The benchmark Standard & Poor’s 500 was up 4.3% today after central banks in the U.S., Europe, and Japan said that they’d help supply cash to avoid a credit crunch if the European debt crisis worsens. That buoyed media stocks: The Dow Jones U.S. Media Index was up nearly 4.4%. CBS shares rose 5.8%, giving it the biggest bump among the elite group of Big Media companies. It was followed by Disney (+5.4%), News Corp (+5.4%), Time Warner (+4.3%), Viacom (+4.3%), Comcast (+4.2%), and Sony (+2.7%). Among other media companies, Westwood One and The New York Times were up more than 10%. Companies up more than 9% include Outdoor Channel, LIN TV, and Entercom. Only a few companies lost ground. The hardest hit was Netflix, down 4.5% after Wedbush Securities’ Michael Pachter downgraded the video rental firm to “underperform” from “neutral.” His rationale: “We think that the company’s pricing structure is wrong, and its business model is broken. At current prices, we expect Netflix to continue to lose more hybrid (DVD and streaming) customers than it adds, and those who remain will not be particularly profitable.”
The federal government will have to slash $1.2T in spending, mostly beginning in 2013, if the 12-member congressional Super Committee can’t strike a deficit reduction deal soon. They still appear split — even though, as a practical matter, they have to reach an agreement by midnight in order to have something ready for the official Wednesday deadline. That drove most company shares down, with a late uptick possibly softening the blow. The Dow’s U.S. Media Index was down 1.2% about 20 minutes before the end of the trading day. Disney was hardest hit among the industry’s biggest players: Its shares were -3.5%, followed by Sony (-3.4%), CBS (-2.3%), Viacom(-2%), and Time Warner (-1%). Comcast was up about 0.5%. Among other media companies, Cinedigm (-8.8%) and RealD (-7.2%) took the worst beatings. Others down at least 4% include E.W. Scripps, Entercom, Crown Media, Netflix, National CineMedia, Live Nation, LIN TV, and Dish Network. Gainers include Westwood One, Barnes & Noble, Sirius XM, Radio One, McClatchy, and McGraw Hill.
Everyone’s reacting today to Greek Prime Minister George Papandreou’s startling decision to hold a referendum on the deal cut last week to save his country’s economy. The agreement is unpopular — lenders would wipe out about half of Greece’s debt if the country accepts austerity measures that would cut social services. The fear is that a Greek default on its debt would have a ripple effect, pulling down other troubled economies.
Media stocks are falling along with the overall market. At mid-day, the Dow Jones Media Index is -1.6%. Sony’s been the hardest hit of the industry’s big guns with shares down 12%. Here’s how the others are faring: Disney -7.6%, Viacom -7.4%, CBS -5.6%, Time Warner -4.5%, News Corp -4.4%, and Comcast -2.4%. Media companies down double-digits include Entercom (-13.4%), IMAX (-11.9%), and Gannett (-10.9%). The only gainers thus far are Time Warner Cable (+2.4%), Regal (+1.9%), Lionsgate (+1.6%), and Pandora (1.1%).
The Dow Jones U.S. Media Index was down 3.5% today while the DJ Industrial Average was off 2.4% — and Goldman Sachs may have contributed to the imbalance: It downgraded the entertainment sector today to “neutral” from “attractive” saying that ad sales will be weaker than expected as the overall economy softens. That came as the market also reacted to Greece’s report over the weekend that it will fail to hit its deficit-reduction targets for the year — increasing the possibility of a default. CBS, -7%, was the biggest loser among the major media companies. It was followed by Viacom (-5.1%), Sony (-4.7%), Disney (-3.9%), Time Warner (-3.4%), and Comcast (-2.2%). In the broader media market, broadcasters Westwood One, LIN TV, Rado One, and Entercom were down by more than 10%. Pandora, Live Nation, Crown Media and Cumulus Media lost more than 8% of their market value. A few companies were up for the day including Yahoo (+2.7%), Regal Entertainment (+2.0%), Coinstar (+1.6%) and Time Warner Cable (+0.2%).
The bears are back. After a relatively calm week, stocks prices across the board — including in media — are tanking today following reports that point to rising unemployment and inflation, and weakness in manufacturing. An hour before the market close, the Dow Jones, S&P 500, and NASDAQ indexes for media stocks each were down at least 5.4%. Among the Big Media giants CBS is -10.7% followed by Time Warner (-6.1%), Sony (-5.7%), News Corp (-5.2%), Viacom (-5.2%), Comcast (-4.8%), and Disney (-3.2%). Elsewhere on our watch list, Pandora Media (-12.9) is taking the biggest hit with LIN TV -9.4%. Others falling at least 8% include Gannett, Live Nation, Entercom, IMAX, Radio One, McGraw-Hill, and Discovery. Those off at least 7% include Cablevision, Amazon, TiVo, Netflix, McClatchy, Coinstar, Arbitron, and Scripps Networks. And companies down at least 6% include Barnes & Noble, Washington Post, E.W. Scripps, Sinclair Broadcasting, Outdoor Channel, and Dish Network. The only gainers are Lionsgate (+0.3%) and Cinedigm (+1.3%).
