TV networks face shaky future in changing media landscape
TV networks face shaky future in changing media landscape
By Matthew Garrahan August 27, 2015 1:37 pm
Sharply falling stock markets have brought company
valuations under renewed scrutiny but, for media groups, the China-induced
panic is merely a sequel to an already painful re-evaluation by investors.
Media shares first went into freefall at the beginning of
August, when companies on both sides of the Atlantic suffered steep declines.
Viacom, Discovery Communications, ITV and Time Warner were among those hit: in
one day of trading, $37bn was wiped from the market value of the biggest media
businesses.
Television continues to be a highly profitable,
cash-generative industry, but viewing habits are changing. New, digital
services such as Netflix, Amazon and Hulu are luring talent — and viewers —
from traditional broadcast and cable TV networks. Now, the hottest new
programmes are as likely to be shown first on digital streaming services as
they are on TV.
Price is another problem. In the US, the high cost of
cable and satellite packages — and a perception that the bundles of channels on
offer do not represent value for money — has led to cancellations, known as
“cord-cutting”. Meanwhile, there are plenty of other forms of entertainment,
such as social media, to suck up time that was once spent watching TV.
But these trends are not new. So what triggered the
sell-off in media shares?
It began when Walt Disney, the world’s largest media
company, revealed that growth had slowed at its hitherto unstoppable ESPN
sports cable network. ESPN holds the largest collection of live sports rights
with long deals in place to broadcast the most sought-after competitions. In
the TV industry, the prevailing argument has always been that live sport is
immune to changes in viewing patterns. After all, nothing keeps a US household
away from their favourite match on TV. With all the drama and tension inherent
in a big NFL or NBA game, it has to be watched live rather than later via a
digital recorder. This means ESPN has been able to command hefty premiums from
advertisers and the highest fees from cable and satellite companies that carry
its channels.
But sport is an expensive business. Competitors such as
NBC Sports and Fox Sports are vying for the same rights as ESPN. This has
driven up the prices the network pays for rights — a cost that is passed on to
the cable and satellite companies that pay to carry ESPN and, ultimately, to
the consumers that subscribe to pay-TV.
Disney’s revision of its growth projections for ESPN sent
alarm bells ringing across the media landscape. “It showed that everyone was
exposed,” says Rich Greenfield, an analyst with BTIG Research.
It also coincided with dreadful audience ratings figures
for some of the most popular cable channels in the US.
In the past 12 months, leading networks such as MTV and
Time Warner’s TNT Network have suffered ratings declines of about 20 per cent
on the previous year, according to Nielsen. Some companies, notably Viacom —
which owns MTV, Nickelodeon and Comedy Central — have been grappling with
falling ratings for more than a year.
But it is clear that lower ratings are the new normal
across the media landscape — a realisation that is, belatedly, being reflected
in the valuations of the companies that produce and distribute TV programming.
Among media executives, the hot new book this year is
Michael Wolff’s Television is the New Television. He argues that TV is holding
its own in the face of competition from digital players. Despite the demise of
TV being long predicted, he says it continues to thrive.
He makes a good point. Cutting-edge companies such as
Vice Media have already jumped into TV production, quietly realising that there
are more advertising dollars to be earned there than on the internet. BuzzFeed
and Vox Media plan to follow suit, with both companies having secured
investment from Comcast, owner of the NBC broadcast network.
Investors are nervous, judging by the performance of
media stocks. Discovery shares are down close to 40 per cent over the past
year, Viacom’s have fallen 50 per cent in the same period, while CBS is down
more than 25 per cent.
Mr Wolff’s thesis may be right. But someone forgot to
tell Wall Street.
Copyright The Financial Times Limited 2015.
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