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Media Stocks Battered During ‘Market Correction’

26 Aug, 2015 By: Thomas Haire, Doug McPherson

NEW YORK – Media company stocks posted huge drops as Wall Street saw a three-day sell-off punctuated with an exclamation mark on Monday. The Dow Jones Industrial Average’s 588-point drop on Monday added to a 358-point slip on Thursday, August 20, and a 551-point nosedive on Friday, August 21. This “market correction” (defined as a decline of 10 percent or more from a recent peak) left the Dow at its lowest point in 18 months.

Tuesday brought brighter news early on, as the Dow Jones Industrial Average rose more than 440 points in early trading. But by day’s end, a late-afternoon sell-off left the Dow down by another 205 points overall as analysts remain concerned for the market’s health – and that of media stocks.

Media stocks – including new digital media companies – dropped, in part, due to analysts lowering recommendations for Walt Disney and Time Warner stock. Media stocks have been weak since the companies announced second-quarter earnings three weeks ago. The numbers raised fears that, in addition to ad revenue growth being weak, cord cutting could threaten reliable growth in distribution revenue.

Many cable and broadcast network groups have been affected by the downturn and took further hits in Monday’s carnage, including Crown Media, Discovery Communications, AMC Networks, the Walt Disney Co., Viacom, 21st Century Fox, Comcast, CBS, Time Warner and Scripps Networks.

Netflix, whose stock has been a high flyer as consumers shifted to streaming video on demand from traditional TV, opened down more than 15 percent on Monday before recovering some ground in early Tuesday trading. Still, the company’s stock is down more than 12 percent from its open last Thursday.

Todd Juenger, an analyst for Sanford C. Bernstein, has said essentially that the cable and broadcast industries were in shambles, saying cord cutting will accelerate, ratings will erode and advertising is in a state of decline. What’s more: some suggest the fees that affiliates pay to air shows could also be at 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 re-evaluate how much they are willing to pay for the existing status quo cash flow streams,” Juenger wrote.

About the Author: Thomas Haire

Thomas Haire

About the Author: Doug McPherson

Thomas Haire

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