Old Media’s Stalwarts Persevered in 2012

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January 18, 2013 by newsgetting

Everyone knows that traditional media companies are dead in the water, overwhelmed by ad skipping, cord cutting and audience flight. We know that because Chicken Littles (like me) have been saying it for years. Eventually we may be right — the sky will fall and the business will collapse — but for the time being, the sky over traditional media is blue and it’s raining green. In the last year, the Standard & Poor’s 500-stock index was up 13.4 percent, which was a significant advance, but legacy media giants like Comcast, News Corporation and Time Warner absolutely surpassed it in terms of share price. Viacom, which has had serious ratings trouble with MTV and Nickelodeon, still managed to be up 16.1 percent on the year. We keep hearing how traditional networks are getting clobbered, but Viacom’s sibling, CBS, was up a whopping 40.2 percent. News Corporation, despite being racked by scandal, was up 43 percent, and fellow global media conglomerates like Disney and Time Warner were up more than 32 percent. And Comcast, which has both the pipes and programming — cable and NBCUniversal — soared 57.6 percent. (Pure cable and satellite providers like Time Warner Cable, Charter, Dish and DirecTV also did very well overall, with an average improvement in stock price of more than 40 percent.) What is making these dinosaurs dance? I called some media analysts and a few things quickly became apparent. To begin with, the companies collectively did not make dumb choices — consider the past acquisitions of AOL and The Wall Street Journal — and they made plenty of smart moves, including long-term deals that locked up content and a steady stream of fees. “The era of the media mogul is over, or at least on a very significant hiatus,” said David Bank, an analyst at RBC Capital Markets, suggesting that companies would no longer get bigger for the sake of scale and nonexistent synergies. He added that most of the big media companies are, in one way or another, cable content companies with lots of leverage in negotiations when it comes to distribution. Probably more important, instead of spending billions on new properties, they paid out dividends and financed stock buybacks. And in the case of News Corporation, the company was split in a way that quarantined newspapers and pleased investors mightily. “The big change in the industry is that they are returning capital to shareholders,” said Jessica Reif Cohen, a media analyst at BofA Merrill Lynch Global Research. “Balance sheets are stronger than they have been and the free cash flow is being returned to the investor. But it’s more than that. Disney, Comcast, News Corporation, they have all executed strategically as well.” And the worries about insurgent threats from tech-oriented players like Netflix, Amazon and Apple turned out to be overstated. Those digital enterprises were supposed to be trouncing media companies; not only is that not happening, but they are writing checks to buy content. New players have opened windows to sell content without cannibalizing the retransmission and affiliate fees that have turned into a gold mine for media companies. (Writing for Deadline Hollywood, David Lieberman pointed out that cranky old media far outperformed a sexy technology group composed of Amazon, Netflix, Apple, Yahoo, Google and Microsoft. Take that, digital overlords!) “As it turns out, the traditional television business is far stickier than people thought, and audience behavior is not changing as rapidly as people thought it might,” said Richard Greenfield, an analyst at BTIG Research. “Yes, television viewing went down in 2012 for the first time, but people are still watching five hours a day. YouTube is growing, but people are watching eight minutes a day. They are where cable was in 1980.” But he added that it would not take YouTube and the Internet 30 years to overtake television. Another thing about those dinosaurs is that they aren’t really old media in the sense of, um, newspapers. When their content is digitized, it is generally monetized, not aggregated. Having learned from what happened in music and print publishing, entertainment companies, built on the still enormous riches of television, have carved their own digital route to consumers. Being big helps, because they can afford to make very large bets, as News Corporation has been recently in securing rights to sports programming all over the globe. There are many ways to unpack this, but let’s begin with the consumer experience. As viewers have begun to consume content at a time and a place of their choosing, legacy media companies have followed wherever they wander. Time Warner lets you bring HBO with your tablet as long as you sign in, and ditto for Disney’s ESPN, along with a host of other brand name entertainments. And while we could tape shows and skip all the commercials, why bother when whole seasons will be waiting on demand in our cable boxes? Between retransmission fees and on-demand viewing, broadcasters are starting to look a lot more like cable channels, less dependent on advertising and enjoying steadier revenue as a result. Not long ago, I watched CBS’s chief executive, Les Moonves, argue that everything that was supposed to be bad for his business — tablets, the growth of ad-supported cable, DVRs — was actually good for his business. And looking at his share price, you have to admit he is sort of right. We will skip past the cliché about content’s royal status, but suffice it to say that strong entertainment brands — the backbone of traditional media companies — are tough to build, tough to rub out and tough to compete against. Yes, cable and broadcast networks have to risk hundreds of millions to find a hit, kill off the losers and eat the costs. And then do it again for the next season. But once it works, it can kick up returns in more ways than one. Let’s use zombies as an example because, well, they’re zombies. I quit on Season 2 of AMC’s “Walking Dead” — I like a little story with my bloody entrails — but then started reading good things on Twitter about Season 3. I went back and watched a few episodes on demand (ka-ching), bought a few episodes on iTunes to bring with me on airplane rides (ka-ching) and then caught up with the midseason finale in real-time (ka-ching). And I will be there when the zombies march anew in February to finish the season. I was like an unstoppable zombie myself, ringing AMC’s cash register every time I turned around. Our house is lousy with tablets, and the wireless almost groans under the load of all the surfing, listening and downloading we do. But in the meantime, we wait for “Modern Family” to come back, the N.F.L. playoffs to swallow our weekends and episodes of “Justified” to start loading into our cable box. To paraphrase the science fiction novelist William Gibson, the future is here, it’s just distributed in a way that means legacy businesses are still thriving. “When last year started, everyone was worried that the Netflixes of the world would destroy the TV model as we know it,” said Michael Nathanson of Nomura Securities. “That didn’t happen. These companies are buying back their stock, which is good for investors, but it also means that they believe in the stability of their cash flow and aren’t as worried about what tomorrow will bring.”

David Carr (The New York Times)

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