Taking Stock: TV-related stocks could see boost from strong upfront

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News of a healthy network upfront marketplace could translate into higher prices for broadcasting stocks, mostly as a sign that an advertising recovery will take root, according to analysts.

Wall Street observers said the unexpected strength of broadcast upfront sales is an indicator that the promised advertising market recovery is coming and will be surprisingly robust.

While a strong upfront was expected, it was the magnitude of the upswing that surprised investors, said Leland Westerfield, broadcasting analyst at UBS Warburg. He noted the networks' average pricing was 10% higher, in spite of delivering an audience 7% smaller on average.

"It's a solid indicator that, in the eyes of national brand marketers, the value of an audience is valued at a premium," he said "For investors, that bodes well."

Upfront sales are a leading indicator of advertising sales in 2003, so they have a tangible effect of increasing network revenue but also the intangible effect on investor confidence in the stocks, said Drew Marcus, broadcasting analyst at Deutsche Bank Securities. Led by the upbeat reports from the upfront, Deutsche Bank's analysts increased revenue expectations for TV networks. Even if some commitments are canceled later on, rates were so high the revenue improvement will still be significant, said Mr. Marcus.

strong performer

CBS parent Viacom has been this year's strongest performer among broadcasting stocks; Viacom, heavily reliant on advertising, is benefiting from an upturn at CBS and in other media, such as radio.

But prices for many broadcasting stocks already had factored in a healthy upfront and expected ad recovery; for them, the strong upfront is a vote of confidence. While there was no rally last week on the stocks of network parents-including Viacom, News Corp.-controlled Fox Entertainment Group and ABC parent Walt Disney Co.-they held up better than the battered stock markets. (See AdMarket, this page.)

diversity issues

Network revenue won't sharply move the stocks of diversified companies such as NBC parent General Electric Co., which has subsidiaries in manufacturing, technology and financial services. Media giant AOL Time Warner remains depressed because of troubles at America Online. Companies with a stronger media bent, such as Disney, get substantial revenue from other entertainment ventures. But analysts note any increase in revenue is a positive for investors awaiting a recovery.

"It's a few pennies for each company...but it also sets the tone," said Mr. Marcus.

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