Citigroup cuts media companies on cable TV fatigue

dkreichen1968

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(Reuters) - Citigroup analysts, saying they were "flummoxed" by a steep fall in cable network ratings and slowing advertising growth, lowered their ratings on the stocks of several U.S. media companies.

The brokerage downgraded News Corp, Walt Disney Co, Discovery Communications Inc, CBS Corp and Scripps Network Interactive Inc to "neutral" from "buy."

Historically, cable network advertising has outpaced overall advertising, but the gap has narrowed sharply over the past few quarters, Citi analysts led by Jason Bazinet said in a client note.

"Beginning late last year we began to notice that the aggregate cable network ratings were falling. And, as the months progressed, the magnitude of the decline kept getting larger," Bazinet said.

Bazinet -- who has a four-star rating for the accuracy of his earnings estimates on the companies under his coverage, according to Thomson Reuters StarMine data -- said cable ads outpaced total ad growth by just 1 percent in the fourth quarter.

By comparison cable advertisements had outpaced overall ad growth by 14 percent in the first quarter, said Bazinet, who noticed the trend from Citi's AdverTracker database, which keeps track of the ad performance of all public companies whether they are covered by the brokerage or not.

The analyst said there is no clear explanation for the steep decline in cable ratings, with some in the industry and investors blaming Netflix,
while others point to a lack of hit shows, or warmer weather resulting in less TV viewing.
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The question I keep asking is how many people who have multichannel video subscriptions are actually using them for video? The satellite/cable internet bundlers aren't, and cable "shavers" may not be. This drop in cable ratings may be a leading indicator of what's really happening in the industry.
 
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