Most Major Media Conglomerates Underperforming at Half-Year Mark

2:02 PM PST 06/30/2014 by Paul Bond
DreamWorks Animation
"How to Train your Dragon 2"

Disney outperforms the broader markets, and Time Warner keeps pace. Video games are a hit while new media is a mixed bag.

At the halfway mark of 2014, the major media-entertainment conglomerates are underperforming the broader markets with two notable exceptions: the Walt Disney Co. and Time Warner.

Disney shares advanced 12.2 percent in the first half of the year, which ended Monday, while the S&P 500 advanced 6.1 percent. Time Warner mirrored the S&P 500 with a 6.1 percent gain.

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All of Disney's and Time Warner's competitors, though, either fell, or they rose less than the S&P 500.

Sony was the worst, with its stock falling 3 percent in the past six months. CBS was second worst, with its shares dropping 2.1 percent. Viacom and 21st Century Fox each rose less than 1 percent, and Comcast was up 3.8 percent.

"Today marks the end of a great first half for Disney and its shareholders. The stock is up 12 percent year to date -- double the market's gain," MoffettNathanson analyst Michael Nathanson wrote in a report Monday.

"The key to Disney's outperformance has been good old fashioned positive earnings revisions," Nathanson wrote. "While the majority of the upside has come from a great run at the box office, Disney's stock defies the Street truism that 'nobody pays for studio' because Disney is both creating and recurring franchises and is able to monetize these hits across its entire portfolio."

Guggenheim Securities analyst Michael Morris argued in a recent report that major media stocks — except for Disney — have been weak over concerns about TV advertising trends.

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"We completely believe that advertising buyers are looking to increase relative spending on digital media, often at the expense of traditional media including television," Morris wrote. "However, we see several factors (superior reach, message quality and inertia, among others) as supporting sustained demand and long-term GDP-like growth for television advertising for the foreseeable future."

Outside of the conglomerates, some notable losers in the first half of 2014 are DreamWorks Animation, down 34.5 percent and some new new-media companies: AOL sunk 14.7 percent, Zynga was off 15.5 percent. and Yahoo was off 13.1 percent. Twitter fell 35.6 percent. New media, though, was a mixed bag, as Facebook soared 23.1 percent and Netflix was up 19.7 percent.

The major video game stocks were big outperformers, led by Electronic Arts, which rose 56.4 percent. Activision Blizzard was up 26.3 percent and Take-Two Interactive Software rose 28 percent.

As for DreamWorks Animation, its recent problems began with Mr. Peabody & Sherman, a $145 million movie that opened March 7 and made an underwhelming $268.3 million worldwide, then continued with How to Train Your Dragon 2, also a $145 million movie. It opened June 13 and has made $228.1 million worldwide thus far.

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Lionsgate Entertainment also had a rough first half of the year, falling 9.4 percent. Doug Creutz recently wrote that while movies from the Hunger Games and Expendables franchises are easy to project, the Divergent sequel, Insurgent, due next year, is tougher to predict.

"The next potential non-sequel movie catalyst appears to be the release of Gods of Egypt in February 2016, which is still too far away to serve as a magnet for shares," Creutz wrote of Lionsgate.

Movie exhibition companies have mostly outperformed the broader markets, with Regal Entertainment Group up 11 percent, Cinemark Holdings up 7.8 percent and Carmike Cinemas surging 26.2 percent. Imax, though, has fallen 3.4 percent.

Email: Paul.Bond@THR.com

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