NEW YORK (AdAge.com) -- As media advertising slides, the recession gains steam and the stock market gyrates wildly, some iconic media names trading in near funny-money territory.
Stock in CBS, the august one-time home of Edward R. Murrow and today the most-watched network in the U.S., has fallen below $5 in recent weeks. The New York Times, arguably the most-respected newspaper in the world, broke the $5 barrier in an all-time low for the storied company.
But that's just beginning. News Corp., with its stable of very profitable cable networks, was trading recently below $6 a share; Time Warner dropped under $8 or Yahoo was hovering at about $9. They all got a slight reprieve when the markets surged after the U.S. threw a lifeline to Citigroup, but the latest job and retail-sales figures for November point to the worst economy in a generation.
Yet people aren't consuming less video and the printed word; they're spending more time than ever in front of various screens. And media is supposed to be countercyclical; consumption goes up as the economy tanks. With famed media stocks trading at historically low levels, are there any opportunistic buys to be made here?
"We are going through a period of time where three to four years from now, we are going to say we should have bought up all of X [company]," said Bruce Eatroff, partner at private-equity firm Halyard Capital. "There are going to be some great values in the six to 18 months."
But don't dust off that wallet yet, Warren Buffett. Even though single-digit share prices do mean some deals abound, there are more than a few well-known names in media -- particularly midmarket TV and radio broadcasters and newspapers -- that aren't going to make it out of this one alive. "If we don't see some sort of recovery in the third quarter of next year, I'm actually fearful of what could happen," said Marci Ryvicker, VP of equity research at Wachovia Capital.
Here's the outlook for 10 major media brands trading at historic lows and Ad Age's rating (based on one to five dice, five being the highest) on how good a buy they would be if one were to take a gamble.
[$6.68, -73% off 52-week high]
CBS is saddled with some slow and no-growth industries, such as network TV, local TV stations, radio and publishing. To hedge that, the company paid $1.8 billion for CNet and expanded its billboard- and outdoor-advertising business. With plenty of cash, CBS will weather the downturn fine, but it's most exposed to the deteriorating broadcast business and local advertising, hardest hit so far in this recession. In ordinary times, a go-private transaction would have some appeal, but these aren't ordinary times. "The numbers may work out because the share price has contracted, but the debt spigot has been shut off," said Mike Simonton, senior director of corporate finance at Fitch Ratings. "At any price, certain transactions are not going to get funded."
A well-run, diversified media conglomerate with more revenue coming from outside the U.S. than its competitors, News Corp. has an enviable cash hoard of $5.5 billion, meaning it could make some acquisitions in the downturn. Its prime-time TV slate has some of the highest-priced inventory around; its cable networks are highly profitable; and it's turned MySpace into a better advertising medium than, say, Facebook. "They don't have liquidity issues; you could see them use their cash for acquisitions," Mr. Eatroff said. The question: Will it be able to hang on to President-Chief Operating Officer Peter Chernin, who's in contract talks?
Anchored by very strong cable TV properties, Time Warner is hobbled by its storied magazine division, Time Inc., and its online unit AOL, which is attempting to make the transition away from its origins as an internet-access business and toward ad-supported content (Lemondrop, Asylum) and, of course, Platform A, the world's biggest ad network. Time Warner would very much like to sell it all to Yahoo, at a price. The company is managing decline at Time Inc. by slashing jobs but says it won't sell it. The film studio and HBO don't rely on advertising.
NEW YORK TIMES CO.
New York Times Co. shares hit an all-time low two weeks ago, sinking to a level where investors start selling it short. The company wisely slashed its dividend 75% to build up its cash. It will be interesting to see the reaction of the owning family, which depends on income from their holdings. "The only saving grace for newspapers is that theirs is sheltered a bit by the wider tale of woe," said Ken Doctor, newspaper analyst for Outsell. "All valuations are up in the air at the moment, and newspapers are a relatively small part of the story."
Revenue at the third-biggest newspaper publisher in the U.S. was down 20% in October. The market cap of the publisher of the Miami Herald, Fort Worth Star-Telegram and Kansas City Star has dipped below $150 million. Fitch rates McClatchy's debt as junk with a high possibility of default. Newsprint costs are rising, ad revenue is falling, and digital isn't picking up the slack. "We are going to see papers close," Mr. Doctor said. "We are seeing this phenomenon of daily papers becoming less-than-daily."
SIRIUS SATELLITE RADIO
Got a satellite radio in your car? Enjoy it while it lasts. Sirius is in real danger of getting delisted from the Nasdaq if it can't lift its stock price. Part of the problem is a glut of shares outstanding -- more than either Ford or Disney -- after the merger with XM Radio. Because new-car buyers are its greatest source of new customers, the downturn hit at just the wrong time. The upside here is that the stock is incredibly cheap. Downside is it could be going to zero.
Take any midsize owner of local radio, from Emmis Communications to CBS to Entercom, and you will see a deeply troubled company. The problem: Falling ad revenue and too much debt mean few options, and Citadel is trading as if the market thinks they're going out of business. "These stocks have hit rock bottom, but the truth is they could go all the way to zero," said Mr. Ryvicker. "I think any of them, if they could buy their shares and go private, they would."
MARTHA STEWART LIVING
It's a diversified mini-media empire, but it remains at its core a magazine company, and publishing revenue dropped 25% in the third quarter. The upside for MSLO is that it's a known brand with very advertiser-friendly content. The downside is that the kind of brand advertising it attracts will be hardest hit in 2009. It's also a brand inextricably tied to a living icon.
One of the largest owners of TV stations in the U.S., Sinclair is in a predicament similar to that of Media General, LIN TV and Young Broadcasting, which are saddled with debt and declining businesses. An Obama administration probably means no loosening of local-ownership rules anytime soon, and high debt means going-private transactions or acquisitions by private-equity groups would be tough. There could be casualties in this sector in 2009. "Radio and TV balance sheets are being dismembered by a severe recession," BMO Capital Markets analyst Leland Westerfield wrote in a recent report.
It's tough to be a slow-growth internet company, but that's just what Yahoo has become, with its bread-and-butter display advertising under assault by tightening marketing budgets. EMarketer is predicting just 1.4% growth for Yahoo in 2009. At the same time, Yahoo has the best advertiser brand on the web, and a new CEO could execute a helpful deal with Microsoft in search or an acquisition of AOL on the cheap.