AMC Networks, Discovery Communications and Scripps Interactive could be in for a rough 2017, according to MoffettNathanson analyst Michael Nathanson.
In a year-end blog post, Nathanson said his firm was wrapping up 2016 with Sell ratings for the three pure-play cable networks.
“We strongly believe that the greatest risk in the years ahead is the continued erosion of live scripted and non-fiction linear TV programming and the move to cull long-tail cable networks in new skinny bundles,” Nathanson wrote.
This year saw the launch of DirecTV Now and the continued maturation of other virtual MVPDs like Sling TV and PlayStation Vue. Next year should see even more participants enter that market space, according to Nathanson.
“Finally, the intense focus on MVPD subscriber formation and affiliate fees has only gotten stronger with the aggressively priced November launch of DirecTV Now and the expected early 2017 introductions of several new virtual MVPDs (e.g., Hulu, Google YouTube, Amazon),” Nathanson wrote.
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The continued pressure on pure-play cable networks amid shrinking bundles is forcing some media companies to think about less traditional methods of distribution. In addition to pushing for carriage in vMVPDs, companies like Discovery are planning to go direct-to-consumer with their channels.
Discovery CEO David Zaslav said his company is already “well positioned” to launch direct-to-consumer services in 2017.
Zaslav has been bullish on direct-to-consumer offerings and his company has already launched what he termed a “sports Netflix” in Europe with Eurosport, which offers live sports content for $8 per month.
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With networks like AMC, Discovery and Scripps at risk of being left out of more emerging skinny bundles, the stock for each company is potentially at risk.
As the report noted, multiples, or the amount investors are willing to pay for stocks per dollar earned, did not rise overwhelmingly for Discovery or Scripps, up 7% and 28%, respectively, year-over-year. Meanwhile, AMC was the only media company on MoffettNathanson’s coverage list that experience a drop in its multiple, down 28% from 2015.