U.S. media companies are likely in for a mixed bag of financial results once the third-quarter reporting season gets under way, according to MoffettNathanson analyst Michael Nathanson.
“Despite easy compares for those networks that didn’t air Olympics or Presidential coverage last year, 3Q C3 ratings were still mostly disappointing. Given that pressure and a tepid scatter market, we believe national ad growth will be negative for the third consecutive quarter,” Nathanson wrote in a research report.
But the firm sees a bit of a silver lining for companies that have MVPD negotiating leverage and virtual MVPD exposure and is forecasting that aggregate basic cable affiliate fees will grow 7% this quarter, an increase over the second quarter that is happening due in part to the successes at Turner and Fox.
Pay TV operators like AT&T have already indicated that the third quarter will be marred by even further subscriber losses but MoffettNathanson said that growth at vMVPDs like YouTube TV and Hulu could be helping to offset those losses. The firm anticipates net pay TV subscribers will decline by 3.4% this quarter, but only by 1.1% when factoring in anticipated vMVPD growth.
“However, notwithstanding this laser focus on subscriber losses, we expect domestic affiliate fee growth in 3Q to show modest acceleration from 1H 2017 as a result of the initial take-up of vMVPDs and acceleration at 21st Century Fox due to timing of renewals. Digging into the numbers across the major cable network portfolios, we estimate 3Q growth of +6.6%, +50 basis points about the +6.1% rate of growth in 2Q,” wrote Nathanson.
Further, the firm expects U.S. affiliate fees for the third quarter to grow 9% after combining domestic cable network affiliate fees with strong retrans growth at the broadcast networks. The firm anticipates retrans will grow 31% this quarter thanks largely to faster growth at NBC.