Media remains under threat from Brexit

Investment bank Exane/BNPP, in a major report, tells investors that Europe’s ‘Media’ sector was one of the “worst performing sectors” last year, underperforming the market by 11 per cent, and following on a 7 per cent underperformance in 2016. Some of the downward re-ratings were “brutal” says equity analysts at the bank, and that ‘Brexit’ could create fresh headaches for many UK-based players.

“The stocks that performed best were turnaround stories and structural winners i.e. stocks with stable to growing pricing power, in particular within professional information. As in 2016, Free To Air [broadcasters] suffered from structural concerns and downward revisions to ad trends.”

Not helping the sector overall has been the ‘Agencies’ segment, with 28 per cent overall underperformance. Even ‘pay-TV’, which the bank’s report says were “relative winners” are down year-on-year (by 11 per cent) although helped in some cases by “1) strong music and a turnaround at Canal delivering progress at Vivendi, and 2) Sky, which was supported by the 21st Century Fox bid.”

The bank’s report talks about the “Brexit Risk”, although many of the falls have already priced in their own Brexit consequences.

As for 2018’s prospects, the bank says it is “cautious” on giant agency WPP, and expects FTA broadcasting to remain under pressure following on from its downgrade to ProSieben/Sat.1 and it remains ‘negative’ on Spanish TV in general and Mediaset. The bank reminds investors that it remains “cautious” on the satellite sector in general and notably on SES and Inmarsat.

The report also reminds readers that there are complications [in terms of Brexit] for UK-based media. “There are complications for the export of UK TV content to Europe as audio-visual content is excluded from WTO rules. This brings risk as EU legislation regulates that a material share of content must be EU created. However, based on conversations with industry contacts, we understand the UK is a signatory of the 1989 Convention on Transfrontier Television which replicates some basic elements of the single market (reciprocal recognition of country of origin, etc.),” and lists some of the specific problems:

“Under EU single market rules, many international broadcasters have a UK headquarters and transmit their content into the EU. These firms may have to replicate (or relocate) their UK presence to an EU nation.”

“UK’s membership of the Digital Single Market could expire – removing certain copyright innovations e.g., newly attained rights to access content across Europe, and possibly roaming rules e.g., newly attained rights to access content across Europe, roaming rules.”

“End of freedom of movement to i) reduce availability of skilled staff for specialist audio-visual roles; and ii) put upward pressure on wages for such roles.”

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