Big media buy back shares with cable TV cash

Thu Feb 9, 2012 8:03am EST

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(Reuters) - Big U.S. media companies bought back record amounts of their own shares in the last year, with cash generated by cable television networks that drew strong viewership and advertising dollars despite the economic uncertainty.

News Corp was the latest media conglomerate to top Wall Street's profit forecasts after the market closed on Wednesday. Earlier in the day, Time Warner Inc posted a better-than-expected quarterly profit, following a robust report from Walt Disney Co on Tuesday. Viacom Inc, despite a ratings discrepancy that hurt its Nickelodeon network, also managed to beat expectations last week.

While media conglomerates are famous for having dealmaking mogul owners like Rupert Murdoch and Sumner Redstone, the maturity of these businesses combined with the after-effects of a long recession have brought a new shareholder-friendly stance.

"It's consistent with one of the big themes for this year in media: the focus is on returning cash to shareholders. I don't think acquisitions are on the radar right now," said Standard & Poor's analyst Tuna Amobi.

News Corp, still reeling from the phone-hacking scandal in Britain, has bought just over 6 percent of its free float back since July, and executives reiterated their ambition to complete their $5 billion buyback by June 30.

Time Warner spent nearly $5.6 billion, returning cash to shareholders through buybacks and dividends last year. On Wednesday the company, which owns HBO and CNN, raised its quarterly dividend by 11 percent and said its board had authorized another $4 billion in buybacks for 2012.

Disney raised its quarterly dividend by 20 percent while Viacom spent $700 million buying back shares in the December quarter alone.

Cable networks like Disney's ESPN, Viacom's MTV, News Corp's FX and Time Warner's TNT make money from advertising sales and carriage fees that they charge cable, satellite and phone distributors.

The media companies reported carriage fee revenue growth of 8 to 12 percent, and while there are some doubts that advertising sales growth can be sustained, S&P's Amobi argued the climate was not as bad as feared.

"There are still question marks on advertising but nothing earth shattering," said Amobi.

And there is one more reason why media conglomerates might feel confident even if cable networks' strong performance starts to soften: The Albanian Army.

The reference is one famously used last year by Time Warner Chief Executive Jeff Bewkes to disparage online video service Netflix Inc's impact on his suite of premium cable channels like HBO.

But Bewkes and other media bosses have changed their tune and now welcome the 'new money' from Netflix, Amazon.com Inc and others who want to launch online video services with their extensive library of TV shows and movies.

News Corp President Chase Carey said the company received $200 million in the first half of its current fiscal year from Netflix and Amazon. Viacom announced a new deal with Amazon on Wednesday.

Analysts said with library content deals like these a majority of the cash goes straight to the bottomline, since there are no new costs involved in creating the content.

BEST BUY

Though all the companies have performed strongly with shares up between 5 and 10 percent since the start of the year, there are still opportunities for growth, analysts said.

News Corp is seen as a better bet than its peers because it is still valued slightly below its rivals on an enterprise value to earnings basis. It trades just over 7 times estimated earnings, according to analysts at Collins Stewart. The average for most of its peers is just over 8 times.

"We like News Corp; it has the fastest growth over the next 12 months and the lowest multiples," said Collins Stewart analyst Thomas Eagan.

Time Warner, which forecast a better-than-expected profit outlook, is seen as having less upside in the short to medium term by analysts but they welcomed its investment in new original shows at networks.

"Time Warner's cranking along well; they have momentum in ratings and ad revenue and they continue to invest well in programming," said Miller Tabak analyst David Joyce.

On Wednesday, Time Warner shares closed up 1 cent at $38.11, while Viacom added 57 cents at $49.37. Disney edged up 29 cents to $41.27, and News Corp rose 12 cents to $19.62.

(Reporting By Yinka Adegoke)

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