Hollywood Kicks Off Earnings Cavalcade With Focus on Pay TV Trends, Trump Regulatory Stance
NBCUniversal parent Comcast on Thursday leads dozens of entertainment companies posting quarterly results as Wall Street looks for signals about 2017. "Expect more disruption," says one analyst.
Hollywood is ready for its earnings close-up.
NBCUniversal parent Comcast will officially kick off earnings season on Thursday when it telegraphs to Wall Street how it did during the last three months of 2016 — and what the nation’s No. 1 cable giant expects this year. Dozens of others will follow suit during the next several weeks, including heavyweights like Walt Disney Co., 21st Century Fox and CBS Corp.
Analysts will be parsing results for a number of issues facing the entertainment industry — chief among them is the regulatory outlook under the Trump administration and pay-television trends. They’ll also be listening for comments about NFL ratings, the appetite for more dealmaking and a general economic outlook for content providers. And the rapid shift to digital entertainment also will be in focus, especially after the recent launch of the DirecTV Now live-streaming video service.
"Expect more disruption in 2017,” Drexel Hamilton analyst Tony Wible said in a recent report. "We expect 2017 to be a more volatile year for the major media stocks as they cope with possible changes in the regulatory landscape, incremental ad weakness, new virtual multichannel video programming distributor launches, the integration of OTT content, consolidation and mixed prospects on film slates."
Added MoffettNathanson analyst Michael Nathanson: "We strongly believe that the greatest risk in the years ahead is the continued erosion of live scripted and non-fiction linear TV programming and the move to cull long-tail cable networks in new skinny bundles. On the flip side, media companies with high exposure to live sports and news ratings, affiliate fee pricing power and diverse revenue bases will outperform. The emergence of new virtual distributors should benefit these stronger companies."
Here is The Hollywood Reporter's closer look at expectations for big entertainment companies' latest quarterly earnings reports:
Comcast (Jan. 26)
Projections: Analysts expect earnings of 87 cents per share on revenue of $20.7 billion.
What to watch: Wall Street will be watching how the nation's largest cable provider fared during the fourth quarter amid the continued trend of cord-cutting. Comcast has tried to get in front of that by wading into the OTT video delivery market with the launch of internet TV service Stream. But, more important to Hollywood is how entertainment unit NBCUniversal has been doing.
Wells Fargo analyst Marci Ryvicker forecasts NBCUniversal operating cash flow, the profitability metric the company uses, to rise 8.8 percent to $1.79 billion on an 8.1 percent revenue gain. In the year-ago quarter, revenue hit $7.5 billion, while operating cash flow jumped to $1.6 billion. She expects the growth to be driven by a 19.1 percent increase at the theme parks unit and a 14.1 percent improvement in the broadcast TV division, while she forecasts cable networks to grow 2.5 percent and film operating cash flow to decline 4 percent. Universal's films in the latest quarter included Sing late in the period and The Girl on the Train.
21st Century Fox (Feb. 6)
Projections: Analysts project earnings of 49 cents per share on revenue of $7.75 billion.
What to watch: Rupert Murdoch's conglomerate is expected to lay out its global ambitions, especially amid rapid consolidation in the entertainment space with AT&T's massive bid to buy Time Warner (a property Murdoch himself wanted to acquire a few years ago). Executives are expected to give investors some more clarity on its plans to take full control of European pay TV giant Sky, in which it already owns a 39 percent stake — and how Fox may try to build on that. Other issues include the future of Fox News and other news networks under the Trump administration, a carriage renewal deal with Comcast and how currency fluctuations will impact its Star India network.
Stifel, Nicolaus analyst Benjamin Mogil said in a report that he expects an “increase in higher contributions from television, driven by the strong World Series ratings and lower operating expenses at filmed entertainment, with the offset being lower contributions from cable networks. Domestic cable continues to perform well, though the consolidated estimates are reduced on the advertising impact from the rupee de-monetization." The company's film unit in the latest quarter released the likes as Hidden Figures and Assassin's Creed.
Walt Disney (Feb. 7)
Projections: Analysts expect earnings of $1.50 per share on revenue of $15.3 billion.
