Time to take the industry's temperature

Six media conglomerates will soon report earnings

NEW YORK -- It's the economy, stupid! As media and entertainment conglomerate earnings season kicks into high gear this week, Wall Street will look for signs of how the sluggish U.S. economy has affected sector biggies in the first quarter and guidance on how consumer and advertising spending will play out as the year unfolds.

Deal talk also will be a hot topic during earnings calls as Time Warner and Rupert Murdoch's News Corp. have been looking at plays for Yahoo; Murdoch has closed in on a deal for Tribune's Newsday; and Viacom has unveiled its surprising joint venture with MGM and Lionsgate for a premium TV offering.

CBS Corp. is up first, on deck for Tuesday.

"CBS encountered a worsening of both macro and audience trends during the quarter," said Goldman Sachs analyst Ingrid Chung, citing a pullback in key local ad categories like autos, and the recent WGA strike.

SMH Capital analyst David Miller projects a 2.2% decrease in first-quarter revenue in the CBS TV unit but a 5% increase in operating cash flow. In 2007, CBS had the Super Bowl, "which gussies up the revenue line but is actually a money-losing sports property," he noted.

Stanford Equity Research analyst Fred Moran wants management to provide color on cost-savings plans after a recent round of layoffs at the CBS TV stations unit. "To sustain operating income (ahead), there could be pressure on costs," he said.

Meanwhile, Time Warner CEO Jeff Bewkes must prepare for questions about the future of AOL and Time Warner Cable. Chung expects an "anemic (earnings) quarter to be overshadowed by financial engineering."

"The market is waiting for TWC ownership decision and potential AOL access business sale announcements," Miller Tabak analyst David Joyce said. Bewkes previously signaled a TWC update could come this month, but after a board meeting Thursday, the company declined comment, perhaps signaling a delay.

Joyce expects first-quarter revenue of $11 billion, down 1.5% year-over-year, and profit of $844 million, off 4.4%.

Since Viacom already announced its premium TV venture, its conference call will likely see CEO Philippe Dauman share more color.

UBS analyst Michael Morris expects 12% revenue growth to $3.1 billion as he believes Viacom's cable networks are more insulated from a recession. "Content investment in 2007 has driven higher cable ratings, which should lift the company's core advertising business," he said.

Chung is looking for a film entertainment unit loss of $91 million, pared from a $108 million loss a year ago, "as a better home video slate offsets a weaker theatrical slate."

Murdoch likely will face questions about his appetite for print assets after the acquisition of Dow Jones and talks about Newsday.

"Investor frustration with News Corp. is growing," Pali Research analyst Richard Greenfield said. "If the Newsday speculation proves accurate, Rupert Murdoch will have spent $6 billion investing in the newspaper industry" as of late.

GE entertainment arm NBC Universal already has reported sluggish 3% gains in first-quarter revenue and profit, a major disappointment on the Street (HR 4/13).