Buying Content Stocks on the Dip

With the television-ad outlook looking bleaker by the minute and ratings at some of the biggest networks in steep decline, some top institutional media investors saw the impending gloom as a buying opportunity.

According to quarterly filings with the Securities and Exchange Commission, four of the top five media funds — Black- Rock Institutional Trust, Janus Capital Management, FMR and State Street Capital — loaded up on programming stocks such as Discovery Communications, Viacom and Time Warner Inc. in the third quarter while keeping their holdings in distribution stocks like Comcast, Time Warner Cable, Cablevision Systems and Charter Communications steady.

Discovery was one of the more popular buys for the funds in Q3, with State Street Corp. adding 8.7 million shares of the programmer’s Class C shares during the period. Other funds also added considerably to the Discovery C stake: Janus Capital added 6.3 million shares; FMR, parent of the Fidelity funds, added 6.3 million; and BlackRock added 6.5 million shares. Part of the reason for the increase was a dividend Discovery issued in July for the C shares, in which Class A and Class B voting-stock holders received one share of Class C non-voting stock for every A and B share owned.

There also was some shifting of Discovery holdings in favor of the less-expensive C shares. FMR, for example, ended the period with 5.1 million Discovery A shares, down from 8.5 million at the beginning of the quarter. It increased Class C holdings to 6.3 million by Sept. 30 from just 12,000 at the beginning of the quarter.

Time Warner Inc., which weathered an unsolicited buyout offer from 21st Century Fox in the period, drew interest from Janus (3.35 million shares added), FMR (3.35 million added) and Lone Pine (1.7 million), while BlackRock added shares of Liberty Media (4.7 million) and Viacom (1.1 million) to its portfolio.

Ad-sales growth has been sluggish across the board — Viacom’s Q3 domestic ad revenue was down 5%, while Discovery’s U.S. ad sales were up just 1% — and isn’t expected to recover soon.

But funds sometimes see pessimism as a time to break out the checkbook.

“Sentiment in the content names is nothing short of awful and the consensus view of programming is that we’re witnessing the beginning of the end,” MoffettNathanson principal and senior analyst Craig Moffett said. “Those periods of fear are often the best times to buy stocks.”

Content consolidation, once seen as inevitable amid distribution combinations like Comcast merging with Time Warner Cable, isn’t so certain anymore. Some of the biggest sells for the funds involved 21st Century Fox: Janus sold 10.2 million shares and Lone Pine sold 16.1 million shares in the period.

On the distribution side, funds that bought or sold stakes already held large positions in the sector. State Street, for example, raised its position in Comcast to 102.6 million shares from 99.5 million shares. FMR reduced its Comcast position to 88 million shares from 92.1 million shares.

In general, cable stocks were down about 3% in the third quarter, but rallied later. That, Moffett added, is pretty remarkable, given the sector was hit hard over fears of more-onerous Title II broadband regulation coming.

“I think that speaks to a view in part that cable stocks have some warts on them,” Moffett said. “But compared to some of the businesses around them they look much healthier and are much more attractively valued.”

Buying Spree

Top institutional funds were looking for bargains and found them primarily in programmer stocks during the third quarter:

Blackrock Institutional Trust
Discovery Communications (C): 6.5 million
Liberty Media (C): 4.7 million
Viacom: 1.1 million

Janus Capital Management
Discovery Communications (C): 6.3 million
Time Warner Inc.: 3.35 million

Discovery Communications (C): 6.28 million
Time Warner Inc. 3.35 million
Time Warner Cable: 1.2 million

State Street Corp.
Discovery Communications: 8.72 million
Liberty Media: 3.3 million
Comcast: 3.14 million
Time Warner Cable: 1.5 million

Lone Pine Capital
Charter Communications: 3.1 million
Time Warner Inc.: 1.7 million
Comcast (A): 1.6 million

Hard Sell
Some top media institutional funds spread their stock sales more evenly in the third quarter, reducing their holdings in select programmers as consolidation speculation cooled:

Blackrock Institutional Trust
CBS: -2.8 million
Discovery Communications (A): -1.1 million
Comcast (A): -400,000

Janus Capital Management
21st Century Fox: -10.2 million
CBS: -1.2 million
Time Warner Inc.: -700,000

CBS: -4.7 million
Comcast (A): -4.1 million
Discovery Communications (A): -3.4 million

State Street
Dish Network: -1.4 million
21st Century Fox: -800,000
Liberty Ventures: -500,000

Lone Pine Capital
Liberty Global (C):-11.3 million
Liberty Global (A): -6.5 million
21st Century Fox: -16.1 million

SOURCE : SEC filings; Multichannel News research