It was the week investors took Big Media down a size, spooked by a wobble at ESPN, the one network thought to be immune to mounting pressure from broadband disruption.
In some ways, this week’s unprecedented sell-off was only a matter of time. Concerns over how well US media majors are adapting to online competition and on-demand services have been nibbling at stock prices over the last 12-18 months.
Now, the reality of downsized pay-TV bundles and cord-cutting has hit home, taking big US broadcasters down towards an average valuation of 8x forward Ebitda, from 10x earlier in the week.
Some investors think valuations should be even lower, at 6-7x, reflecting Big Media’s disappointing progress in offsetting threats to its core sources of income, advertising and affiliate revenue, in its home market.
The challenge facing these storied content companies, which remains custodians of valuable brands and IP, is convincing investors that they are well positioned to monetize these assets in a multiplatform world, at home and abroad.
“Let’s be clear, the likes of Disney, Fox and Time Warner will always have a meaningful place in the future,” says Vivek Couto, executive director at research and consulting firm Media Partners Asia (MPA).
“Investors are already betting on that – most have got fairly long positions on Disney, Fox and Time Warner,” Couto added.
“What they are worried about is what will happen in the meantime, particularly when both the major revenue streams are under pressure.”
Some media executives feel they are being unfairly punished. Major holdings in growth markets, especially in Asia and Latin America, as well as forward-thinking digital initiatives, such as Sky’s reinvention in Europe, seem to be under-appreciated by the market.
Indeed, content companies with good international exposure – including 21CF, Discovery, Disney, Time Warner and Viacom – are better positioned to argue future implicit value.
Investors however want to see more bold bets abroad, especially in big growth markets like India and China, as well as more clarity on the longevity and international appeal of promising streaming initiatives such as HBO Go and Hulu.
Hulu has more than 10 million paying subs in the US, while HBO Go should hit 2 million by year-end, according to analysts from Media Partners Asia, compared with next to no traction outside the US for both services.
In India meanhwile, where 21st Century Fox has established a commanding position and Viacom has secured a good beachhead, the pressure is on the likes of Discovery and Time Warner to do more.