Comcast (CMCSA) is scheduled to announce quarterly results on October 31, while Warner Bros. Discovery (WBD) and Paramount (PARA) are expected to report earnings on November 7 and 8, respectively. What to watch for:
POSITIVE VIEW, HIGH VALUATIONS: Earlier this month, Scotiabank raised the firm’s price target on Comcast to $47.75 from $47.25 and kept a Sector Perform rating on the shares. The firm continues to have a positive view on U.S. telecoms, saying the industry remains supported by healthy subscriber loading dynamics and positive pricing trends. The industry is also benefiting from lower interest rate expectations with continued positive money flow into the sector, Scotiabank told investors in a research note. The firm believes the setup in wireless is “especially bullish” with low industry churn, improving average revenue per user dynamics, low handset subsidization combined with declining capex spend. However, valuations have moved up since earlier this year, it added.
MEDIA TRENDS: In its third quarter preview, Barrington noted that Warner media announced in September that it aimed to have at least six million net subscriber additions to max. Much of that would come from international markets as a result of the Paris Olympics. The company has had European rights to the Olympics for the past four games, and the Paris games were the first of having a good overlap in terms of time zone of the games with the geographic coverage of its European footprint. This greater ability to deliver live events at a convenient time for consumers in those markets likely contributed to some of the subscriber growth the company now expects to have occurred in the quarter, the firm argued.
The fourth quarter usually drives some seasonality for streaming services in the U.S. as well, Barrington notes. The start of the NFL season, while late in Q3, has often had the most significant impact on Q4 subscriber activity for various streaming. General entertainment programming can also be a driver of course, and the return of the traditional fall season, along with sports, can support Paramount+ subscriber trends, the firm adds. Barrington tells investors that while streaming is not quite half of overall consumer viewing, according to Nielsen, it remains a drag on overall profitability. However, the firm expects this will be moving to a net contributor to profits in 2025 for its coverage companies Lionsgate (LGF.A) — which will be separating from Starz soon — as well as Warner Bros. Discovery and Paramount.
In its “State of Media” quarterly preview, TD Cowen said that overall business conditions in TV/OTT/film continue to be quite challenging. The firm tends to think the ability of streaming services to improve profitability by raising price while cutting content will have a limited runway. TD Cowen thinks the traditional media companies should abandon the direct to consumer model and instead return to being wholesalers, adding Apple (AAPL) and Amazon (AMZN) as distributors to the existing MVPD/vMVPD ecosystem with substantially identical products. Standalone OTT products require significant consumer acquisition spending, which the firm views as a dead weight loss to the ecosystem.
Additionally, bundling content together allows content producers to socialize content risk, which means they can take more risks with content that may have narrower but deeper audience appeal. Consumers loved streaming when it was $7/month for tons of content with no ads. Now that key sporting events are being put behind DTC paywalls, OTT sticker prices are increasing double digits each year, and ads are increasingly being foisted onto OTT viewers, it’s a very different equation, TD Cowen argues.
The firm expects linear TV advertising to decline -5% year-over-year in Q3 excluding the Olympics, similar to Q2. It continues to believe that TV advertising is in a secular bear market in absolute terms, with pricing now coming under pressure on top of continued challenges from audience erosion. TD Cowen also remains skeptical that M&A is a solution. A potential takeout of Paramount is off the table, at least for now, given their merger with Skydance. In general, the firm continues to view the regulatory environment as very problematic for further consolidation among the major media players. Additionally, it doesn’t view a potential Trump presidency as necessarily being a major improvement in media M&A opportunity given his historical antipathy toward most media operators, having already attempted to block the AT&T (T)-Time Warner combination.
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