Expect more cable subscriber losses for providers and weaker advertising revenue for broadcasters and programmers during the second quarter, according to Barclays analyst Kannan Venkateshwar.
Venkateshwar said in a research note that with some exceptions, the quarter should see continued weakness in advertising, incremental pressure from foreign exchange in certain names, potential subscriber tailwind in some cases from the scaling of services such as YouTube TV and Hulu and conversations about M&A and organic OTT opportunities.
“We expect a challenging local advertising environment across our names although we also expect broadcasters to talk up the opportunity from the mid-term election cycle later in the year,” Venkateshwar wrote.
He said Discovery has benefited from expectations around cash flow upside from the Scripps deal but could be exposed to viewership weakness due to the World Cup, which could offset some of this benefit and re-tiering of some of the Scripps network. He noted that Discovery saw some insider buying during the quarter.
Meanwhile, Venkateshwar said there’s been lots of recent investor interest in Disney despite the bidding war with Comcast for Fox’s assets.
“We expect investors to focus on company commentary about deal accretion in the context of the bidding war as well as its OTT investment path,” Venkateshwar wrote.
On the provider side of the upcoming quarter, Venkateshwar said subscribers will be down and video revenue will be flat to down.
“On the cost front we expect a divergence across the sector as some are going into renewal cycles (like Charter), while most others do not have renewals near term. We believe the quarter could be a catalyst for Charter and Altice, with subscriber trends, margins and capital allocation being key variables. We believe Altice could have upside into the quarter, while Charter's quarter could have a bit more risk given the run-up recently (partially due to renewed M&A expectations),” Venkateshwar wrote.