Monday Media Musings: February 2, 2009

The Super Bowl, the biggest media and advertising event of the year is over. I don’t have any Monday Media Musings about the big game but there is still plenty going of other things going on in the media world.

Televisa and Univision Settle

Televisa (TV) and Univision settled their long standing litigation. TV will receive higher royalty fees under its deal to provide exclusive programming to Univision until 2017. Terms were not disclosed but all the incremental revenue will flow to the bottom line for TV. TV will not be taking an equity stake in Univision which was perceived as a possible negative outcome for TV in any settlement. The settlement is good news for TV shares. TV is a good stock to keep on your radar screen in anticipation of an eventual upturn in advertising.

Paramount Going Solo on 3-D Screens

Viacom’s Paramount studio will be providing financing alternatives to theaters to help with digital and 3-D upgrades. Paramount will distribute several high profile 3-D films in 2009 and has a long-term tie with Dreamworks Animation (DWA), which is at the forefront of the 3-D movement. Clearly, Paramount has extra incentive to get the lagging 3-D upgrade cycle moving. The terms look to be neutral to Paramount from a financial perspective. If 3-D can charge a premium ticket price and proves popular, there is upside for Paramount on the distribution side. Other winners from 3-D include DWA and Disney (DIS) as animated films is where most of the releases will be.

Uncertainty Over Digital TV Transition

The Senate voted unanimously to delay the digital TV transition from February to June. In a surprising move, the House blocked the move as House Republicans used minority veto power on this particular piece of legislation to block it. As many as 6-7 million homes currently receive only analog signals and will be cut off from TV reception without a converter or a subscription to cable or satellite TV. The transition is a small positive to cable and satellite companies as some significant portion of the analog households will likely subscribe. The other alternative is purchase a government subsidized digital converter. A delay is designed to allow more access to converters so it would be a modest negative to cable and satellite companies as fewer households would opt for a subscription. Given the unanimous vote in the Senate I think the delay could be back on the table setting up a small short side trading opportunity in the cable and satellite stocks.

Movie Production and Releases are Falling

Variety reported that there will be about a 5% drop in movie releases in 2009 with most of the decline emanating from the major studios owned by the big entertainment conglomerates. The writers strike and now fear of an actors strike are one factor behind the drop but mostly the big studios are looking to cut costs. Production and marketing costs can easily run from $50 to $150 million per film and many pictures are not profitable. The major studios are choosing to focus on fewer big franchise films, looking for one or two winners per year that can produce operating profits of several hundred million through the initial windows. A slightly less crowded release schedule also may give films a bit more time to find legs. Theater owners could see higher margins if films develop greater legs but the studios stand to benefit the most from cost savings. If a studio could actually consistently produce blockbusters it would be a big help to financial results but the creative side is impossible to predict.

Cinema Advertising Holding Up Well

National Cinemedia (NCMI) rose about 15% Friday after preannouncing 4Q results at the high end of expectations and providing a preliminary 2009 outlook for flat results. Given the virtual collapse in other advertising driven media these are fantastic results. Cinema ads are major growth story in advertising. In the US cinema ads have a low single digit market share but reach upper single digits in Western Europe. Studies show high recall and advertisers can be highly confident of knowing how many people they are reaching. As cinema advertising market share increases, NCMI is poised to be a growth stock when advertising growth resumes. There is always risk of an unusually bad year at the movies but the underlying business is healthy and growing, something that can not be said about many advertising categories. The stock looks a little expensive on the new guidance but is another one to keep on your potential buy list.