Media stocks likely will take even more punishment if the economy weakens. When times are bad shares of companies with high fixed costs, lots of debt, and that depend on ad sales, fall more dramatically than the overall market, Needham & Co analyst Laura Martin says today. She says that Discovery may be the best media stock to own now — but adds that it would be even safer for investors to own a fund of stocks that mirrors the S&P 500.
UPDATE, 2 PM: The market deteriorated as the day wore on, continuing the worst market slump since 2008. The Dow Jones U.S. Broadcasting and Entertainment Index closed down 7.3% — exceeding the 5.6% decline in the Dow Jones Industrial Average, 6.7% drop in the Standard & Poor’s 500, and 6.9% fall at NASDAQ. CBS’ -10.3% slide made it the leading loser among media’s Big Guns. It was followed by News Corp (-7.7%), Viacom (-7.1%), Comcast (-6.6%), Sony (-6.4%), Disney (-6.1%), and Time Warner (-5.8%).
Double-digit losers include AMC Networks (-12.8%), LIN TV (-12.7%), Sirius XM (-12.7%), RealD (-12.6%), Cumulus Media (-11.9%), TiVo (-11.4%), Entercom (-10.9%), Westwood One (-10.8%), and E.W. Scripps (-10.3%). Those losing at least 9% include National CineMedia, Dish Network, Arbitron, Sinclair Broadcasting, Rovi, Outdoor Channel, Crown Media, Electronic Arts, Cablevision, and Coinstar.
EXCLUSIVE: This is exactly the kind of information that shareholders of Big Media need to know but rarely see. It’s considered a red flag when any public company pays one of its bigwigs – usually the CEO – three times more than the average for the four other top executives which the SEC requires them to list. So I’ve taken proxy statements and done the computations and discovered that at least 16 of 35 companies failed that test. Often miserably. Nearly half of the media company compensation packages disclosed so far for 2010 show a startling degree of hero-worship as boards of directors pay their top dogs sums that far exceed what the pay was for other top execs in the company.
Stock grants accounted for big chunks of the compensation for those who top this list, including Discovery Communications CEO David Zaslav, Viacom CEO Philippe Dauman, DirecTV CEO Michael White, Nielsen CEO David Calhoun, and CBS chief Les Moonves. Radio station owner Entercom was off the charts: CEO David Field’s $9.1 million compensation was modest by media company standards but still 25.4 times bigger than average for the company’s other four executives. It includes $7.9 million from stock grants that only pay off if Entercom shares rise to hit certain target prices.
Still, corporate governance experts who focus on what’s often called “CEO centrality” say that an out-of-whack pay package is bad news for shareholders. It indicates that the board of directors may be in the pocket of a CEO – or believes he or she has near super-human power to help the company succeed. In either case, the board is likely to give the CEO all the credit when things go well, and blame others when they go badly. Research shows that usually hurts the stock price over time.
I’ll track this and other measures of lop-sided pay as other media companies release information for 2010. But there are a few things to keep in mind: The SEC reporting rules only cover the top-paid executives of publicly traded U.S. companies. That means we probably won’t know how much privately held Hearst pays CEO Frank Bennack, or how much Japan’s Sony pays CEO Howard Stringer. It also means that we’ll miss a lot of highly paid people who work at subsidiaries of a big company; Universal Studios’ Ron Meyer may be a big deal in Hollywood, but he was a relatively small fish last year at parent company General Electric.
To make comparisons in our list here as fair as possible, we looked at the compensation for the five most highly paid employees for 2010. Sometimes companies report the pay for more than five people — for example, when a top executive is replaced during the year a corporation will include the incoming and outgoing person’s compensation. And the pay data given the SEC can spike in a year when an executive cashes in stock or collects deferred compensation. So here’s how the companies stack up, with the top paid executive’s 2010 reported compensation and comparison to the average (median) pay for the four other highest-paid honchos:
1. Entercom: David Field. The son of company founder Joseph Field became CEO in 2002, about 15 years after leaving his job as an investment banker at Goldman Sachs. Field made $9.1 million last year – the total of his $791,723 salary, $444,308 bonus, $7.9 million in stock, and $28,000 in other perks including medical insurance premiums. That’s a 348% raise in a year when company shares appreciated 53.2%. Though considered a strong operating executive, his salary stands out because it’s 25.4 times higher than the $358,692 average for the four other top executives listed in Entercom’s proxy statement. Field’s salary and the $3.9 million paid to CFO Stephen Fisher accounted for 93% of the $14 million that Entercom paid to its top five executives.