TORONTO – A confirmed bear market and non-stop changes and challenges means investors are pretty nervous about the long-term future of traditional media companies, BMO analyst Tim Casey told attendees at the annual Ontario Association of Broadcasters Connection 2011 conference today in Toronto.
Casey pointed to some macro-economic trends that are dragging everyone and everything down, from the debt crisis in Europe to the plunge in copper prices. He added that while many are hoping for a mid-2012 rebound, most portfolio managers are “under water for 2011” and “can’t see where the rally is coming from.”
When looking at the U.S. media market, growth looks pretty good overall, right now, but included in that bucket are massive growth engines like Google. In Canada, media stock is bundled into the “consumer and discretionary” sector, which is down 17% in 2011, added Casey.
What has done well this year is telecom – which pays higher dividends than media companies so that investors are happy to “clip the coupon”, and park their money there, collecting those quarterly dividends.
What might, perhaps, throw a scare into the radio and TV business, suggested Casey, is the plight of Yellow Pages Group. It is a business that has been and continues to be disintermediated – and is a “poster child of a traditional business that has just been decimated,” he said. The company has seen its share value plummet by 96% in the past year and now trades in the 22-cent range.
Looking towards 2012, Casey noted that subscription television appears to have strength and Bay Street believes specialty channels will grow at a rate of 5% through the year (a good rate of growth for the likes of Corus Entertainment and Astral Media in a tough economic climate but well down from recent years of 10%-growth).
However, there is the fear that tech/media giants (with tens of billions of cash on hand) like Apple, Google and Amazon will make huge moves into the subscription TV business, disrupting it on a global scale.
While Netflix is only perceived now “as the thin edge of the wedge” of new ways to get TV or movie content, the fear is something much bigger, explained Casey. “What if Apple or Amazon goes to Hollywood and says ‘we’ll take everything you’ve got, lose money on content for a few years but roll out Apple TV and make it all exclusive,” he said, noting Apple alone has US$75 billion of cash in the bank.
If that happened “multiples would contract for the entire food chain… that’s the neutron bomb.”
– Greg O’Brien
