Business, Politics, THR Online, USA

Media Stocks Suffer in Trump Era


In the first half of the year, the sector seemingly at war with the president is underperforming the broader markets.

Stocks have thus far thrived in the era of President Trump, but one sector is lagging: entertainment media.

In the first half of 2017, the S&P 500 is up 8.2 percent, but five of the seven media conglomerates are underperforming that benchmark. In fact, of the 50 media companies tracked by The Hollywood Reporter, 30 have either fallen or have advanced less than the broader markets.

“Negative sentiment due to the political environment has weighed on the sector, and investors don’t know when the next catalyst will come,” says Tuna Amobi of CFRA Research. “The sectors doing well under Trump are where government money is being spent, such as in infrastructure and health care.”

Even though he acknowledges that the election of Trump, who is oftentimes critical of news outlets and of Hollywood liberalism, “has not been a catalyst for media stocks,” Amobi says it is “counter-intuitive,” because the president is rolling back regulations and is friendly toward mergers and acquisitions, thus there’s potential for the sector.

Some of the carnage in the first half of the year can be attributed to television, with several cable and broadcast networks struggling with poorly rated shows amid competition from Netflix and Amazon.com and soon from Facebook and others. Hence, some of the more pure-play TV companies are suffering, like Discovery Communications (down 6 percent) and AMC Entertainment (up just 2 percent).

As for the conglomerates, here’s how they have fared: 21st Century Fox (up 2 percent); CBS (up 0.3 percent); Viacom (down 3 percent); Walt Disney (up 2 percent); Time Warner (up 5 percent); Comcast (up 13 percent); Sony (up 36 percent).

Theater companies, though, are performing much worse, with AMC Entertainment, the biggest movie exhibitor in the world, down a whopping 32 percent and Imax, home of the giant screens and comfortable chairs, down 30 percent.

After perusing lackluster results from Transformers: The Last Knight and The Mummy with Tom Cruise amid expectations that Disney-Pixar’s Cars 3 won’t match last year’s Finding Dory, FBR Capital Markets analyst Barton Crockett is now predicting that the domestic box office this year will slip almost 1 percent from last year, to $11.31 billion.

Amobi adds that movie exhibitors are struggling with early release windows while Netflix original films “have created a cloud. They’re potential disruptors.” He also says investors are waiting to gauge the effectiveness of luxury seating and other “premium amenities” popping up in theaters across the country.

As for TV, Wall Street has been spooked by bigger-than-expected cable and satellite subscriber declines in the first quarter along with soft advertising trends.

“The election of Trump coincided with cord-cutting and other challenges,” says Amobi. Plus, the TV industry is missing nearly $6 billion in advertising related to the 2016 presidential election, but Amobi says midterm election spending should begin by year’s end.

“Investor sentiment across media remains negative,” Jefferies analyst John Janedis wrote in a recent report. “While value investors are revisiting the sector, our sense is that they are waiting for a better entry point.”

Janedis said not only that first-quarter TV advertising finished below expectations, but also that there could be risk to the entire year. He argued that CBS and Scripps Networks Interactive are “the most sensitive” stocks to that issue, while Disney and Time Warner are the least.

MoffettNathanson analyst Michael Nathanson says investors are looking to buy into the sector on the cheap, though it may be too soon.

“Investors are asking us if they should use the recent sell-off in media to make a contrarian bet on the sector,” he explained. “We would say that it makes sense to be selective — and cautious.”

Nathanson, in fact, has a rare “sell” rating on AMC Networks, Discovery and Scripps, worried that the popularity of on-demand viewing and skinnier cable bundles will harm their businesses.

It’s not all doom and gloom, of course, as the tech-media companies have soared in the first half of the year, in particular the makers of video games. Activision Blizzard, up 61 percent, is the biggest gainer among the 50 stocks THR tracks, while Take-Two Interactive Software is up 49 percent, Electronic Arts is up 34 percent and Words With Friends maker Zynga has soared 42 percent.

“The market is rewarding companies that offer thrilling, on-demand entertainment experiences at a great value. This may explain why Netflix and video-game companies are performing well,” says Ben Weiss, chief investment officer at 8th & Jackson Capital Management. Netflix is up 21 percent through the year’s first half.

Weiss also sees opportunity in entertainment-media in general, should the various players embrace mergers and acquisitions, similar to AT&T agreeing to purchase Time Warner for $85.4 billion.

“Old media needs to get bigger, and it needs to build durable, direct relationships with a global consumer base,” says Weiss.

He says the “most exciting” acquisition would be if CBS were to purchase Lionsgate, which itself purchased Starz last year for $4.4 billion.

“The combined company would be a highly desirable target for any of the consumer technology and telecom giants,” he says of a possible CBS-Lionsgate hookup.

As for Comcast, one of the two conglomerates bucking the trend and outperforming the S&P 500, it is buoyed by high-speed internet customers, Universal Studios theme parks and a ratings surge at MSNBC due to what some are calling “the Trump effect” (an effect magnified this week by a Trump tweet critical of the hosts of MSNBC’s Morning Joe show).

Craig Moffett of MoffettNathanson, though, recently downgraded Comcast to “neutral” because “after a years-long bull run, cable stocks are now more or less fairly valued.”

And Sony, the other conglomerate outperforming the S&P 500, is benefitting from its PlayStation platform while its Sony Pictures is recovering from a dismal 2016 when Ghostbusters disappointed and the studio took a massive $962 million impairment charge, in part due to — believe it or not — its acquisition of Columbia Pictures back in 1989. The impairment also was the result of weakened trends in home entertainment, where streaming media hasn’t yet been as lucrative as DVD and Blu-ray for the incumbents in the industry.

Among the worst performers in the year’s first half were radio stocks, with Cumulus Media, Entercom Communications and Pandora Media down 56 percent, 32 percent and 32 percent, respectively. IHeartMedia, though, was an outlier, up 49 percent as investors grew more confident that their stock won’t be wiped out by a bankruptcy.

Also losing ground so far this year are Time Inc. (off 19 percent), TiVo (down 9 percent), Nielsen Holdings (off 6 percent) and comScore (down 17 percent). National Cinemedia, the company best known for powering the on-screen ads that run before movies, is off 47 percent.

July 1, 5:50 a.m. Updated with corrected final CBS percentage change for the year to-date.



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