Over they years I have expanded my universe from media to telecom as the two industries have converged. Technology advancement has triggered the convergence as broadband wireline and wireless networks have changed the business of content creation and distribution.
Telecom stocks performed better than the S&P 500 in 2008 although breadth was poor. SNL Kagan’s Communication Index fell 36% but was buoyed by AT&T (-31%), Verizon (-23%), Comcast (-7%), and Time Warner Cable (-21%). Indices with exposure well beyond these large cap companies performed less well. Here is a summary of 2008 performance for the major SNL Kagan Communications indices through early Wednesday morning. Download file
Lack of breadth is particularly notable in the poor performance of the wireline and wireless indices and the small cap index.
There were four major themes in telecom in 2008. Each will roll forward to influence 2009 which may all be impacted by new faces and a new direction at an Obama-directed FCC….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-31 10:24:442008-12-31 10:24:44Telecom: 2008 Year In Review
It’s been a rough year for investors. My own performance has been mediocre with most Northlake clients plus or minus a couple of percent relative to the S&P 500. I think I could have done better but I use a fully invested strategy so it was a very tough to make much progress.
Further complicating matters was that it was a terrible year for media stocks. SNL Kagan’s Media and Entertainment Index is down almost 53% this year, far worse than the 41% decline for the S&P 500. Kagan has 13 sub indices for Media and Entertainment and ever single one was down more than the S&P 500. Keeping in mind there is some overlap in these indices since companies are included in more than one index (e.g. TWX is in Diversified entertainment and Cable Networks), here is the ugly numbers: Download file
The damage was worst among small cap media companies. The SNL Kagan Small Cap Media index fell an amazing 86% while the Large Cap index dropped 48%. The complete collapse in radio stocks, most of which now trade for less than $1, led the decline in small caps.
Northlake’s stock picking in media was mixed in 2008. I made one very good decision, a few very bad ones, and a bunch that were not terrible on a relative basis but that I wish I could have back….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-30 10:37:122008-12-30 10:37:12Media: 2008 Year In Review
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….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-29 14:44:222008-12-29 14:44:22Monday Media Musings: December 29, 2008
I believe the reporting of Apple’s withdrawal form MacWorld after 2009 and Jobs lack of appearance this year was misreported. There is little doubt that it had a major negative impact on Apple shares, however. Here is my take on the situation.
The stock reacted very negatively to the MacWorld announcement, immediately falling about $4 in after hours trading on Tuesday and giving up another $3 during the day on Wednesday. Most commentary suggested the drop was due to either Jobs health or the lack of a new product introduction in January as if there were a big one coming surely Jobs would want to make it.
There is little doubt that these issues contributed greatly to the drop but I think a big part of the fall was a delayed reaction to the NPD data, Goldman Sachs downgrade, and other cautious analyst commentary. The stock held up well against those news items so the MacWorld announcement set up an easy sell/short opportunity. An imbalance occurred to the downside as there is enough legitimacy to the demand concerns to scare off bulls and the stock is already owned very widely. There probably aren’t a lot of new buyers out there, especially while concerns around current and 2009 demand for Macs and iPhones linger.
Getting back to MacWorld, I think it is highly unlikely that Jobs health would be the cause for the cancellation. Apple leaked to the New York Times about his health a few months ago – it was OK. Even a company as secretive as Apple is going to be hard pressed to not come clean in the current environment (Re: Madoff) and tell the truth if Jobs is actually too sick to appear. And if he is too sick to appear a month before the event, he is obviously really hurting and it would be hard to cover it up completely. A sickness related cancellation seems much more likely to be a last minute thing.
The new product issue seems more likely to lead Jobs to skip MacWorld….
AT&T was downgraded to neutral form buy by Goldman Sachs today offsetting the good news from Friday when the company increased its annual dividend by 2.5%. Yes, that is a token amount but it is still a message about the strength of the company’s financial position and the resiliency of its cash flow relative to many other blue chip companies that are either cutting or maintaining their dividends.
