From Disney to Nexstar, Media Shares Fall on Advertising Concern

(Bloomberg) -- Another quarter, another big selloff in media stocks fueled by TV advertising fears.

Shares of cable-network owners and local broadcasters dropped Wednesday after Time Warner Inc. and Sinclair Broadcast Group Inc. gave ad sales forecasts that fell short of analysts' expectations. Three months ago, a decline in first-quarter ad revenue at Time Warner's Turner division sent media stocks tumbling.

Shares of Walt Disney Co., 21st Century Fox Inc., CBS Corp. and Viacom Inc. all sank after Time Warner reported results early Wednesday. Other broadcast station owners, like Gray Television Inc. and Nexstar Media Group Inc., fell on a similarly bleak outlook from Sinclair.

It was two years ago this week when Disney sparked a media stock meltdown by lowering growth expectations at ESPN. That caused a panic on Wall Street about subscriber losses from “cord-cutting” -- households getting rid of cable in favor of watching video online. Now, investors are wary that the other way that TV networks make money -- advertising -- is in decline because there are fewer viewers.

Time Warner said Wednesday that it expects third-quarter advertising sales at its Turner channels, which include TBS and TNT, to decline “in the low single digits” from a year earlier, due to ratings declines.

Time Warner's advertising outlook for the third quarter is “surprisingly soft,” said Barton Crockett, an analyst at FBR Capital Markets & Co. He said CNN's audience boost from high interest in the news cycle has not made up for ratings declines at other Time Warner networks.

“This was lighter than we previously anticipated for Turner in particular, but consistent with our general market view,” said Brian Wieser, an analyst at Pivotal Research Group.

Shares of Time Warner were little changed because the company is in the process of being acquired by AT&T Inc. for $85.4 billion.

Sinclair, meanwhile, said Wednesday that second-quarter ad revenue, excluding political ads, was down slightly and it expects third-quarter advertising revenue to be “flat to up” low single digits. Wells Fargo & Co. analyst Marci Ryvicker, who expected a 3 percent boost in ad sales next quarter, called the company's guidance “soft.”

Sinclair is the nation's largest owner of broadcast TV stations and is awaiting approval to acquire Tribune Media Co. “We believe we are guiding for some of the best performances in the industry,” said Steve Marks, chief operating officer of Sinclair's television group.

The sobering outlook from Time Warner and Sinclair came on the heels of a dismal report Monday from Scripps Networks Interactive Inc. The owner of HGTV and Food Network saw ratings declines last quarter, forcing it to cut its revenue and earnings forecasts for the year.

Like Time Warner and Sinclair, Scripps is contending with the television industry's woes by seeking strength in numbers. The company also announced on Monday that it's being sold to another cable-network owner, Discovery Communications Inc.

To contact the reporter on this story: Gerry Smith in New York at gsmith233@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum