Cable, TV edge 60%-40% share stasis

Weak ratings trends affect cable for second straight quarter

NEW YORK -- Cable and broadcast networks seem to be approaching a 60%-40% share equilibrium, which could "adversely affect the premium valuations of cable-exposed companies," such as Scripps Networks and Discovery Communications, Sanford C. Bernstein analyst Michael Nathanson suggested Tuesday.

In a report, he highlighted that cable networks saw more downwards rating pressure than broadcast networks in the first quarter as the Olympics and other big sports events buoyed broadcast trends.

"Cable networks continued their weak ratings trends versus broadcasters for a second straight quarter," Nathanson said, highlighting a live primetime ratings decline of 3.5% over the previous year in the first quarter for cable channels, compared to a smaller 2.7% decline for the big four broadcasters. On a C3 basis, which includes DVR viewing, broadcast primetime ratings were down 1.6%, again outpacing the 2.5% cable decrease.

"The broadcasters continued to benefit from sports programming as the NFL playoffs and Winter Olympics helped drive strong trends in January and February," but they tailed off in March, the analyst highlighted. "While the noise in the first quarter makes it too early to draw any conclusions, we will continue to monitor whether cable nets are approaching a 60%-40% share equilibrium versus broadcast networks."

Nathanson pointed out that first-quarter primetime ratings rose 5% at both Discovery and Scripps, and Disney's cable ratings were up 3% thanks to ESPN. But News Corp. cable ratings fell 7% in primetime, Time Warner 8% and Viacom 10% in primetime.

Nathanson's conclusion: Wall Street may start to positively re-rate the valuation assumptions for broadcast-dependent media stocks like CBS Corp. and News Corp., while Scripps and Discovery could come under pressure for downward revisions. "Viacom's dependence on narrow demographics and endemic ad categories could be less harmed, and Disney's dominant ESPN asset could also be relatively more resilient," he concluded. "These trends bear increasing scrutiny."

Nathanson also briefly discussed the impact of NBC removing Jay Leno from the 10 p.m. time slot. NBC's new weekday 10 p.m. lineup has averaged a 12% year-over-year ratings decline for the six weeks following the Olympics -- "a dramatic improvement versus the 34% decline when Jay Leno aired for the first 20 weeks of the season," he said. "NBC appears to have sourced these gains broadly, as CBS and ABC saw more modest impacts in their 10 p.m. ratings." CBS saw its average 10 p.m. ratings deteriorate from a 6% decrease during the 10 p.m. Leno run to a 12% drop post-Leno, while ABC softened from down 8% to down 16%, he said.