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February 23, 2009

Monday Media Musings: February 23, 2009

Here's the morning after Oscar edition of Monday Media Musings.

The Bull Market Can Found at Your Local Theater

The good news at the box office continues. Based on data form BoxOfficeMojo.com, the top 12 films were 33% this weekend. This leaves the 2009 winning streak intact with every weekend up year-over-year. Year-to-date, the box office is up 19% vs. 2008, and 34-39% vs. 2004 thru 2007. We can never determine what exactly drives the box office (just like the stock market) but strength since early fall 2008 will forever support the thesis that the box office is recession resistant.

Theater stocks seem poised for a good 1Q although the last few quarters form Regal Entertainment (RGC) including last week's report are a reminder that translating ticket sales to EPS is not as simple as it seems.

The #1 film this weekend was Tyler Perry's Madea Goes to Jail. With $41 million, the film is easily the best opening for the series which now numbers six films. Madea Goes to Jail is a welcome piece of news for Lionsgate (LGF) following a big miss in its December quarter earnings that dragged the stock down 21% since reporting on February 9th.

Will Sports TV Rights Survive Global Recession?

The first major TV sports right contract awarded during the recession was won by BSkyB (BSY) when it added to its rights for English Premier League football for the next three years. BSY won of the 5 of the 6 game packages for $2.33 billion over 3 years. Setanta, a UK pay TV business, won the 6th package but under the current contract has two packages. Rumors were hot and heavy that ESPN would bid aggressively and win at least one package but the dominant US sports network was shut out. The six packages were broken into 23 games each. On a price per game package, the new deals are virtually identical to the current contracts, a surprising result given the global economic turmoil which has been particularly harsh on the UK. All together, the rights sold for $2.57 billion.

On the one hand, ESPN lost a chance to firmly establish its newly branded ESPN service throughout Europe. However, given the immense cyclical and secular pressures, losing the bidding is probably a positive for ESPN. ESPN's participation is another reminder that Disney CEO Bob Iger was serious when he said that the company would continue to invest in its brands even as it looked to cut costs.

Domestic Sports Networks Seem to be Holding Value

Sticking with sports, Tribune recently announced it would sell its 25% stake in Comcast SportsNet for $75 million, placing a value of $300 million, or about $60 per subscriber on the entire network. This price matches the sales f similarly sized networks in the Pacific Northwest, Pittsburgh, and the Rocky Mountains in December 2006. Regional sports networks have always been valuable as they attract strong local ratings which attract advertisers. More importantly, the networks are able to get very high monthly affiliate fees providing a recession resistant revenue stream that is usually a solid majority of revenues. The value of regional sports networks can be seen by comparing the $60ish per subscriber values to recent cable networks sales such as Sundance Channel ($17 per sub, May 2008), The Weather Channel ($16 per sub, July 2008), and Oxygen ($12 per sub, September 2007). Thanks to SNL Kagan for all the subscriber data included in this comment.

There is no concentration of regional sports large enough to drive an investment story. The SportsNet sale does, however, provide support for one of the major non-DirecTV assets of Liberty Entertainment (LMDIA). The more secure those values the greater the investment case for closing LMDIA's 30% plus valuation gap to DTV. A long LMDIA/short DTV investments seems particularly attractive in this bearish environment.

Posted by Steve Birenberg at February 23, 2009 10:07 AM in Monday Musings