NBCU 2Q Results Show No Signs Of Broadcast Recovery
18 July 2009 - 6:40AM
Dow Jones News
General Electric Co. (GE) offered the first glimpse this
earnings season of the state of broadcast networks in the second
quarter, and it disappointed.
The company's media unit, NBC Universal, said its operating
profits dropped 41% in the quarter while revenue fell 8%, which
roughly mirrored its results in the first quarter of this year.
The troubles came from NBCU's broadcast network and its local TV
stations, where it sees little sign of relief as auto dealers and
other major advertisers have cut spending dramatically.
Weakness also came from its film studio business, and attendance
at its theme parks were down double-digits again, suggesting that
consumers are still hurting from the recession and raising concerns
about Walt Disney Co. (DIS), with its heavy exposure to theme
parks.
The results were also in line with those revealed earlier this
week by Gannett Co. (GCI), which owns 23 local broadcast TV
stations in the U.S. Its broadcast division posted a 20% decline in
TV revenue, and the company said it expects another slide in the
mid-twenties percentage range in the third quarter because of the
absence of political and Olympics-related ad spending.
Representatives for network owners Walt Disney Co., CBS Corp.
(CBS) and News Corp. (NWSA, NWS), which owns this newswire,
declined to comment ahead of their own quarterly reports due out
over the next several weeks.
For its part, GE said it expects comparisons for NBCU to improve
in the back-half of the year due to cost-cutting measures and the
absence of production costs for the Beijing Olympics that it
recorded in last year's third quarter. The company's chief
executive, Jeff Immelt, said he expects the divisions results to be
"significantly better" for the rest of the year.
The second half of last year got a boost from a heated news
season resulting from the Olympics and the presidential election,
but otherwise, it was a disastrous period for the media industry
between Wall Street's financial meltdown and a worsening recession.
As a result, third and fourth quarter comparisons are generally
expected to ease for the sector.
GE Chief Financial Officer Keith Sherin said on a conference
call following the company's earnings release that the so-called
upfront ad selling season at NBC has been "slow," and the company
plans to hold onto more inventory than usual heading into the new
TV season.
Broadcast networks usually lock in large deals with advertisers
over the summer in advance of the fall TV season. That process has
been disrupted in recent years as networks suffer from audience
declines and rising competition from cable networks and digital
media outlets.
This year, the upfront selling season has been particularly
difficult as ad markets suffer amid the global financial crisis and
recession. Advertisers are being tight-fisted with their budgets as
they wait to see where economic conditions are headed, and networks
are trying to hold prices steady. A broadcasting industry source
said upfront prices have been rolled back by 1% so far.
As a result, dealmaking has been slow, and networks like NBC are
holding inventory for the so-called scatter market, where
advertisers buy spots during the TV season, in a wager that the
economy will improve and ad demand will be higher later this
year.
GE could use a recovery at NBC, because it's also grappling with
slumps at its financial and industrial lines of business.
Speculation surrounding its relationship with Vivendi, which owns a
20% stake in NBCU, is particularly heated this year as the
Paris-based entertainment conglomerate approaches its annual
contractual option to unload the stake in November.
If Vivendi signals that it will exercise the option this year,
GE would have nine months to pony up an estimated $4 billion to $5
billion to exercise its option to buy Vivendi's stake at a time
when it's already struggling to shore up its financial position.
Otherwise, Vivendi's minority stake in NBCU could be put in play,
raising a host of potential complications for GE's ownership of the
media company.
Vivendi CEO Jean-Bernard Levy has long said he will eventually
sell the NBCU stake, because it's a "non-core asset" for the
company. This year could be an inopportune time to sell, with media
valuations depressed, but some investors view the business as beset
by permanent declines.
Flavie Lemarchand Wood, a spokeswoman for Vivendi, declined to
comment on whether the company is considering exercising its option
this year. She did say speculation the company is interested in
leveraging its option to buy all of NBCU is inaccurate.
Gary Scheffer, a spokesman for GE, declined to comment except to
say Vivendi is "a great partner."
-By Nat Worden, Dow Jones Newswires; (212) 416-2472;
nat.worden@dowjones.com