NTL-Telewest Merger Receives Regulatory Approval

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NTL Incorporated (NTLI) shares are rose sharply on Friday after the U.K. Office of Fair Trading cleared NTL’s merger with Telewest Global (TLWT). Apparently, there are no restrictions on the merged company beyond the regulations already in place governing telecom and media policy in the U.K. The Office rejected all the arguments that the merger of the U.K.’s only two cable companies was anticompetitive.
This move clears the way for a first quarter 2006 closing for the merger. It also will lift speculation about private equity buying the merged company, as newspaper articles had mentioned that clearance from U.K. regulators was one of the things private equity groups were waiting on.
Separately, there is still no news on the status of the Virgin Mobile deal. NTLI will probably have to sweeten its offer to minority shareholders to get the deal done. I expect them to do that, but it is possible that Richard Branson could sell the rights to Virgin TV, while Virgin Mobile does not become part of the new NTLI. It is also possible that nothing will happen, which would be a disappointment to the market.

Chronicles of Narnia Performing Very Well for Disney

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With the kids out of school and lots of folks on vacation, everyday is a Saturday for the box office, and Disney (DIS) looks like a big winner as The Chronicles of Narnia: The Lion, The Witch, and The Wardrobe is established at the top of the charts bringing in around $9 million a day. The film looks set to soar well over $200 million in domestic box office by the end of the New Year’s weekend and I think it has a shot at matching the box office for the latest film in Warner Brothers Harry Potter series. The Narnia franchise appears to be established and looks set to contribute for years as the current and upcoming movies cycle through the DIS operating divisions.
DIS is setting up for a couple of real strong quarters on the financial side and I think the market has got to notice soon. DIS is one of those large cap stocks trading at a moderate P-E that the market has ignored. Consensus for 2006 is $1.41, placing the P-E at 17, quite reasonable in my opinion, given momentum at ESPN, the movie studio, the theme parks and ABC and the possible sale of the radio business. Negotiations with Pixar Animation (PIXR) have not resulted in any announcement yet. The outcome could cut both ways for DIS and a negative result is one of the only near-term risks I see in the DIS story.

Czeching in on Central European Media Enterprises

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received an email just before Christmas with an update on TV advertising in the Czech Republic. According to TNS A-Connect, during November advertising was up 17% on a year-over-year basis. I view the Czech Republic as one of the more mature TV advertising markets in Central and Eastern Europe, so this is a good sign that the seasonally strong fourth quarter looks good throughout the region…..

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Thinking About The Movie Business

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I wrote the following for StreetInsight.com while vacationing last week in chilly Bayfield, WI on the shores of Lake Superior:
I’ve been working “lightly” this week, spending time with my family at our place in Northern Wisconsin on the shores of Lake Superior. We have a blanket of snow about a foot deep and since there are only a few hundred people up here this time of year the environment is best described as pristine. Even better, we don’t have to go anywhere unless we want to, so commuting in the snow is not an issue.
The closest movie theatre is 25 miles away in Ashland, WI. It is an old theatre with a half dozen screens. Tickets are just $6 and popcorn and candy will only cost you $1 each. Our teenagers will actually go to the movies with us while we are up here since they don’t have to worry about bumping into their friends at the mall, so we decided to take in the two big blockbusters of the holiday season: King Kong and The Chronicles of Narnia: The Lion, The Witch, and The Wardrobe. Both films were very well reviewed and in our family both actually exceeded expectations. I think it was the simple stories with special effects that didn’t come across as technology. Each film reminded us of something that would have been made in Hollywood decades ago….

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Continuing the Discussion of Cable Stocks

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In response to my latest post on a la carte subscriptions in the cable industry, Rob Martorana, a colleague at StreetInsight.com, emailed me the following comment:
On a completely different note, isn’t “on-demand” programming the ultimate form of a-la-carte pricing? And what happens when individual shows are available for $0.99 for one-time viewing? For those of us who don’t record everything on TiVo, I would love to be able to browse through the libraries of some channels. In fact, I think their inventory is worth more on an a-la-carte basis than it is via the current cable TV model. It sure would be convenient to pick and choose among all of the old broadcasts of Saturday Night Live, The Twilight Zone, King of Queens, etc. It would be fun to have all of this at my fingertips without having to buy a bunch of DVDs.
Perhaps this is where we are ultimately heading, since convenience adds value to any content. This would turn current economic model upside down. All of the value would accrue to the creators of content, while the distributor is reduced to a “dumb pipe”. This has already happened with the Internet distribution of content such as Real Money and Street Insight and other subscription services. It will eventually happen to TV and film, too, because this is what consumers want and I believe they will pay for it.
For my thoughts on Rob’s comments, please follow the “Continue reading” link….

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This Weeks News at NTL

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I’ve received several inquiries about the news stories, adjustment of the deal terms, and management changes at NTL Incorporated (NTLI) this week. Here is a quick recap:
• The merger with Telewest (TLWT) was restructured so that technically TLWT is buying NTLI. This has no economic impact on either NTLI or TLWT shareholders as it the change is meant to protect TLWT’s UKTV content asset against a right of first refusal owned by the BBC in the event of a change of control at TLWT. If the BBC is able to exercise the change of control provision it would be a modest negative for the merged company….

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Knight-Ridder: Receiving Bids But Sale Process Slow

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Reuters posted an update on the Knight Ridder (KRI) bidding process. The deal is described as “slow moving,” with multiple bidders and a timeline that extends to February. Price talk is the mid $60s to low $70s. The article is well informed, in my opinion.
A deal at that level provides some downside support for newspaper stocks by establishing a private market value near 10 times EBITDA. The valuation would be below prior deal levels in the newspaper industry but moderately above current trading levels for most newspaper stocks.

Cable Stocks Still Require Patience

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I still like Comcast (CMCSA/K) and as I pointed out in the previous post the key to getting Time Warner (TWX) to close its valuation gap is an improved multiple for its cable division. This week has seen a few new developments on the cable scene but nothing that seems likely to boost multiples in the immediate future. I am beginning to think that approval of the Adelphia takeover and any conditions placed on the approval are the next significant catalyst for the group….

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AOL-Google Deal Not That Big A Deal For Time Warner

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I am generally unimpressed by the AOL-Google (GOOG) deal as far as Time Warner’s valuation is concerned. I value Time Warner (TWX) on a sum of the parts basis and due to the compression in multiples throughout media over the past year I just don’t see a huge valuation discount for TWX unless all media multiples rise. That said, I believe the shares could be as much as 25% undervalued….

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Weekend Box Office Report: King Kong Just A Big Ape

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King Kong opened strongly with $51 million on the weekend and $66 million since its mid-week release. However, the totals will be considered a disappointment as expectations were higher, ranging from $75 million to $100 million for the 5 days of release. The film is from Universal Pictures, which is part of NBC Universal and 80% owned by General Electric (GE).
All is not lost, however, as there are several good signs that the film will have legs during the next few weeks….

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