Long Writers’ Strike Will Hit Profits, Analyst Says

If the TV writers’ strike goes past Christmas, it could cost media conglomerates with broadcast networks at least $300 million, cutting into earnings, according to a report a Wall Street analyst released Monday.

“The Street has to be prepared for the strike potentially going on into 2008 -- past Christmas -- and if the strike goes on into January and February it’s certainly going to start impacting the profitability on the TV-network side,” Alan Gould, an analyst for Natixis Bleichroeder, said in an interview Monday.

Earlier in the day, Gould issued a report on the economic impact of the strike, saying he may be forced to cut his earnings projections for several media giants if the strike is prolonged, going past the holidays.

 “Assuming the strike costs ABC, CBS and Fox each $100 million of revenue and income off of their $5 billion -- $6 billion of TV network and station businesses, the impact would be $0.09 per share off of our 2008 CBS estimate of $1.95; $0.03 per share off of our Disney fiscal 2008 EPS [earnings per share] estimate of $2.30 and $0.02 per share off of our News Corp. fiscal 2008 EPS estimate of $1.20,” Gould wrote in his report.

The document was released on the heels after the firm hosting a conference call last Friday with two officials from the Writers Guild of America. The union has been on strike against TV and film studios since Nov. 5, with negotiations slated to resume tomorrow, Tuesday. The scribes and studios have deadlocked over the issue of compensation for content used on new-media platforms.

“Both sides tell me they want the strike to end, but I just don’t see it happening,” Gould said.

The strike, which has entered its fifth week, will impact CBS the most, according to Gould.

“TV is far and away the largest portion of CBS’s business, and CBS is the smallest of the major studios,” Gould wrote. “On a relative earnings basis it has a much lesser impact on Disney and News Corp.”

Time Warner owns the CW Network, which is small but is a large producer of TV content, but Gould said the near-term impact of the strike on that media conglomerate “should be relatively small.”

Viacom has much less scripted programming, so the strike “should not have a meaningful impact on it,” Gould wrote. 

All in all, Gould said that cable, which has less scripted programming than the broadcast networks, should feel much less of an impact from the strike. 

Gould said that ratings for the Big Four broadcast networks were down 8% in the November sweeps.

Long term, the strike will likely accelerate the flight of TV viewers from traditional media to new media, according to Gould.

“I think the beneficiary is going to be the Internet,” he said.

And a prolonged strike, by shutting down production of TV shows, would put a kibosh on the upfront next year, according to Gould.

“People have been talking about the death of the upfront for how many years?” he asked. “This may be the straw that breaks the camel’s back. People were saying it [the upfront] was less of an economic necessity, but now the strike may kill it.”

In his report, Gould rates CBS, Time Warner and Walt Disney a “hold.” He has a “buy” recommendation on News Corp. and Viacom.