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Bank: Ukraine war impact on media

March 11, 2022

A report from investment analysts at Berenberg Bank looks at the sectorial impact, and in particular on media, and says that while there are some broadcasters have business interests in Russia, but their exposure (to specific losses) are modest.

The bank says its own portfolio coverage has very limited exposure to Russia and Ukraine, noting: “Unlike some sectors, our media universe has very few business interests in Russia and Ukraine. The [European] domestic broadcasters (ITV, ProSiebenSat.1, Mediaset España Comunicación, MediaForEurope, Atresmedia) and classified entities (Auto Trader, Rightmove and Scout24) do no business in these countries and even the global agencies (WPP, Publicis) have extremely limited exposure to them – less than 1 per cent.”

“Broadcasters are the most operationally geared of the group, with high levels of fixed cost. Given the shift to in-house production, they have become more adept at trimming costs than they were in the past, but a short-term shock to demand is very difficult to absorb given the advance nature of planning a programming schedule, so we would expect c90 per cent of any shortfall in revenue to drop to the bottom line in the near term,” states Berenberg.

“The conflict creates other issues for broadcasters too. Programming that had been planned may now need to be shelved if it is perceived as being inappropriate (eg content relating to warfare). If the content is deemed unusable, it will need to be written off as programming costs (and replaced with more appropriate programming, so there is extra cost here),” adds the bank.

“Meanwhile, those broadcasters with a strong reputation for news may well benefit in terms of ratings. ProSiebenSat.1, on its recent results call, noted that it is still in the process of building up its news operation, so is unlikely to benefit from this. Meanwhile, in the UK, it is the BBC that tends to be a beneficiary of a high level of interest in news, rather than ITV,” suggests Berenberg.

The bank says that Europe’s media players in general have nowhere near the risks associated with Russia or Ukraine. They cite the automotive sector in particular as being particularly at risk.

Berenberg reports that it sees the Games sector as being exposed, saying: “Activision, Electronic Arts (EA) and Ubisoft have very little exposure to Russia and Belarus (<2 percent net bookings) although this has only been confirmed for Ubisoft. We also note that Ubisoft has two Ukrainian studios – Kyiv and Odesa – so there is likely to be some disruption on the development side. The most exposed is CD Projekt, for which 5 percent of FY21E group revenues are generated from Russia and Belarus.”

The report talks specifically about EA saying that the company has not confirmed its [financial] exposure to Russia and Ukraine yet, but the bank does not expect it to be a material proportion of net bookings.

“As with peers, EA has halted the sales of content, games and virtual currency in Russia and Belarus while the conflict continues. It has also removed Russian teams from its FIFA and NHL games. We do not think any of these actions will have a material impact on the P&L,” states Berenberg.

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