Barclays on U.S. Media: Stern's Stocking Stuffer: NBA to Return
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Rating Summary:
14 Buy, 24 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Barclays on U.S. Media: Stern's Stocking Stuffer: NBA to Return
Barclays analyst, Anthony J. DiClemente, said, "Over the Thanksgiving holiday weekend, the National Basketball Association and the NBA players' union reached an agreement in principal to terminate the lockout after 149 days and begin an abbreviated 66 game season on Christmas day. The new 10-year deal results in an even split for league revenues between owners and players, down from the 57% share which the players used to take home. We view this deal as a small positive for Time Warner (NYSE: TWX), and likely neutral for Disney (NYSE: DIS), which both have exposure to the NBA through carriage of regular season and playoff games. In a macro environment where uncertainly weighs on earnings estimates for the media companies, we believe the lockout resolution should help lift any NBA-related overhang on TWX and DIS stock, and could even result in modest upside to muted ad growth expectations."
"Close to $800M in ad revenues were at stake: According to Kantar Media, buyers spent $807M on NBA advertising inventory last year, a fraction of the estimated $3B spent on the NFL, but still not an insignificant sum for the networks. While the abbreviated NBA season might mean that total NBA-related ad revenues will be down Y/Y, we note that network margins may stand to improve since replacement programming for the missed games is much higher margin. As for the roughly $900M+ in annual TV rights fees which we estimate the networks pay to the NBA, we believe a pro-rata portion of that could be refunded to the networks for the cancelled games, or that the networks could receive additional games as compensation."
"Implications for TWX and DIS: On TWX's 3Q earnings call, management cautioned that the NBA lockout would reduce 4Q ad growth by "about 200 to 300 bps," assuming that no games were played in the quarter. As a result, we modeled a conservative 6.5% for 4Q ad revenue growth at the networks segment. But with the season now set to tip off on Christmas Day, we believe there could be 50 to 100 bps of upside to our ad revenue estimate, although EPS will likely be unchanged. At DIS, where we estimate NBA revenues make up 5% of total ABC/ESPN ad revenues (as compared to 9% for TWX), we estimate that the upside to estimates will be minimal.
Barclays analyst, Anthony J. DiClemente, said, "Over the Thanksgiving holiday weekend, the National Basketball Association and the NBA players' union reached an agreement in principal to terminate the lockout after 149 days and begin an abbreviated 66 game season on Christmas day. The new 10-year deal results in an even split for league revenues between owners and players, down from the 57% share which the players used to take home. We view this deal as a small positive for Time Warner (NYSE: TWX), and likely neutral for Disney (NYSE: DIS), which both have exposure to the NBA through carriage of regular season and playoff games. In a macro environment where uncertainly weighs on earnings estimates for the media companies, we believe the lockout resolution should help lift any NBA-related overhang on TWX and DIS stock, and could even result in modest upside to muted ad growth expectations."
"Close to $800M in ad revenues were at stake: According to Kantar Media, buyers spent $807M on NBA advertising inventory last year, a fraction of the estimated $3B spent on the NFL, but still not an insignificant sum for the networks. While the abbreviated NBA season might mean that total NBA-related ad revenues will be down Y/Y, we note that network margins may stand to improve since replacement programming for the missed games is much higher margin. As for the roughly $900M+ in annual TV rights fees which we estimate the networks pay to the NBA, we believe a pro-rata portion of that could be refunded to the networks for the cancelled games, or that the networks could receive additional games as compensation."
"Implications for TWX and DIS: On TWX's 3Q earnings call, management cautioned that the NBA lockout would reduce 4Q ad growth by "about 200 to 300 bps," assuming that no games were played in the quarter. As a result, we modeled a conservative 6.5% for 4Q ad revenue growth at the networks segment. But with the season now set to tip off on Christmas Day, we believe there could be 50 to 100 bps of upside to our ad revenue estimate, although EPS will likely be unchanged. At DIS, where we estimate NBA revenues make up 5% of total ABC/ESPN ad revenues (as compared to 9% for TWX), we estimate that the upside to estimates will be minimal.
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