Media conglomerates seeing revenue boosts

Disney, Time Warner, News Corp. among those on the rise

NEW YORK -- Media conglomerates hadn't seen revenue growth for at least a year, relying on cost cuts to boost their bottom lines. But the current quarterly earnings season has brought a return to at least slight growth at several sector biggies.

NBC Universal and Viacom are the exceptions so far with 4% and 3% revenue declines, respectively, and Disney already had returned to revenue growth in the third calendar quarter of 2009 and eked out another slight uptick in the fourth.

Most have cited better ad momentum in fourth-quarter 2009 as a key reason for the revenue gains, and Time Warner even predicted it would record revenue gains for full-year 2010.

But News Corp. chairman and CEO Rupert Murdoch was the most vocal about touting his conglomerate's quarterly revenue boost that at 10% outperformed the gains of its peers.

"Our strong top-line revenue growth demonstrates that News Corp. is emerging from this recession with renewed vigor and strength," Murdoch said.

Although the trend is the latest encouraging sign that the recession has come to an end, Wall Street observers aren't popping any champagne corks yet.

Sanford Bernstein analyst Michael Nathanson pointed to "easy comparisons versus last year and a healthier economy" as factors that make it fairly easy to grow revenue right now. Still, most sector biggies only posted small increases for the final quarter of 2009. "Let's see the second-half 2010 results," Nathanson said.

Also, Viacom's latest year-over-year ad declines show that company-specific challenges can hold back financials even in an economic rebound. It again boosted its fourth-quarter profit thanks to lower costs. CEO Philippe Dauman warned that "we are not out of the economic woods yet," citing high U.S. unemployment as a factor still restraining consumer spending. For the current first quarter, Viacom management simply predicted ad improvements over the fourth quarter but not the year-ago period -- a sign that an ad recovery might be delayed.

CBS Corp., the most ad-reliant of all media giants, has yet to report its fourth-quarter figures, with analysts expecting revenue to be about flat, meaning the company could report anywhere from a slight gain to a slight decline. In the third quarter, the Eye posted only a minimal revenue decline, but UBS analyst Michael Morris, for example, has predicted a 1% decrease in fourth-quarter revenue.

Miller Tabak analyst David Joyce said that different parts of the CBS business portfolio are seeing different trends. "Some of their properties, like the TV network, and maybe the stations are close, are growing," he said. "Radio and outdoor are still challenged. Online might start growing."

Another investor concern is that there is no guarantee that revenue gains automatically will translate into profit growth in the absence of further cost cuts in case costs for content development and the like rise. Still, signs of regaining revenue momentum is something Wall Street has been looking and hoping for across industries this quarter as it evaluates how consumer and ad spending will shape up postrecession. So far, the signs point to a slow recovery.

For most media conglomerates, third-quarter 2008 marked the last revenue growth before they started feeling the sting of the recession.

TW only had a minimal revenue gain in third-quarter 2008, and Sony has to go back another quarter for a similar pre-recession feat, although the company's business is very different from other entertainment giants as it is much more driven by its electronics division and has no real ad exposure.

Although some have touted stronger fourth-quarter revenue and especially ad-sales trends as a sign of a media business in rebound mode, some analysts caution that stocks need more proof of improving financial trends before they can move higher after a run-up last year.

"Should consumer sentiment strengthen in 2010, we see renewed enthusiasm for the broadcast and cable network upfronts and a sign of life in outdoor advertising as potential catalysts for further share appreciation ahead of the May upfront ad presentations by the broadcast networks," Morris said in a recent report.
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