The sweeping fraud charges against former Adelphia Communications executives and heightened concerns about accounting practices and overall growth continue to take a toll on cable and other media companies-even when the news is good.
In fact, last week it looked as if there was nothing media company executives could say or do to significantly lift their stock prices or investor confidence.
Viacom came the closest July 25, announcing a better-than-expected 2 percent rise in second-quarter revenues to $5.85 billion, and a 4 percent rise in earnings before interest, taxes, depreciation and amortization to $1.42 billion. Its free cash flow rose 22 percent to more than $1 billion (more than half coming from earnings) on healthy single-digit gains in television and radio stations, cable and broadcast networks and entertainment cash flow and revenues. A shift in accounting standards led to a sharp gain in net earnings to $546.5 million, or 31 cents a share.
Reiterating double-digit growth guidance for all of 2002, Viacom CEO Mel Karmazin was pumped as he talked about a 3 percent gain in second-quarter ad revenues and double-digit July scatter ad sales gains in TV and radio; chasing an estimated $250 million revenue growth opportunity in the top three TV markets under new TV group chief Dennis Swanson; and touting a mere 3 percent rise in program costs at the CBS and UPN networks.
And during a telephone conference call with analysts, Mr. Karmazin even claimed to be wearing a T-shirt that declared: “Viacom will not do anything stupid!” Despite all that bullish news, Viacom stock barely budged to $35 a share.
“Isn’t this what a merger is supposed to be about-building value for investors?” Viacom Chairman and CEO Sumner Redstone said on the call. “While others are starting over, we’re ready for the second act … and to deliver on our promises.”
However, analysts said this punishing market isn’t likely to let up any time soon, and other media conglomerates are expected to report less-than-spectacular quarterly results and could face an even worse Wall Street reception.
AOL Time Warner’s first post-merger quarterly net profit of $394 million, or 9 cents a share, on a 10 percent rise in revenues to $10.6 billion was lost in a wash of investor selloff and concern over a Securities and Exchange Commission inquiry.
Never mind that Time Warner Cable basic subscriber growth was a surprising 1.23 percent in the quarter; that cable modems grew 30 percent; that advertising revenue grew 47 percent; and that the cable unit generated $330 million in free cash flow on 12 percent earnings growth and 18 percent revenue growth. Television, filmed entertainment and networks had their own good news, but America Online’s bad news-an overall 27 percent decline in earnings on a 3 percent decline in revenue-won out.
The fact is most analysts expect only Comcast Corp. and Cox Communications to report any other good news in the sector. Merrill Lynch analyst Jessica Reif Cohen said she expects Charter Communications to make major adjustments when it reports quarterly results and full-year forecasts next month. Charter stock drifted to new single-digit lows last week after indicating a likely decline in basic subscriber levels this year and the possible sale of systems serving 600,000 subscribers.
A&T Broadband reported a one-time $16.5 billion charge reflecting the diminishing value of systems it acquired, significantly higher-than-expected basic subscriber loss and lower-than-expected video revenue gains, Ms. Cohen said.
Ms. Cohen said she-like other analysts-reduced some of her company price targets “solely on the stock market’s performance and not on [cable company] fundamentals, which are strong and poised to improve the second half of the year.”
However, other analysts said they are concerned about a potential glut of cable systems that could suddenly be on the market-from the likes of Charter, bankrupt Adelphia, Cablevision Systems and even Time Warner Cable (in a closely held public spinoff that’s being contemplated)-and could only further damage record low valuations.
Industry experts said Cablevision Systems will be the next to step forward with bad news, since it must scramble to close an estimated $1 billion funding gap by Jan. 1 by selling assets, closing money-losing businesses and cutting costs. Without such moves, Cablevision Systems could potentially face bankruptcy, analysts said.
“It didn’t help that the media carried pictures of the founding Rigas family members being hauled away in handcuffs for robbing Adelphia shareholders of an estimated $60 billion in value due to their alleged deception and misuse of funds,” one leading analyst said.
On July 23, the day before the Adelphia indictments, already battered cable stocks fell an average 18 percent. “There’s nothing anyone can say or do to counter such extraordinary events,” one leading analyst said.