Pivotal's Brian Wieser Previews Q1 Earnings For Big Media Brands

Ahead of first-quarter results from video-centric media conglomerates, Pivotal Research said the key issues will relate to over-the-top content consumption and distribution, the consequences of distributor consolidation, compressing margins due to high programming costs and tepid ad spend from large marketers.

Analyst Brian Wieser said investors may look at opportunities for national TV owners to recapture digital budgets, given concerns around brand safety in digital environments. The analyst also noted excitement around the potential of audience targeting and extensions to Nielsen's measurement system to drive advertising growth. However, the analyst thinks this is unlikely, as the pie for TV spending is relatively fixed.

"M&A and consolidation opportunities will exist in the background given recent comments by Verizon Communications Inc. VZ CEO, but then so too will concerns about macro-economic conditions, tax policy and other government policies which may impact the current business environment," the analyst said.

Wieser also outlined the changes to his models.

Value In Twenty-First Century Fox

• Twenty-First Century Fox Inc FOXA: The impact of the ending of Bill O'Reilly's show will be more than offset by the faster growth of news-related programming viewing.
• Domestic ad revenues to fare better than forecast.
• Cable ad revenues to remain stable as opposed to its previous forecast of a decline due to difficult comparables during the March quarter.

"Despite the issues raised around corporate governance and managerial oversight of Fox News by the past year's incidents, we continue to see value in Fox, as a company which is successfully pursuing growth and which should benefit from the consolidation of Sky, assuming that transaction goes through," the firm said.

Discovery Looks Incrementally Positive

Wieser said Discovery Communications Inc. DISCA looks incrementally positive compared to his most recent forecast, given the significant ratings gains at the network in the first quarter versus a year ago.

The analyst foresees relatively fast growth for the company compared to the flat domestic ad revenues it guided towards at the time of its last earnings call. The growth is premised on a flat to slightly down market for national TV advertising and the extra inventory the company has to offer.

Risks

The analyst sees the hit-driven nature of video production, threats to TV advertising and Pay TV slowdown as key risks to video-centric media owners.

Ratings/Price Targets

• Twenty-First Century Fox: Buy/Price Target Raised to $37 from $36.
• CBS Corporation CBS: Hold/$67.
• Discovery Communications: Hold/ Price Target Raised to $28 from $27.
• Time Warner Inc TWX: Ratings Downgraded to Hold from Buy/$107.50.
• Viacom, Inc. VIAB: Hold/$40.
• Walt Disney Co DIS: Sell/$85.

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