What to watch: The entertainment and theme park giant's stock price is up some 20 percent this year after a dismal 2016 when Wall Street continued to fret about how digital disruption's impact on the company. There are no signs of that abating in 2017, with continued focus on how flagship cable network ESPN weathered cord-cutters during the last three months of last year. Disney has said it will launch its direct-to-consumer ESPN service this year as a complement to the ESPN linear networks, not as a replacement.
Disney CFO Christine McCarthy early this year lowered expectations for the new year, saying a rise in TV programming costs will affect profitability.
Ryvicker believes the biggest asset for Disney will again be its studio profits. "Films stand out again," the analyst wrote in her earnings preview. "The one area likely better than expected was film (Rogue One, Doctor Strange, Moana)." McCarthy said last year that the company plans just seven films in 2017, compared with 12 last year, resulting in tough comparisons for the studio unit. One wildcard analysts will be listening for on the earnings call: Who will replace CEO Bob Iger?
Time Warner (Feb. 8)
Projections: Analysts expect earnings of $1.19 per share on revenue of $7.7 billion.
What to watch: Wall Street, for the most part, isn't really going to worry all that much about how much the company behind Warner Bros., Turner and HBO posts for its fourth-quarter financials. The big reveal will be any information executives provide about the planned sale to telecom giant AT&T, and insight on whether new regulators in Washington are motivated to approve the $85.4 billion mega-deal. And then there's the matter of President Donald Trump's near-relentless attacks on CNN.
Analysts also will be looking for any details about the year-end 2016 update on HBO's subscriber numbers, especially for HBO Now, which in the year-ago period had mentioned 800,000 subscribers. "We view it as likely that subscriber acquisitions were strong in the quarter, given the successful debut of Westworld, the most-watched first season of an HBO original series," said Mogil. At Turner, he expects subscription revenue growth to moderate, "offset by increased programming expenses tied to the NBA National deal." Time Warner's quarterly film performance will be driven by such releases as Fantastic Beasts and Where to Find Them and The Accountant.
Viacom (Feb. 9)
Projections: Analysts expect earnings of 83 cents per share on revenue of $3.2 billion.
What to watch: The owner of Paramount Pictures and such cable networks as MTV, Nickelodeon, BET and Comedy Central has had quite the year. Philippe Dauman called for selling a big stake in its movie studio, setting off a war with Shari Redstone that led to the chief executive's ouster. A new leadership structure then looked into the possibility of re-merging with CBS (which the Redstone family also controls), and then the companies both backed off of that idea. Right now, Wall Street — which has sent Viacom shares on a wild ride in the past year — wants to hear how new CEO Bob Bakish plans on stabilizing the company and growing profit. He's already got one big move on his side: The company recently announce a $1 billion financing deal with China's Shanghai Film Group and Huahua Media to finance films at Paramount.
"Sentiment has improved with new CEO Bob Bakish and the potential for a real turnaround," Ryvicker wrote in her preview. "Expectations are already very low, which is a good setup for [the quarter], so we see little downside risk here." She expects a lower U.S. advertising revenue drop, at 3 percent, than in the previous quarter and sees cable networks unit operating income coming in better than expected on lower programming costs. "Plus, films were less bad than expected" in the quarter, she said. The company's film releases in the latest quarter included Arrival, Jack Reacher: Never Go Back, Office Christmas Party and Fences.
CBS Corp. (Feb. 15)
Projections: Analysts expect earnings of $1.11 per share on revenue of $3.99 billion.
What to watch: CEO Leslie Moonves certainly has the respect of Wall Street, and his company has been on an earnings tear for the past three quarters. With a Viacom deal off the table (for now), Wall Street will be looking for Moonves to provide more clarity on where he sees the company's growth — chief among them if the company needs to acquire a film studio to better compete with more diversified rivals. CBS is already making a big push into streaming, first with Showtime and now with its CBS All-Access service. Any comment from Moonves on the state of talks with AT&T about including CBS in its DirecTV Now streaming service, for example, would be of note.
There are a few areas where CBS is expected to come up short, including lower ratings for NFL games broadcast on the network. However, Mogil believes "stronger playoff ratings should ease concerns over the longer-term value of NFL rights." The Super Bowl, television's biggest ratings bonanza, will air Feb. 5 with a matchup of the New England Patriots and the Atlanta Falcons.