The race for the White House is shaping up to be a doozy as President Barack Obama defends his stewardship of the economy against Republicans who argue that his policies are taking the U.S. in the wrong direction.
This means that voters are going to be inundated with more campaign advertising than ever. While this may fray the already frazzled nerves of the American people, it is great news for media companies.
Elections have been a cash cow for media companies since the politicians began advertising, and next year will be no exception. More than $5 billion was spent on the 2008 election cycle that brought President Obama into the White House, according to the Center for Responsive Politics. Newsmax, a conservative political website, estimates the 2012 election may cost $8 billion. President Obama, who raised a record-setting $760 million to get elected, may seek $1 billion to win a second term, according to Newsmax. That forecast is probably conservative.
Last year, the U.S. Supreme Court ruled in the Citizens United case that decades-long rules that placed limits on how much outside interests could spend to influence elections were unconstitutional. The reverberations will be felt at the state level as well where 13 governorships are in play next year. Costs for those races are also expected to climb.
What do media companies have to do to tap into America’s growing wellspring of political bile? Not much, really. The customers – politicians, political parties and interest groups – will come flocking to them. The stocks of some of the leading media companies are cheap.
Time Warner Inc. (NYSE: TWX), News Corp (NYSE: NWS) and Comcast Corp. (NASDAQ: CMCSA) are all down this year. Walt Disney Co. (NYSE: DIS) has been hammered, declining more than 11%. Some may argue that the “good news” about political spending has been baked into the stock prices of these companies and others Gabelli & Co., one of the largest media investors, recently opined that Wall Street doesn’t appreciate the benefits that these companies will get from political spending. That’s not the case, however, with CBS Corp. (NYSE: CBS), Viacom Inc. (NYSE: VIA.B) and local station owners such as Sinclair Broadcasting Inc. (NASDAQ: SBGI), which have had huge run-ups this year.
Here is my bullish case for the following stocks:
- Time Warner: Ratings for CNN gained 60% in May, apparently at the expense of MSNBC, which is now controlled by Comcast Corp. CNN and its sister network HLN earned $1.23 billion in revenue in 2010, according to the Project For Excellence in Journalism. Other Time Warner cable networks, such as TNT and TBS, should see their fare share of political spending as well.
- News Corp.: Fox News Channel continues to rule the cable ratings roost. For instance, on June 14, Fox News attracted 2.174 million prime time viewers, compared to 397,000 for CNN and 468,000 for MSNBC. Fox News’ 2010 revenue was $1.52 billion. Other properties in Rupert Murdoch’s media empire will also benefit from the presidential election including The Wall Street Journal and MarketWatch. Campaigns will also buy advertisements on other Fox channels such as F/X and the 27 stations in the Fox Television Stations group as well as The Daily, the company’s recently launched tablet website.
- Comcast: Properties MSNBC and CNBC combined generated less revenue than CNN and Fox. In 2010, SNL Kagan projected that CNBC would generate $722.9 million in revenue, compared to $382.5 million at MSNBC, and generate $448 million in operating profit, compared with $172 million at MSNBC. CNBC’s audience, which averages less than 200,000 in total day ratings, may be small but it is influential. Like Fox News, MSNBC’s audience is incredibly passionate. NBC News also has the top-rated evening news cast and Sunday talk show.
- Walt Disney: In my mind, Disney is the best managed of any of the media conglomerates. Its assets such the theme parks and ESPN are reason enough to own the stock. Political advertisers will flock to ABC’s “World News Tonight with Diane Sawyers,” which seems to be gaining on the ratings leader NBC. The ABC Owned Television Stations Group, which reaches 24% of U.S. television households, should see its fare share of political advertising.