Looking Back and Looking Ahead at the Media Sector

It's been a rough year for investors. My own performance has been mediocre, with most of my clients ending up plus or minus a couple of percent relative to the S&P 500. I believe I could have done better, but I use a fully invested strategy, so it was very tough to make much progress.

Further complicating matters was that it was a terrible year for media stocks. SNL Kagan's Media and Entertainment Index is down almost 53% this year, far worse than the 41% decline for the S&P 500. Kagan has 13 sub-indices for media and entertainment, and every single one was down more than the S&P 500. Keeping in mind that there is some overlap in these indices, since some companies are included in more than one index (for example, Time Warner (TWX - commentary - Cramer's Take) is in both diversified entertainment and cable networks), here are the ugly numbers:

Media Sectors in Free Fall TV Stations -74% Broadcasting -68% Content and Distribution -67% Newspapers -66% Radio Stations -65% Publishing -62% Cable Networks -51% eCommerce -51% Theaters -50% New Media -48% Diversified Entertainment -47% Studios -46% Movies -46% Source: SNL Kagan

The damage was worst among small-cap media companies. The SNK Kagan Small Cap Media index fell an amazing 86%, while the Large Cap index dropped 48%. The complete collapse in radio stocks, most of which now trade for less than $1, led the decline in small-caps.

My own stock-picking in media was mixed in 2008. I made one very good decision, a few very bad ones and a bunch that were not terrible on a relative basis but that I wish I could have back.

My best move was to sell my positions in Disney (DIS - commentary - Cramer's Take) and News Corp. (NWS - commentary - Cramer's Take) in late May. Both stocks collapsed since then, with News Corp. dropping 52% and Disney falling 36%. I made these sales after Viacom's (VIA - commentary - Cramer's Take) May announcement that it had witnessed a rapid deterioration in advertising sales. This weakness occurred before the economy completely succumbed to the deep recession and was definitely prior to Wall Street's total acceptance of the weak-economy thesis.

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At time of publication, Birenberg was long CETV, DISCA, DWA and TWX in personal and client accounts, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.