Decline in media stocks over doubts about TV industry’s ad-supported business model
Decline was seen in media stocks as more doubts engulfed the TV industry’s ad-supported business model. Walt Disney and Time Warner were among the downgraded prominent media stocks on Thursday by Todd Juenger, an analyst at Bernstein Research.
Juenger downgraded the stocks after concluding that TV advertising is declining without any doubt and risk is increasingly being posed to affiliate fees from pay-TV providers.
“The market is now valuing U.S. ad-supported TV businesses as structurally impaired assets. We believe this is fair and warranted. We have come to believe the affiliate fee revenue stream deserves a higher risk premium than it did before”, he wrote.
Viewers now prefer online streaming options and hate ads on their DVRs. This strongly means that rise is only expected in the decline of cable or satellite TV customers. As a result, there will also be a decline in affiliate fees and advertising rates.
Troubles have been witnessed in media stocks since a flurry of recent industry earnings. Viacom saw 6.3% fall Thursday to end at $40.42. Disney was down 6% to $100.02. Disney decided to lower its cable network’s profit outlook in early August.
Juenger wrote that the value of domestic TV businesses is akin to such comps as satellite TV, publishing and even AOL. Decline in subscriber fees and/or advertising displacement is caused by these comps. Hopeful digital futures might keep some happy, but futures appear less sizable and profitable than the analog past.
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