The Goldman downgrade is based on a sharp cut they are making to their 2009 estimate due to pension expenses and weaker enterprise segment revenues. The estimate is being cut to $2.40 from $2.85. Consensus was $2.84. 26 cents of the cut is due to higher pension expense as a result of an expectation that in the past a 20% drop in pension return was recognized by AT&T. Most of the rest cut comes from Enterprise where Goldman now expects a 7% drop in revenues from prior expectations for flat. There is also a slight hit form a small cut in wireless revenue due to the economy and a few pennies for more dilution form growth initiatives.
This downgrade will hit AT&T shares today and also cut sharply against the momentum the stock has had since coming off its October and November lows. Gary Morrow has indicated that the stock should strong support at $27. I bought the stock week before last on a pullback toward that level. This downgrade will hurt my investment thesis for the short-term but I intend to hold given the high current yield (5.7%), unstressed balance sheet, and still strong free cash flow (the pension hit will be mostly non-cash).
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-15 09:02:132008-12-15 09:02:13Goldman Downgrades AT&T to Neutral
As noted in Part One, the main message coming out of the conference that was that advertising continues to deteriorate and visibility into 2009 is minimal. This means that for most media companies the risk remains to the downside for earning estimates.
Part One contained a reasonable positive review of Time Warner and Discovery Communications, both of which I am long. Neither presentation was earth shattering and both companies indicated business has slowed further recently but the bigger picture driving the shares to the top of my media buy list was on display. I also reviewed Gannett which remains a very troubled situation due to the collapse of newspaper industry on a secular basis while cyclical headwinds are blowing at full force.
Today I’ll recap presentations by Liberty Global and Scripps Interactive along with the analyst meeting for Dreamworks Animation which took place Thursday in NY, conveniently for everyone in town for the UBS Conference….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-15 08:59:552008-12-15 08:59:55UBS Media Conference Part Two
I spent Wednesday in NY while sitting at my desk in Chicago. In a sing of the times, I skipped the UBS Media Conference in a cost saving measure. I’ve gone many years in a row to this well run event. Fortunately, modern technology means I can still “Attend” although the upside in these soirees comes from one-one meeting with companies, chatting in the hallways with companies and other money managers, and building the connections that can only be done face-to-face.
I listened to presentations by Time Warner, Discovery Communications, Gannett, Liberty Global, and Scripps Interactive. Before providing a brief recap of each presentation, I want to add some color to the advertising forecasts that came out of the meeting.
Advertising represents 20% to 70% of revenue for most major media companies. Even for those less exposed, the strength and tone of advertising market materially impacts stock prices by controlling sentiment toward the group.
At the conference, major advertising forecasters including Zenith Optimedia, Magna, and CBS all dramatically lowered their 2009 forecasts. However, the forecasts were not any worse than the already bleak outlooks form Wall Street analysts. Consensus has formed around a 5-8% drop in US advertising in 2009. This slightly overstates the weakness as 2009 will not have the Olympics of a Presidential election.
Local media is expected to continue to underperform with newspapers, radio, and local TV stations each dropping 10% plus. National advertising will hold a up better but still be down mid-single digits. The worst national category is going to magazines with broadcast TV finally succumbing. Broadcast TV which had held up well until recently now is encountering weak pricing and slack demand. It could be down 8% in 2009. Cable TV networks and the internet will be areas of relative strength. Cable TV should be flattish as it continues to benefit form ratings gains and relatively cheap pricing. Internet faces problems in display ads but search remains a growth area and overall spending remains in positive territory.
US ads spending is going to be worse than Western Europe and Asia but emerging markets should see growth. As a result global growth will likely be down 4-5%.
This background colors the commentary from management at the conference as well as my opinion of what stocks are best to own. My media portfolio presently consists of Central European Media Enterprises, Discovery Communications, Dreamworks Animation, and Time Warner….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-15 08:56:242008-12-15 08:56:24UBS Media Conference Part One
The Dark Knight debuted strongly on DVD selling 3 million units on its first day. This should be good news for Time Warner although that is mostly because it was not a disappointment. The very top DVD titles continue to sell reasonably well. It is the group just beyond the top ten and the catalog that are suffering with non-top 10 new releases seeing as much as a 20% decline and the overall market down in the mid to upper single digits. Not good but individual companies with the very top sellers will probably not disappoint in 4Q.
