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MoffettNathanson’s senior analyst Michael Nathanson is concerned that the best days for some multichannel broadcasters could be well over. In a September 27th report he said that the media industry generally is now trading at an 80 per cent discount to the market multiple, and which is the lowest relative level since 2008. “However, we are not expecting to see a similar dramatic sector-wide rebound post 2008 as we strongly believe this time is different. Instead, stock performance will diverge by the quality of content, brands and asset base.”
“The biggest near-term challenge,” says MoffettNathanthson, “will be the amassing and holding of large, live viewership that can’t be replaced by SVoD, DVRs, VoD, or digital. Stand-alone cable network companies (Viacom, AMC Networks, Scripps Networks, and Discovery) will continue to be challenged. Media companies with strong brands in sports and news which are fundamentally live like Disney, Fox and Time Warner will be rewarded with increasing affiliate fees and ad-dollars. As viewers gain more control of their programming grids the owners of non-essential and non-live content are at significant risk. Either you are live and large … or dead.”
Nathanson poses the question that ‘media’ is not that dissimilar to the newspaper or music industries, and that all this “declining consumption of live television presage a collapse of the Pay TV industry and the death of TV advertising? Advertising on TV still delivers a unique proposition of efficient, live reach and the lack of substitutes force advertisers and subscribers to stay tethered. However, there are elements of the industry that will be facing newspaper-like pressure.”
His report warns bluntly that while past history is no guide to future performance, nevertheless “we are marking down the value of the pure play cable network operators due to the fundamental challenges that lie ahead.”
The report ‘Downgrades’ Discovery a thumping $10 a share ($21 new target price) and Scripps (down $19, to $52 target). Nathanson sticks with a ‘BUY’ rating on Disney ($111 target), 21st Century Fox ($31) and Time-Warner ($94).