Just a couple of weeks ago, any media company with significant TV-related assets — including Disney, Comcast, 21st Century Fox and Time Warner—got hammered by investors, after a loss of subscribers at ESPN (which is owned by Disney) triggered fears about cord-cutting and the rise of streaming services. On Thursday it happened again, and this time the spark appeared to be some skeptical comments from a prominent industry analyst, who said that the entire industry is “structurally impaired.”
Disney (DIS) alone lost 6% of its value, ending at its lowest level in six months, and has now lost more than $30 billion in market cap in a little over two weeks. Time Warner (TWX) was also down about 5%, to its lowest level in 2015, and 21st Century Fox (FOX) was down a little over 4%. CBS (CBS) and Discovery Communications (DISCA) were both down by about 5%, and Viacom (VIA) dropped by more than 6%.
If the results from ESPN (which is traditionally seen as almost immune to market forces, because of its hold on sports programming) got the market nervous about cord-cutting and the loss of traditional TV subscribers, Thursday’s comments from Sanford Bernstein analyst Todd Juenger poured gasoline on those fears. In a market research note, Juenger essentially said that the traditional TV industry needs to be re-evaluated, and that its business model is in jeopardy as a result of digital competition.
“The market is now valuing U.S. Ad-supported TV businesses as structurally impaired assets,” Juenger said. “We believe this is fair and warranted, because: a) we believe TV advertising is undeniably in secular decline; and b) affiliate fees are now also being put at increased risk. When an industry is undergoing a massive structural upheaval, one major revenue stream is already impaired — and now there are signs the second one may be as well — investors won’t wait for final conclusive evidence to reevaluate how much they are willing to pay for the existing status quo cash flow streams.”
In a nutshell, this means that TV-related companies who rely on advertising revenue to support their businesses need to be re-valued by investors, and that even those who depend primarily on affiliate fees from cable distributors — a group that would include ESPN — have likely been over-valued. What the Sanford Bernstein analyst seemed to be saying is that the billions that have been wiped from the market value of TV-related stocks over the past few weeks are totally justified.
Until recently, executives at companies like 21st Century Fox and Disney have been down-playing the risks posed by cord-cutting and digital streaming services like Netflix (NFLX) or YouTube (GOOG), saying the loss of subscribers is manageable. But the movement in TV stocks over the past couple of weeks suggests that investors aren’t buying that argument. A chart this week from Pacific Crest showed that cord-cutting continues to pick up speed.
One interesting aspect to the Thursday sell-off is that Netflix—one of the main beneficiaries of the cord-cutting movement by millennial audiences—also lost altitude, dropping by almost 8%. It seems the market is concerned about the prospects for any form of TV-style entertainment, digital or otherwise, as the landscape underneath the industry continues to shift.