After getting two earnings reports in the media space in the last day, while it’s not clear there were not any significant worries uncovered, neither of the companies in question is having a good day in the stock market.
Time Warner shares are down roughly 2 percent and shares of Discovery are down roughly 4 percent after both reported earnings. That seems to be a reaction to concerns about programming expenses to come and what that will mean to margins. But it is not a reaction to what investors feared…..that advertising spending is slowing.
Neither company provided any indication that cancellations of advertising committed to in the up-front market is an issue. It is not and that is a good sign for investors as they look for visibility into 2011.
Another issue overhanging the media sector is one we’ve explored many times on The Strategy Session is the fear that consumers will “cut the cord,” by unplugging their cable in favor of accessing their entertainment needs via broadband.
On the company’s conference call today Time Warner CEO Jeff Bewkesspent a good amount of time dismissing such concerns although the company has yet to fully launch some the plans it has to combat cord cutting by offering the company’s channels such as HBO “everywhere”.
As for Discovery, while its advertising revenue growth was very strong, the stock has picked up quite a valuation over the last yearand there is concerns that expenses will creep up, margins will get hit and send profit growth down.
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