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May 14, 2007
Media Madness for May 14, 2007
Lots of Madness in Mid-May following the completion of quarterly earnings season:
• The Wall Street Journal speculates that a merger between the NBC Universal division of General Electric (GE) and Yahoo (YHOO) could be structured to help all concerned parties. GE would obtain a premium valuation for NBC and gain strategic benefits in selling advertising. YHOO would gain scale and content and get a premium on its stock price allowing the under siege management team to save face. The Journal also speculated that Comcast (CMCSA/CMCSK) could be interested in buying NBC Universal. I see both of these possibilities as highly unlikely. Comcast shares look a little lower this morning, possibly on this rumor. Comcast acted very poorly following its aborted attempt to takeover Disney (DIS) a few years ago because investors thought is signaled lack of confidence in the cable business. A similar reaction would occur in a major way today. Comcast repeatedly indicate it is not interested in a DIS type deal. I think we should believe them.
• The Journal is also reporting that CBS (CBS) is scrapping its internet strategy that was designed to drive traffic to CBS.com to watch TV shows. CBS will now make its content available widely over the web while selling the ads that will appear in the shows and clips. This is not new news to media analysts who have generally applauded CBS new internet strategy. I think it is a good move as well. Content has great value and making it as widely available as possible is the best way to monetize it. Two risks seem obvious. First, you could devalue the content by making it too easily available at what will be hugely discounted advertising prices to the TV network. Second, CBS will probably encounter resistance to its plan from major internet sites that won't like CBS keeping the overwhelming share of the ad revenue. I think these are risks worth taking. However, I still CBS shares are going to have problems due to severely deteriorating ratings for its primetime lineup, especially key shows on Thursday nights....
• The upfront selling season for TV starts this week. Last year's upfront was weak but scatter market pricing for TV ads have been at a large premium to the deals agreed to a year ago. This set's the stage for a better upfront this year as advertisers may want to lock down more inventory rather than take the spot market risk. Digital exposure will play a big part in this year's selling season as will the controversy over how to account for TV viewership on increasingly popular DVRs. I don’t think the upfront will move stocks at all but ABC, owned by DIS, and Fox, owned by News Corp are best positioned.
• Spiderman 3 brought in $60 million over the weekend, down 60% from its record breaking opening weekend. The drop was within expectations but still on the high side. Pirates 2 which held the opening weekend record fell 54% in its second weekend after generating much higher weekday grosses during its summer release. Spiderman 3 has pulled in $246 million domestically and $622 million globally and looks headed comfortably over $300 million in the US. That is a good number but not as high as the first two films and below some expectations. Shrek 3 opens this coming weekend which should provided significant competition. More on expectations for Shrek later this week. Spiderman drove the weekend box office for the top 10 films up 17% vs. a year ago leaving my bullish thesis on summer box office box office intact. I don’t see any investment implications from the latest weekend end numbers. I remain long Regal Entertainment (RGC) looking for one more move up before taking profits.
Posted by Steve Birenberg at May 14, 2007 01:39 PM in
