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Diversified companies like Walt Disney, News Corp., Time Warner and Viacom are well-positioned to weather the current credit crunch; they are likely to be supported by predictable revenue streams and high margins, according to Fitch Ratings.
In addition, the companies’ credit lines are unlikely to be affected by the mergers of Citigroup with Wachovia and Bank of America with Merrill Lynch, writes Bloomberg.
Still, shares of Walt Disney and Time Warner were hit hard after the House refused to pass the government bailout package for the financial sector. The companies led the entertainment sector in losses, both declining 9.2 percent on Monday. The market rallied on Tuesday, regaining a large part of what it lost the day before, but media stocks lagged in the bounce-back, Broadcasting & Cable points out.
Christopher Marangi, an analyst with Gabelli & Co., predicts that the near-term earnings for entertainment companies, which generate revenue from advertising, subscriptions and the sale of content, will be impacted by the current credit crisis, “with advertising being the most susceptible,” Forbes writes. Marangi believes that because entertainment companies have products that consumers want, the companies will bounce back.
Interestingly, some of the sectors that have taken a particular beating in recent months outperformed the broader markets on Monday, according to Adweek. Radio players Cumulus Media and Entercom Communications were up (6 percent and fractionally, respectively). That may have been the result of shorts covering their positions, according to Dennis Leibowitz of media-focused hedge fund Act II Partners.
Fitch says that the Tribune Company has a very limited margin of error in relation to its debt covenants, and estimates that (assuming all else equal), less than a 10% drop in EBITDA for Tribune could put the company at risk of breaching its guaranteed leverage ratio. Fitch explores these issues in a new report, Liquidity Focus: U.S. Media and Entertainment.
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