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Also encouraging for TWX and Holly wood is that 25-30% of The Dark Knight sales may have been in blu-ray. Blu-ray gets a price premium that has huge marginal profitability. Maybe those $128-$199 blu-ray players sold on Black Friday are finally making the difference for the thus far disappointing uptake of the technology.
Or maybe not, at its analyst day on Thursday, Dreamworks Animation indicated that blu-ray was an immaterial number for Kung Fu Panda which will be a top 5 DVD title in 2008 and was just released at retail in early November.
Speaking of DWA, I'll have a longer summary on Monday but the analyst meeting went pretty well. The stock sold off a bit early in the meeting possibly related to a statement about 10 million Panda DVDs worldwide in for 4Q08. I think that is slightly light. As the meeting went on the company did a nice job of explaining its higher and more consistent earnings power and also offered an outlook that could lead to up EPS in 2009 vs. the current consensus for an 8% drop. The stock is out of short-term catalysts but the long-term story looks better than I expected. I am pondering the position I put on in early November which is at a modest loss.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-11 15:44:082008-12-11 15:44:08The Dark Knight Can Sell DVDs
Some fun news from news the world of media:
According to the most recent issue of Sports Illustrated, demand for Super Bowl advertising is not showing any weakness. NBC has sold 59 of the 67 30 second spots for an average of $3 million each about the same pace as FOX for last season’s game. Most of the spots were sold before September but cancellations have been non-existent. Several advertisers are quoted about the unique value of advertising on the Super Bowl. SI offers the following math:
Last year’s game had 97.4 million viewers. At $2.7 million per spot, last year’s price, the cost to reach one thousand viewers is $27.70. Assuming unchanged ratngs, at this year’s $3 million per spot, the CPM is $30.80. SI says that on a typical Sunday Night Game, NBC gets 11.7 million viewers and charges $435,000 for a 30 second ad, a CPM of $37.16.
So buying the Super is more effective reach even before you consider the fact that people actually watch Super commercials.
Now, if only my Bills could ever win a Super Bowl. Heck, I’ll just take another visit to the playoffs!
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-10 14:46:532008-12-10 14:46:53No Recession for Super Bowl Ads
Big news in the world of media comes from NBC where Jay Leno will be on NBC 46 to 48 weeks per year every weeknight at 10 PM ET. Jay is giving up The Tonight Show to Conan O’Brien in June. The re are a lot of moving parts but this move is being driven at least in part by NBC’s very poor ratings performance and inability to develop any new hit programs for several years. In other words, NBC can take the risk.
Also, contributing to the decision is the likelihood that Leno would have gone to NBC or FOX and severely undercut profits on The Tonight Show. In addition, NBC spends $15-25 million per week during the TV season to produce scripted dramas. The cost for the new Leno sow will certainly be less than $5 million per week. Some of the savings will be given back when Jay is live and NBC would have been in reruns. Leno also is likely to earn a lower CPM due to lower ratings than might have been achieved with scripted dramas. Zome savings amy also be reinvested to try to revive the sorry state of NBC’s ratings in 8 to 10PM period.
Ratings is probably the biggest risk for NBC. According to the Wall Street Journal, Leno averages 4.8 million viewers on The Tonight Show. While the #11 show on TV this season has averaged 15 million viewers at 10 PM. Clearly, more viewers exist at 10 PM than 11:30 PM but will viewers want to watch the same show every night? If Leno’s ratings tank, the loss will be more than just revenue at 10PM. 10 PM shows provide important lead-ins to local news which is where TV stations make most of their profits. NBC owns TV stations in all the largest markets so it is putting itself at risk. It is also risking ratings and revenue for its affiliates who are even more reliant on local news for profits and are already unhappy with NBC due its multiyear run of poor rating performance.
Investors have little to worry about here as NBC is owned by GE. This shift, which is monumental in the world of network TV, is immaterial to GE.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-12-09 14:13:252008-12-09 14:13:25Leno to Primetime: Desperate NBC or Desperation for Network TV?
