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Buying Into Big Media's Recovery

Coming off a week in which positive GDP reports and other indicators gave rise to more economic optimism, it's now big media's turn to weigh in.

Last week, a handful of TV station group owners reported continued third-quarter revenue declines, including Meredith (down 13%), LIN TV (down 18%) and McGraw-Hill (down 24%). But expectations are more positive for this week, when their national counterparts start spinning the numbers for the Street. Viacom and Discovery report on Nov. 3; Time Warner, News Corp. and Comcast Corp. on Nov. 4; Scripps and CBS on Nov. 5; and Disney on Nov. 12.

All eyes will be on Comcast for any updates on its very pregnant proposal to buy NBC Universal; the deal, of course, is dependent on moves from Vivendi, the French entertainment conglomerate. Vivendi is still playing hard to get, saying last week that an IPO of the firm's 20% stake in NBCU is a possibility.

But many executives from both NBCU and Comcast expect the deal to be announced imminently, and then take 12 to 18 months to complete. “I thought it would be announced [last] week, to be honest,” said one NBCU insider, who was not permitted to speak on the record.

The dealing, however, may not be done. One Wall Street player confirmed market rumors that bankers have already descended on the MSO's Philadelphia headquarters to work with management on selling the NBC Network and stations to a third party. Comcast had no immediate comment on that still-hypothetical possibility.

Elsewhere, media-sector upgrades were in vogue, with analysts expecting an improving ad market to lift stocks further. Credit Suisse upgraded Time Warner to outperform on Oct. 30. And Credit Suisse is predicting better news from the company now that the AOL spinoff looks certain and more cutbacks are expected at the publishing unit.

Separately, Viacom won an upgrade to buy from Pali Research managing director Richard Greenfield last week, thanks to strong box-office performance and the anticipation of easier comparisons in cable. Greenfield now thinks that second-half ad revenue will be off by 5%, not the 7%-8% first predicted. UBS media analyst Mike Morris foresees that third-quarter ad revenue at Viacom will be down 4%, an improvement on the prior quarter.

News Corp. may shed light on some of its own M&A activity in cable. The company is a bidder on Cox Communications' 65% stake in Travel Channel. News Corp. wants to rebrand the service under the name National Geographic Traveler. According to reports, News Corp. may sell its youth-oriented Fuel TV brand in the process. The company's broadcast network has been doing great NFL numbers, and that could bode well for its October share of scatter money.

Bernstein Research's Michael Nathanson wrote in a note on Oct. 30, “The financial performance of national networks [in Q4] will likely be more closely tied to changes in ratings growth and, more specifically, ratings share gains and losses.” He sees upside for Fox and CBS; in cable, he says, Scripps and Discovery are gaining share, while Time Warner, News Corp. and Viacom are losing share.