Stock Market Swings Punish Media Companies

Newspaper Owners Particularly Prone as Uncertainty Encourages Marketers to Prioritize

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Shares in public media companies are taking a disproportionate beating in the stock market's recent tumult.

The overall world of marketers, media companies and agency owners has actually been holding steady with the general market, even faring a little bit better, as the last month has delivered increasingly volatile swings. The AdMarket 50 -- a weighted index from Bloomberg and Advertising Age that tracks 50 publicly traded marketer, media and agency companies -- closed Wednesday 10.1% below its level on Aug. 1. The S&P 500, by comparison, has fallen 12.9% in the same period while the Dow Jones Industrial Average gave up 11.6%.

And agency holding companies have seen their stock prices tumble. Since Aug. 1, for example, shares are down 15.1% at the Omnicom Group and 17.6% at the Interpublic Group of Cos.

But they're going to be OK, analysts said, as marketers continue to advertise during the turbulence, even if they reduce spending. It's media companies, particularly in prone sectors such as newspapers, that are facing additional pain as marketers choose their priorities even more carefully than they were.

"Companies are going to continue to invest in advertising and marketing," said Leo Kulp, an advertising and publishing analyst at Citi Investment Research. "That's going to benefit the ad agencies. But I think you're going to see continued share coming away from the challenged media. You'll see the P&Gs of the world taking money away from newspapers and using that for digital and cable networks and other media forms."

Among big TV players this month, share prices have fallen 7.8% at Discovery Communications, 15.1% at CBS Corp. and 17.1% at Comcast. Shares in Meredith Corp., which owns big magazines such as Better Homes and Gardens as well as local TV stations, have declined 16.5% since Aug. 1. And shares are down in August by 19% at the New York Times Co., 24.2% at McClatchy and 24.6% at Gannett.

"What we are seeing is that the more challenged names underperform in good times and bad times," Mr. Kulp said.

Newspapers are one of the few sectors for which the second quarter's business results were worse than the first quarter's, said Edward Atorino, media industry analyst at Benchmark Co. "In 2010, the rate of print advertising's decline was going down," he said. "Now it's going up again."

But media companies on the whole remain more exposed than some other sectors, he said. "Tech stocks, media stocks, manufacturing stocks: They're more vulnerable to the economy," he said. "If this was a 5% market decline, they'd be down 10%. The market's down 10%, so they're down more."

Not that the swings on the stock market have a lot to do with actual changes in the economy, Mr. Atorino added. Not much has changed except the S&P's downgrade on the country's credit rating, he said, calling it "that silly ratings controversy."

"I've never seen anything like it," Mr. Atorino added. "I have to pass on trying to give you an explanation. It's just irrational emotional swings. At some point I presume it will start to stabilize and we'll start to see some normal either up or down movement in the market."

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