Media Companies Waiting for Financial Picture to Clear Up

Feb 8, 2009  •  Post A Comment

Media companies just aren’t worth what they used to be.
News Corp. and Time Warner last week both took billion-dollar writedowns against quarterly earnings as the economy lowered the value of some of their assets.
The industry titans said the downturn was steeper than anticipated and the watchword going forward was visibility, or lack thereof—as in, the future isn’t clear.
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Particularly murky was the advertising market, an important component of the revenues of the companies reporting lower earnings.
News Corp. Chairman-CEO Rupert Murdoch, whose company took an $8.4 billion asset impairment charge for the quarter ended Dec. 31, said the recession was “deeper than anyone predicted.” For the third straight quarter, News Corp. lowered its 2009 earnings forecast. It now says they’ll be down 30%—assuming things don’t get worse.
Jeff Bewkes, CEO of Time Warner, which took a $24 billion charge against impaired assets in the fourth quarter, called 2009 the year “with the most economic uncertainty and the least visibility in most of our memory.”
Scripps Networks, whose fourth-quarter net loss included a $244 million charge against earnings, declined to provide guidance because of a “lack of visibility,” Joseph NeCastro said, executive VP and chief financial officer of Scripps Networks Interactive.
“That should not be interpreted as a sign that things are getting worse,” he said. “It’s just that we lack confidence in our ability to provide accurate forecasts amid such uncertainty in the ad market.”
Operating results held up best at the cable networks, which have a steady stream of subscriber fees to supplement advertising revenues. The broadcast networks were down and local stations were largely a disaster.
Even so, at Disney, whose profit fell by 32%, CEO Robert Iger said local news operations must be protected from the axe.
Local news brands “are the single most valuable assets of these stations and where we believe additional reductions would have a long-term negative impact,” Mr. Iger said. “Our position as a market leader in local news provides us an opportunity to increase the value of these assets, even as competitors cut back.”
Indeed, despite the downturn, most of the media companies reporting earnings last week said that while they were furiously cutting costs in other places, they would increase spending on programming.
“We’re going to invest more on content development this year than we did last year,” Time Warner’s Mr. Bewkes said. The company’s Turner Broadcasting unit is putting more original programming on its networks than ever before. HBO has the most pilots in development in its history and CNN is expanding its newsgathering resources across all platforms, he said.
“Despite all this investment, we’ll hold total operating expenses essentially flat at the networks this year,” Mr. Bewkes added.
Both Mr. Bewkes and News Corp.’s Mr. Murdoch said they expect their companies to emerge from the recession stronger.
“One of the reasons we’re willing to make investments in our business and in quality content is that we have never bought into that pervasive fear that all is lost when the business hits a recession; that advertising is gone never to return; that consumers won’t pay for entertainment,” Mr. Murdoch said.
“Sure, there’s reason to be concerned, and we’re running our businesses to respond to the concern. But historically, every time we’ve seen a recession, mild or major, we’ve endured this panic and come out better. And every time the economy rebounds, advertising comes back, usually stronger than before.”
“I’m not being flippant,” he added. “I recognize that we may never return to record levels, but we do believe we can recapture a large percentage of the advertising that does return.”
Mr. Iger echoed the idea that the good old days may never return because media companies face numerous issues.
“When the economy rebounds, which it inevitably will, the normal that we see isn’t necessarily going to look like the normal that we were used to,” he said.


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