Media Companies Face the Coming Slowdown

U.S. ad spending is going to be worse than that in Western Europe and Asia, but emerging markets should see growth. As a result, global growth will likely be down 4% to 5%.

This background colors the commentary from management at the conference as well as my opinion of what stocks are best to own. My media portfolio presently consists of Central European Media Enterprises (CME - commentary - Cramer's Take), Discovery Communications, Dreamworks Animation (DWA - commentary - Cramer's Take) and Time Warner.

Key takeaways from TWX focused on advertising trends, AOL and the coming split with Time Warner Cable (TWC - commentary - Cramer's Take). On advertising, CEO Jeff Bewkes admitted that business is slowing and visibility is poor but says TWX's cable networks continue to outperform the industry. On AOL, Bewkes discussed at length AOL's positioning and indicated that it has reached the conclusion that it is better off paired with a larger entity or maybe even operating independently.

On the cable split, he indicated that it is on schedule for the first quarter of 2009 and that the cash ($9.3 billion) and improved balance sheet (debt 1.6 times EBITDA) would be prioritized to shareholders in a "steady" manner. I hear that as a meaningful annual dividend, which would be a positive. Overall, not much new, but I believe Bewkes is gaining investor confidence in improved performance for TWX on an operating and strategic level.

As for Discovery Communications, CEO David Zaslav offered very little new info in his overview. He did outline the unique growth profile for DISCA driven by international subscriber growth, international advertising growth, U.S. digital subscriber growth and redevelopment of U.S. channels. The advertising recession is going to pressure DISCA, especially in the U.S., but relative operating performance vs. peers should remain quite positive. Improved ratings recently at Discovery and TLC should help near-term results. Animal Planet needs better monetization, and this is a focus of management. The investment case for DISCA is nonfiction programming plus international plus dual revenue stream plus HD.

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At time of publication, Birenberg was long CME, DISCA, TWX and DWA, 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.