Stay Away From These Media Tycoons’ Stocks

by Jonathan Berr | February 12, 2013 7:00 am

Being the kings and queens of content isn’t as fun as it used to be; just ask the masters of the media universe.

News Corp. (NASDAQ:NWSA[1]), for one — which is controlled by tycoon Rupert Murdoch — spooked Wall Street last week when it cut its earnings outlook for the year as ratings for hit shows like American Idol and X-Factor continue to wither. Plus, sports sure didn’t help, as President and Chief Operating Officer Chase Carey explained during the earnings conference call[2].

He said:

“At the Fox Network, it has been no secret that we had a tough fall. Our challenges in entertainment were exacerbated by a sports schedule that just didn’t bounce our way with a four-game World Series, NFL post-season off double-digits from last year and late season college football match-ups that didn’t pan out.”

Fox News Channel, which has long been a cash cow for the company, has loads of problems too. Viewers seemed to be tuning out the conservative news network following President Obama’s reelection. Plus, the relentless cheerleading for Mitt Romney’s failed bid for the presidency by former Clinton advisor Dick Morris and longtime Bush confidant Karl Rove (among others) eroded Fox News’ credibility with the public and advertisers. In fact, Fox failed to renew Morris’ contract[3] as an on-air political analyst last week.

According to media reports[4], host Sean Hannity also lost about 50% of his audience in the weeks after the election. Fox is still the most-watched cable news channel, but liberal MSNBC is gaining ground.

These red flags wave as the New York-based company prepares to jettison its lackluster publishing business into a separate company so investors can focus on its higher growth businesses like Fox News Channel and the Fox broadcast network. That may be a tough sell, though, because entertainment is just like investing: Past performance is no guarantee of future returns.

So far, though, Wall Street has faith that better times lay ahead for Murdoch & Co. The average 52-week price target is $31 — about 10% higher than where it recently traded. Still, this target seems overly ambitious given the challenges News Corp. faces at Fox News.

Moreover, Murdoch’s empire is going to spend big bucks in developing an all-sports network to rival Disney’s (NYSE:DIS[5]) ESPN … but sports television costs are going to continue to skyrocket in the coming years as competitors shell out boatloads of money for broadcast rights.

With that in mind, I’d be wary of this stock … and of stocks like it. Murdoch’s problems are not unique in the world of tycoons.

Sumner Redstone’s Viacom (NASDAQ:VIAB[6]), for example, recently reported a mixed quarter. While profit came in a penny above expectations, revenue was disappointing. The shortfall has a simple explanation: Lousy television ratings. Children’s network Nickelodeon continues to struggle to attract viewers to such long-in-the-tooth favorites as SpongeBob SquarePants, while Viacom’s MTV network is reeling. Even well-regarded channels such as Comedy Central[7], home to fan favorites like The Daily Show with Jon Stewart and The Colbert Report, are facing declining viewership.

Turning around Nickelodeon and MTV won’t be easy, either, despite the fact that Redstone sees better times ahead. In the earnings release, he said that by “investing in new hits we will continue to build our outstanding brands and deliver strong value to shareholders.”

The children’s network, though, got complacent and let the quality of its franchises slip, while MTV is hurting because the entire world grew weary of the antics of the gang from Jersey Shore. Investors betting on Viacom are expecting another hit to ride to the company’s rescue, but there is no guarantee if or when that will happen.

Things aren’t much better over at Martha Stewart Living Omnimedia (NYSE:MSO[8]), either — the floundering media empire owned by the domestic diva.

Storm clouds have been circling MSO for months: CEO Lisa Gersh resigned[9] in December after less than a year on the job; Stewart’s penchant for chewing through capable CEOS like Susan Lyne is alarming; the company lost a staggering $50.7 million in the third quarter; and — as The New York Times recently noted[10] — Martha Stewart’s compensation has surged even as her company’s prospects have worsened.

All in all, there sure isn’t much to like here. Whether you’re looking at Murdoch, Redstone or Stewart, the bottom line is pretty clear: Even if these content kings and queens still rule, their kingdoms are continuing to shrink. And because of that, the stocks of these tycoons should be avoided.

As of this writing, Jonathan Berr did not own a position in any of the aforementioned securities. Follow him on Twitter@jdberr.

  1. NWSA:
  2. earnings conference call:
  3. failed to renew Morris’ contract:
  4. media reports:
  5. DIS:
  6. VIAB:
  7. Comedy Central:
  8. MSO:
  9. CEO Lisa Gersh resigned:
  10. The New York Times recently noted:

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