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Better Signals for Broadcasting

By Sam Stovall After getting some static from investors last year, broadcasting stocks have received a better reception in 2003. After a 30.3% fall in 2002, vs. a 22.5% drop in the S&P Super 1500 (the combined S&P 500, S&P MidCap 400, and S&P SmallCap 600 indexes), the S&P Broadcasting & Cable TV index has risen more than 20% year-to-date through Aug. 1, vs. a 13% gain for the "1500".

That performance has landed them in the Industry Momentum portfolio -- the list of industries with top Standard & Poor's Relative Strength rankings. Standard & Poor's investment outlook for the subindustry is modestly positive.

Tuna Amobi, S&P's Broadcasting analyst, bases his optimistic outlook on expected gains from accelerating penetration of cable's highly profitable high-speed data product as well as indications of a likely robust advertising recovery as recently manifested in record bookings during the recent 2003-04 upfront ad season.

MANAGING CHURN. Amobi says cable operators have begun to reap the rewards of heavy capital spending for advanced system upgrades, with more than $70 billion spent over the past eight years. Cable outfits are aggressively deploying high-speed data and ancillary services such as video-on-demand (VOD), high-definition TV (HDTV), personal-video recorders (PVRs), and telephony.

As a result, notes Amobi, they are now better situated to manage subscriber churn (turnover), while meeting stiffer digital-video and DSL competition from DBS operators. But S&P's outlook is tempered by a congressional inquiry into cable rate hikes amid escalating program costs.

Amobi believes broadcasters should greatly benefit from a likely near-term ad rebound, with S&P expecting mid- to high-single digit growth for 2003. With the cooling of war jitters and the consumer-confidence rebound, strong pricing helped fuel record upfront TV advertising demand, with cost per thousand viewers (CPM) hikes reportedly as high as 22%. With the war dislocating ad spending in the first half, Amobi thinks both radio and TV broadcasters (as well as ad-supported cable) should benefit from the release of pent-up demand in the second half.

SPANISH ACCENT. S&P has a favorable outlook on broadcasters that target Hispanics, a demographic segment with rising population and disposable income. Leading Spanish-language broadcasters are luring more marquee advertisers, sometimes at the expense of English language peers.

Also, the recent easing of FCC media ownership rules should provide opportunities to leverage scale efficiencies and synergies across multiple TV stations and media platforms. But new geopolitical uncertainties and terror alerts, a delayed rebound in consumer confidence, and other macroeconomic variables could adversely impact the pace of an anticipated recovery.

Amobi's top pick in the group? He ranks Comcast -- both its Class A shares (CMCSA) and its nonvoting Comcast 'A' Special shares (CMCSK) -- 5 STARS, or buy. The Class A shares are also included in the S&P Top 10 portfolio.

Industry Momentum List Update

For regular readers of the Sector Watch column, here's this week's list of the 11 industries in the S&P Super 1500 with Relative Strength Rankings of "5" (price performances in the past 12 months that were among the top 10% of the industries in the S&P 1500) as of August 1, 2003.




Biotechnology/Health Care

Amgen (AMGN)


Broadcasting & Cable TV/Consumer Discretionary

Comcast (CMCSA)


Computer Storage & Peripherals/Info. Tech.

Storage Technology (STK)


Constr, Farm Mach & Heavy Trucks /Industrials

Caterpillar (CAT)


Consumer Electronics/Consumer Discretionary

Harman International (HAR)

Not Ranked

Diversified Metals & Mining/Materials

Phelps Dodge (PD)


Homebuilding/Consumer Discretionary

Lennar (LEN)


Internet Retail/Info. Tech.

eBay (EBAY)


Internet Software & Services/Info. Tech.

Yahoo! (YHOO)


Office Electronics/Info. Tech.

Xerox (XRX)


Wireless Telecom Svcs./Telecom Svcs.

Nextel (NXTL)


* S&P's stock appreciation ranking system for the coming 6- to 12-month period: 5 STARS (buy), 4 STARS (accumulate), 3 STARS (hold), 2 STARS (avoid), 1 STAR (sell). Stovall is chief investment strategist for Standard & Poor's

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