Ups and downs for media shares

Markets rise, but entertainment stocks mixed

NEW YORK -- It was a day of mixed messages for media stocks Thursday as latest economic data showed the end of the recession in key European markets amid expectations for a U.S. return to growth in the current quarter, but analysts continued to raise doubts about a speedy ad market recovery.

Markets in Europe, Asia and the U.S. rose, but media and entertainment stocks were mixed.

In London, the FTSE 100 rose 0.82%, the German DAX gained nearly 1%, and the Japanese Nikkei rose 0.8%. Shares of German broadcaster ProSiebenSat.1 climbed 1.8%, U.K. broadcaster ITV saw its stock rise 4%, and Italy's Mediaset edged up 0.2%, but News Corp.-controlled satcasters BSkyB in the U.K. and Premiere, which is being renamed Sky Deutschland, in Germany both fell, the latter driven by a second-quarter loss.

In the U.S., the Dow rose 0.4%, and the broad-based S&P 500 index gained 0.7% as better-than-expected results from Wal-Mart offset weak economic data. Shares of CBS tumbled 4% on a downgrade, Viacom's stock gave up 1.4%, and Time Warner shares dropped 0.8%. But shares of News Corp. climbed 0.7%, and Disney closed up 0.2%.

The French and German economies saw a surprise return to 0.3% GDP growth each in the second quarter over the first quarter, which had seen drops of 3.5% and 1.3%, respectively. The Euro zone economy overall declined a better than expected 0.1% sequentially after a 2.5% drop in the first quarter. The U.K. economy contracted 0.8%. The U.S. had recently reported a 0.3% drop in the second quarter from the first.

July retail sales for the U.S. on Thursday unexpectedly fell slightly. While the "cash for clunkers" program boosted auto sales, consumers, concerned over possible job losses ahead, cut back spending on the likes of furniture, electronics, food/beverages and sporting goods. "The consumer is clearly far from out of the woods," said Miller Tabak equity strategist Peter Boockvar.

The Fed had said Wednesday that the U.S. economy was showing signs of leveling out, marking the first time since Aug. 2008 that it did not speak of a weakening economy. Most economists also predict growth to return with the current quarter, although consumer spending, which drives up two-thirds of the U.S. economy, is likely to remain sluggish.

Experts expect the same to be true with U.S. ad spending, even if it continues to stabilize.

Still, Sanford Bernstein analyst Michael Nathanson on Thursday lowered his U.S. ad forecasts for 2009 and 2010, suggesting a potential U-shaped recovery with a longer bottom.

Second-quarter U.S. advertising as measured by the Bernstein Ad Tracker, which is based on publicly reporting companies' figures, declined 14% - the first improvement in growth over a prior quarter since the first quarter of 2008. "At this point, it appears that the first quarter of 2009 was indeed the trough in advertising growth," said Nathanson.

But he cut his U.S. ad estimate for 2009 from a drop of 11% to a decline of 12.8% due by estimate reductions in the Internet, radio, local cable and local TV stations businesses. He also reduced his 2010 ad forecast to a 3% gain from 1.9%, although he acknowledged that this remains more bullish than other prognosticators, who expect a 2% decline.

And Caris & Co. analyst David Miller on Thursday warned against unrealistic ad gain expectations in the back half of the year. He cut his rating on CBS shares to "sell," citing a 26% runup since the firm's earnings report last week that included more bullish comments on the firm's ad trends. But Miller said the size of the gain would only be justified by a major earnings beat or a boost in 2009 financial guidance, neither of which happened.

"CBS is now suddenly trading at similar multiples to Time Warner and Disney, both of which are more content focused names and which operate asset bases not under any notable secular threat, and completely different from CBS," he argued.