Miley Cyrus and some zombies.

Deadline Big Media Episode 59 (MP3 version)
Deadline Big Media Episode 59 (M4A version) Read More »

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Pay TV Companies Will Be Media’s Most Profitable Businesses This Year: Report

By | Thursday October 24, 2013 @ 11:44am PDT

Keep this in mind the next time you hear cable operators bemoan their rising programming costs, and networks sigh about their need to raise prices: Cable operators overall will have cash flow profit margins of 41% this year, and networks will be right behind at 38% — returning them to the head of the media and entertainment pack — according to a report on industry profitability out today from consulting firm Ernst & Young’s Global Media & Entertainment Center. They’re followed by interactive media (33%), electronic games (26%), satellite television (25%), conglomerates (25%), broadcast TV (19%), content and information services (19%), film and TV production (12%), and music (10%). The margins are measured as a percentage of EBITDA, which stands for Earnings Before Interest, Tax, Depreciation, and Amortization. Media and entertainment that EY monitors will stand out from the pack in other fields, the researchers say. Collectively their average margin of 26% will make them more profitable than the average for companies in the London Stock Exchange’s FTSE 100 Index in 2013 for the first time since 2009. The sector also will beat average profits in companies that comprise major stock indexes including the Standard & Poors’ 500, France’s CAC 40, Germany’s DAX 30, and Japan’s Nikkei Index. “Media and entertainment companies are maintaining and growing their businesses primarily by growing their digital revenues and scaling back overhead associated with traditional media,” says EY Global Media and Entertainment Leader John … Read More »

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Can Big Media Companies Continue To Prop Up Their Stocks With Buybacks?

By | Monday October 14, 2013 @ 10:17am PDT

Most Wall Street analysts, eager to sell stocks, pull their punches when faced with questions that might lead to uncomfortable conclusions. But Bernstein Research’s Todd Juenger and MoffettNathanson Research’s Michael Nathanson have proven their fearlessness over the years — which is why I was so pleased to see both out this morning with thoughtful reports that reach different conclusions about a key question: How much longer can the go-go period for media stocks last? Shares have been on a tear for the last three years largely because moguls stopped using cash to build empires choosing instead to slim down (as News Corp/Fox did, and Time Warner is doing, by unloading their publishing units and CBS is doing with its billboard ad business) and returning cash to shareholders. Stock buybacks in particular “have been enormous,” Nathanson says, with Viacom cutting the number of outstanding shares by 21% followed by Time Warner (-17%), Discovery (-16%), Scripps Networks (-12%), News Corp/Fox (-12%), CBS (-11%), and Disney (-6%). Read More »

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Media And Tech Stocks Hit By Concerns About Possible Government Default

By | Tuesday October 8, 2013 @ 1:52pm PDT

President Obama warned this afternoon that the economy could head toward a “very deep recession” unless lawmakers agree to raise the debt ceiling soon. Many investors seem to agree: With lawmakers unable to agree on terms of a potential deal, several are cashing out recent gains to sit on the sidelines until they have a clearer sense of where things are headed. The Dow Jones Industrial Average fell 1.1% today, while the Standard & Poor’s 500 was -1.2% and NASDAQ -2%. Media and tech stocks also took a hit with the Dow Jones U.S. Media Index falling 1.5% today. Sony (-3.3%) was hardest hit among Big Media companies followed by CBS (-2.4%), Viacom (-2.1%), Fox (-2%), Liberty Media (-1.7%), Comcast (-1.1%), Time Warner (-1%), Disney (-0.9%), and News Corp (-0.7%). Among the broader field of companies we watch, Pandora (-7.8%) dropped most. Others licking their wounds include Cumulus (-7.1%), Facebook (-6.7%), Netflix (-5%), RealD (-4.6%), Lionsgate (-4%), and Best Buy (-3.6%). A few companies managed to eek out modest gains led by Redbox owner Outerwall (+6.2%) which is still benefiting from the recent disclosure by activist investor Jana Partners that it has bought a big stake in the company and wants changes in strategy that will pay off for shareholders.

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