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December 29, 2008

Monday Media Musings: December 29, 2008

This is the first of new series of column I will write. Each Monday, I will review media news and notes from the prior week which slipped past my other commentary but may be material for the companies and stocks involved. Let's call it "Monday Media Musings."

New York Times Red Sox stake for sale as Ad Revenues Continue Their Collapse

Several media outlets revealed that NYT is looking for a buyer for its 17.5% stake in New England Sports Ventures which owns the Boston Red Sox and the New England Sports Network regional sports channel which broadcasts most the team's games. Many Yankee and Red Sox fans don’t know that the big bad, elitist Times from hated the hated home of the Yankees owns a significant piece of the equally hated-Red Sox. While NYT needs the cash, this is a sale that has greater meaning as it puts things right in the world of sports.

NYT paid $75 million for the stake in 2002. The team is still viewed as near its peak value despite the economy which has pressured values of other sports teams. A valuation at over $1 billion would bring NYT $175 million pretax, quite useful against several hundred million in upcoming debt maturities and regular double digit declines in advertising revenue.

Speaking of ad revenue, NYT reported horrible numbers for November last week. Total ad revenue fell 21% 2with ever reported category having a decline larger than the year-to-date decline. The worst category by far was classified which had a 33% drop as help wanted and real estate has an accelerating collapse. National ads fell 21% with movies, books, auto, and financial services leading the decline. Perhaps most troubling, even internet advertising fell 4%. Display ads remained positive but the collapse in online classifieds dragged down total growth.

Until revenue declines moderate there is little hope for any sustained positive action in NYT shares. December will be no better than November according to management and early 2009 looks equally bleak.

Disney Ends Narnia Partnership

Disney announced it was pulling out of its 50/50 partnership with Walden media to produce what had been seven films based on the Narnia series. The first film in the series released in December 2005 grossed $745 million globally including $291 million in North America. The second film, released last May, pulled in $419 million globally but just $142 million domestically. With production and marketing costs steadily rising and arguments over release dates and creative direction, Disney decided to continue to prune its movie production and exit the partnership.

Despite the lesser gross of the second film, I am a bit surprised by this move....

....Disney needs big multi-movie franchises to drive its tightly integrated content and distribution engine. I suspect that the 50/50 nature of the partnership and increasing confidence in the Pixar led animation team led management to decide to step away from Narnia.

In the short run this move will provide a boost to FY10 results as marketing and production costs will not be incurred. Whether it process a smart move in the long run will be determined by the success of future Narnia movies (Walden will likely find another partner) and Disney's own films. I remain concerned that Disney has hit a rough spot in ad sales and content generation which will lead to below consensus results and the loss of its premium multiple.

Internet Ads Becoming More Obnoxious

The Wall Street Journal reports that internet companies are lowering standards to attract as much advertising as possibility. While internet advertising remains in positive territory, growth rates have fallen to 10% or less in most categories. To combat the decline, internet companies are taking more intrusive ads including ads in categories previously avoided such as liquor. The moves parallel Google's decision to take liquor ad and beer ads and NBC's decision to take liquor ads on its TV network. Look for more and larger ads that roll across your screen or contain video.

Among media companies internet ads are most important for Time Warner due to AOL and News Corporation due to My Space. Newspapers companies are also looking to the internet for growth as print ads continue to disappear. NYT and Gannett have the most at stake.

Favorite Stocks Have Mixed Week

Each Monday I'll look back at news and stock price action on the media and telecom stocks owned in Northlake client and my personal accounts. Last week's holiday shortened trading saw little news and mixed results as the S&P 500 fell 1.7%. CETV held in strongly dropping just 5 cents for the week. The stock has double off its November low with movement being dictated greatly by currency changes. DISCA fell 2.6% last week on no news. DWA dropped 2.3% as Madagascar 2 wound down its domestic theatrical run. International receipts continue to track well with the film halfway through its run abroad and could be a driver to better tan expected 1Q09 results. TWX fell 3% giving back the prior week's gains that were fueled by renewed rumors of an imminent deal to merge AOL with Yahoo. The action in these media stocks I own were similar to the rest of the media stock universe which had a quiet and down week.

Posted by Steve Birenberg at December 29, 2008 02:44 PM in Monday Musings