What Is the Appeal of Unique Service An Content Companies Like Sirius (SRI), Martha Stewart (MSO) And Lions Gate (LGF)? What Risks Do They Carry? Analyst At RBC Capital Markets Explains In This Exclusive Interview
November 2, 2011 - The Wall Street Transcript has just published Luxury Goods & Entertainment Report offering a timely review of the Media sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
David Bank is a highly regarded Analyst at RBC Capital Markets who brings to our team many years of experience in equity research, high yield research and investment banking. He was named Best on the Street by The Wall Street Journal for the media sector in 2009, and has also received recognition as an earnings estimator in the annual StarMine rankings - number one in 2007, number three in 2009. Mr. Bank joined RBC Capital Markets in 2000 from ING Barings, where he was a Senior Member of the equity research division. Prior to that, he worked in the high yield research division at ING Barings, covering telecommunications and media companies. Before becoming a Research Analyst, Mr. Bank was an Investment Banker at both Furman Selz L.L.C. - later acquired by ING Barings - and Credit Suisse First Boston.
TWST: What will you be looking for in third and fourth quarter announcements?
Mr. Bank: I think for network TV, both cable and broadcast, which are the biggest drivers in all the media conglomerates, the best indicator we're going to have will be cancellation of options on national TV advertising for 1Q12. You have the ability to cancel some of your upfront advertising if either, "A" you just don't have the dollars to spend, or "B," you think you'd be better off going back into the scatter market and paying less of a premium. That cancellation-option period for the first calendar quarter of 2012 will occur in early November, so I think we will have a pretty good read on first quarter beginning as of November, at least with that as a metric. I think we'll have to see how companies increasingly are talking about the 2012 marketing spends, which I think are very fluid on the advertising side, and whether or not all of this international market and sovereign debt volatility, particularly in Europe, leads to any real economic changes. We'll be keeping a close eye on that.
TWST: How about the unique service and content companies you cover, Sirius, Martha Stewart and Lions Gate? What's new or interesting in their businesses?
Mr. Bank: Martha Stewart (MSO) is a bit of an odd duck, but companies like Sirius (SRI) or Lions Gate (LGF) in an odd way tend to be, I think, a little bit less macro sensitive on the one hand; but on the other hand, they carry other kinds of risks. For Lions Gate, they have an enormous potential new franchise in "The Hunger Games" which many people think could be the next "Twilight" a new source of value creation; on the other hand, it could bomb. You're talking about a good old-fashioned, hit-driven business. How many people are going to buy tickets to the movie? If it's more than we think, it could drive a lot of upside to the stock; and if it's less, it's less. Martha Stewart, I think some people think the company is potentially in play. Whether or not it's for sale, they're certainly looking for strategic partners for lots of different pieces of their business. And I think people will look to see how that develops and want to see how the publishing model for them plays out into 2012 against a real volatile macro publishing environment. Print advertising has been a tough category. Sirius just announced a price increase, and it's unclear how quickly it's going to roll through to the entire sub-base. They are also experimenting more with the used car market. So there are a lot of interesting developments there. I think the penetration is still low enough such that they probably have less macro risk. If you're one of the 20-million-some-odd subscribers to Sirius, you probably aren't going to churn because it's a choice of buying Sirius or buying food or gas or something. You're still a relative early adopter, and you're probably skewed more toward the middle or upper classes. I think we'll be looking at potential capital allocation there as the company starts to delever.
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