Shares of U.S. Media Companies Set for Worst Month Since 2015
|| Wall Street Journal
Traditional players struggle to adapt to shift toward streaming services
“By Michael Wursthorn / WSJ
Shares of cable providers and entertainment companies in the U.S. are suffering their worst stretch in nearly two years, as traditional players struggle to adapt to a shift toward streaming services.
Americans are ditching television subscriptions in favor of viewing movies and TV shows through online services. The move disrupts a delicate ecosystem of media companies sustaining themselves on subscription fees from pay-TV providers, and echoes Amazon.com Inc.’s upending of the brick-and-mortar retail landscape.
This development, along with disruptions related to major summer storms, has been pushing down stocks of major cable and broadcast companies.
In a sign of the diverging fortunes, Roku Inc., an early player in streaming television, priced its initial public offering late Wednesday. The IPO price valued the company at about $1.3 billion, according to a person familiar with the deal.
A group of 13 media companies in the S&P 500 have fallen 3.5% so far in September, on track for its steepest monthly decline since December 2015, while the S&P 500 has gained 1.4%.
Media shares got a bit of a reprieve Wednesday, rising 1% in their biggest gain since late July as the group joined an upswing in the broader market. Doug Mitchelson, a media analyst with UBS Group AG, attributed the gains to the Republican tax overhaul, which was unveiled Wednesday and proposed sharply reduced tax rates on businesses and many individuals.
“One of the top reasons for cord-cutting is affordability,” said Mr. Mitchelson. “A healthier consumer is a better spender for media companies.”
A selloff in the sector gathered pace on Sept. 7, when two industry giants gave updates that disappointed investors. Comcast Corp. said it expects to lose as many as 150,000 video subscribers in the third quarter.
“There’s a general level of concern around the major media companies having to do with cord-cutting and audience trends,” said Bryan Kraft, a media analyst with Deutsche Bank. “Those concerns aren’t new, but when there’s data to support they’re getting worse, you tend to see the stocks react accordingly.”
Even as the media sector over all holds on to gains for the year, up 3.9%, analysts say shares could slide further as companies cope with greater competition from rivals who are stepping up spending on content creation, such as Netflix Inc. and Apple Inc., as well as a challenging ratings environment.
National Football League games, usually considered a reliable draw for TV viewers and ad dollars, have been another headache for media companies. Ratings for this season’s NFL games have been mostly flat or down, compared with the year-earlier period, said analysts, who added that disruptions wrought by Hurricanes Harvey and Irma could be partly to blame.
NFL ratings could also be affected by players’ national anthem protests after President Donald Trump blasted players who participated. DirecTV is letting at least some customers cancel subscriptions to its Sunday ticket package of NFL games and obtain refunds if they cite the protests as the reason.
“These extraordinary hurricanes have had a pretty severe impact on viewership, but it’s difficult to quantify” the impact from those storms alone, said Mr. Mitchelson. “Investors are nervous NFL ratings could end up down for the season.”
Besides that, new online “skinny bundles”—slimmed-down packages of channels from the likes of Hulu and YouTube TV—have left out many cable channels that are part of the traditional bundle. That will put pressure on some channel owners as more consumers sign up for those services, said Mr. Kraft, the media analyst at Deutsche Bank.
“Those services are seeing a lot of subscriber growth,” Mr. Kraft said, although he added the exact size of that population is hard to peg since some companies don’t release specific numbers.
Still, analysts pointed to Charter Communications Inc. as a bright spot among the media landscape. The company last year bought Time Warner Cable Inc. and Bright House Networks, making it one of the largest cable operators in the U.S.