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Analysts: Media Earnings to Remain Challenged

NBC Universal's first-quarter earnings last week set the stage for a series of media company results expected to reflect the continuing advertising slowdown.

General Electric's NBC Universal segment saw profit down by 45% in the first quarter to $391 million, though revenues were off just 2% to $3.5 billion.

While cable continues to experience double-digit growth, the company said local broadcast markets are not improving. GE attributed the decline to soft advertising and a falloff in DVD sales, as well as some one-time expenses such as NFL rights and a $55 million writedown of its stake in Ion Media. NBCU said that excluding those items, the profit decline would have been in the region of 15%. GE suggested that the first quarter offers a “fair baseline for the balance of 2009.”

The numbers will give Wall Street analysts some indication of how the first quarter morphs for all. “It's going to be pretty tough,” said Morgan Stanley media analyst Benjamin Swinburne. “It's not getting worse on national TV, but it's not getting any better. Local got worse in the first quarter; if you owned a TV station or radio or outdoor or a newspaper, it's bad.”

The story continues to be defined by how exposed companies are to the advertising market, and to local markets in particular. Time Warner reports its first quarter April 29, Comcast and Viacom report April 30, Disney reports May 5, News Corp. May 6 and CBS May 7.

In a preview of News Corp.'s earnings, Credit Suisse analyst Spencer Wang wrote on April 17 that he was lowering the company's full-year earnings estimates to reflect a worsening local market and weak discretionary spending. He also suggested that first quarter would be tough for Viacom because of ratings declines and difficult comparisons with last year's film slate. Morgan Stanley's Swinburne suggests Disney will have one of the most difficult quarters.

Not everyone has a negative view, however. Miller Tabak & Co.'s media analyst David Joyce says: “We are still challenged in the second quarter, but we are bouncing around a bottom in the advertising market and the incremental negatives have stabilized in local….We are not necessarily seeing an improvement yet, but we're expecting one for second quarter.”