3 Take-Aways From the UBS Media Investor Conference

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NEW YORK - The 39th annual UBS Global Media and Communications Conference ended Wednesday afternoon after a slew of appearances from media moguls, including Time Warner CEO Jeff Bewkes, CBS Corp. CEO Leslie Moonves, Viacom CEO Philippe Dauman, News Corp. president and COO Chase Carey.

Plus, Netflix CEO Reed Hastings showed up for his first "longest running show on Wall Street," as UBS likes to call the three-day investor conference.

Here is a look at some key themes that emerged during the last major media investor event of the year.

1. EXECUTIVES SIGNALED THAT ADVERTISING TRENDS LOOK GOOD GOING INTO THE NEW YEAR
Moonves and Bewkes were among those that spoke of signs of increased ad demand for the first quarter after a slight softening in recent weeks.

Moonves said that scatter market ad prices remain up in the mid-teen percentage range over the upfront, but added that CBS is likely doing better than others. He also said “there could always be more demand,” adding that heading into the year-end holidays demand has improved. First-quarter cancellations remain low and in line with historical trends. Japanese auto ads, which has bounced back this quarter, should continue to flow early next year, he predicted.

Bewkes said that the fourth quarter has been "a bit softer" in terms of ad momentum, partly because some marketers pulled ads into the upfront. "We feel better about the first quarter than the fourth quarter," he said. Basketball will help here, he said. "We're happy to have NBA back."

Meanwhile, Dauman addressed the recent ratings challenges of Viacom's Nickelodeon, which the company has suggested could be due to an issue with Nielsen's ratings. While the current quarter's ad revenue momentum will be dragged down by the Nickelodeon issue and "some softness in general scatter demand" over the last several weeks, things look brighter in the first quarter of 2012, he said.

The ratings issue is "a problem that will be alleviated" due to more new shows on Nickelodeon than the network ever had in the near future, Dauman said. Plus, Viacom's advertising sales from Nickelodeon will make up a much smaller percentage of the company's total starting next quarter, and there is a "better tone" in the market, he added. "We are feeling very good," Dauman summarized, reiterating that the Nickelodeon issue will turn out to simply be a "blip."

2. MOGULS TOOK IT EASY ON NETFLIX
After Netflix was often mentioned as a potential threat at last year's UBS conference without being represented there, the picture was much different this week.

Some sessions didn't even mention Netflix, and when an analyst or investor asked about it, entertainment industry executives were mostly upbeat. "We want a healthy Netflix," Moonves said. After all, the online streaming firm has paid up for library content deals with his company.

And Bewkes, when asked about past comments in which he had compared Netflix with the Albanian army, said: "Netflix is our friend."

The two CEOs and Carey emphasized though that Netflix and other digital content distributors are mostly interesting as a place that content creators can sell library content to.

While Wall Street observers have wondered whether the digital windfall will come to an end, Moonves said expects it will be a recurring revenue stream going forward.

"CBS has completed several subscription VOD deals over the past year, all non-exclusive with only library content," wrote UBS analyst John Janedis in a note to investors. "We estimate they have inked more than $400 million SVOD deals to date."

Interestingly, Hastings himself said he feels competition and newer players like Netflix are good for entertainment companies and competition to make everyone stronger and better. He called HBO Go his biggest threat. Like HBO, Netflix plans to spend $1 billion-$2 billion a year on content. Competitors like Amazon.com and Hulu Plus will not be threats until they commit to that higher level of spending, he added.

3. CEOs REMAIN CAUTIOUS ON ACQUISITIONS, BUT A BANKER DELIVERS A DEALS PITCH
UBS top banker Aryeh Bourkoff opened the conference with the suggestion that management teams shouldn't only manage results from quarter to quarter, but also take a longer-term view and explore acquisitions that could ignite the vast amount of dry powder that companies are currently sitting on.

There was some good news for bankers, but several executives said they will continue to focus mainly on spending cash on stock buybacks and dividends, even if the bankers in the room may not like to hear it.

Carey hinted that some companies, in which News Corp. owns only a stake, could either be fully acquired or sold, arguing that the company's stock value doesn't fully reflect these holdings.

Bewkes said TW will continue to return money to shareholders, but also highlighted that the conglomerate has continuously made smaller acquisitions, particularly abroad.

Dauman was also among those that kept the eye squarely on shareholders, vowing that Viacom would return $20 billion over the next five years via dividends and buybacks.

And News Corp. president, COO and deputy chairman Chase Carey said that a $5 billion stock buyback program from Rupert Murdoch's conglomerate may not simply be a one-time thing.

And Moonves said CBS Corp. could raise its dividend next year.

Barclays Capital analyst Anthony DiClemente weighed in on the issue of how best to allocate capital in a mid-week report. Walt Disney, which wasn't at the UBS conference, recently raised its dividend, leading him to take a closer look at how to best use available cash. His favorite use of cash for media and entertainment giants is an increase in dividends.

"Also, with low borrowing costs for investment grade credit and corporate balance sheets flush with cash, we believe strategic acquisitions, particularly for international assets, could help boost relatively sluggish top line growth," he wrote.

Stock buybacks should come last, he suggested. They have "the potential to destroy shareholder value if shares are purchased above intrinsic value, a legitimate risk in the context of an uncertain macro environment which could weigh on stock valuations," DiClemente said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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