Broadcasting companies earn ‘buy’ ratings

Michael Hedges March 5, 2008

New results are in. Stock traders and their dutiful analysts have worked overtime. CEOs are taking bows.

Europe’s second biggest broadcaster ProSiebenSat.1 posted their 4th quarter numbers this week (March 4) to the general adulation of all despite a drop in net income. The company had an interesting year; digesting the SBS Broadcasting acquisition, paying that €120 million anti-trust fine and ‘more taxes than anticipated.’ Never mind all that bad stuff; sales rose 51%. For the year revenues gained 29% to €2.7 billion over 2006.

CEO Guillaume de Posche termed growth as “vigorous.” He also announced a 1% buy-back of non-voting preferred shares.

“The SBS acquisition internationalized the group and clearly reduced our dependency on single markets,” said de Posch. Later the company said it was pulling its HDTV simulcasts off the air… so much for ‘non-core activities.’

There were no write-downs at CME – Central European Media Enterprises. In its Q4 results released last week (February 28) were a package of delights… starting with a three fold net income increase. Broadcast revenues increased 40% over the same quarter in 2006.

"CME's incredible performance in 2007 made us one of the fastest growing multinational broadcasters in the world,” said CEO Michael Garin.

CME is focused on traditional television in high-growth Eastern European markets. Though economists watching the region see consumer spending cool, Garin said in the investors conference call that he wasn’t seeing any slow down in ad spending. Traditional free-to-air TV, based on entertainment, with lots of ads, remains very popular.

Since winning the Czech market handily and improving its market share in Romania Garin’s attention has turned to Ukraine. Strategically, the company goes into a market with the appropriate partners then buys out the partners. So it has been with Ukraine and the company is offering senior convertable notes too raise $425 million to buy out the remaining Studio 1+1 partners. Most bankers agree, energy supplies notwithstanding, Ukraine is a good bet.

Expanding ad markets and consumer spending also boosted CTC Media, Russia’s 4th largest broadcaster. Their results (released February 28) showed Q4 2007 profits up 45% to $59.7 million. The total Russian ad market is estimated at $4.6 billion.

Modern Times Group (MTG) – CTC Media’s largest single shareholder – is in talks to shed its Moscow-based DTV digital TV business to CTC. The sale price could be worth $500 million or more but MTG is more likely to acquire a larger stake in CTC.

Axel Springer, Europe’s biggest publisher, suffered, according to its Q4 results posted Monday (March 3). If it had not been for that idea of competing with Deutsche Post – one way for a publisher to cut postage costs – the numbers would have looked far better. Axel Springer discontinued funding the PIN Group, a potential postal service competitor, when German authorities imposed a minimum wage for labor. So much for that idea; Axel Springer wrote down €572 million.

Still, Axel Springer reported 2007 gross revenues up 8.5% to just under €2.6 billlion… once the PIN write down is, well, written down.

The Q4 results were not accompanied by a statement from CEO Mathias Döpfner, fueling some speculation about his tenure. Döpfner failed to move the company into television, losing bids for ProSiebenSat in Germany and PolSat in Poland to anti-trust decisions.

The key to profits, it would seem from recent financial results, is invest in the horizontal (deeper channel coverage) and avoid the vertical (digital TV and postal services). And, oh, go east.