Weekly Pay-TV Notes: Comcast’s Earnings, Turner Networks Blackout And Pause On Pay-TV Merger Review Deadlines

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The pay-TV industry saw significant activity this week, with Comcast reporting better than expected third quarter earnings. Dish Network dropped Time Warner’s 8 cable networks including CNN and Adult Swim after failing to reach an agreement. In an another development, FCC paused its review of Comcast and Time Warner Cable and DirecTV and AT&T merger. On that note, we discuss below these developments related to the pay-TV companies over the past few days.

Comcast

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Comcast (NASDAQ:CMCSA) reported 12% jump in normalized earnings for the third quarter. [1] The company benefited from the continued growth in broadband and NBCUniversal. Theme parks revenue grew 19% driven by The Wizarding World of Harry Potter, which boosted the attendance and guest spending. The company lost 81,000 pay-TV subscribers and added 315,000 new broadband subscribers during the quarter (Read More – NBCUniversal Boosts Comcast’s Q3 Earnings).

We estimate revenues of about $68 billion for Comcast in 2014, with Non-GAAP EPS of $3.02, which is in line with the market consensus of $2.86-$3.1, compiled by Thomson Reuters. The company’s stock jumped over 3% after the third quarter earnings were released. We currently have a $60 price estimate for Comcast, which we will soon update based on the third quarter earnings announcement.

 

Dish Network

Dish Network (NASDAQ:DISH) has dropped 8 of Time Warner’s cable networks including CNN, Adult Swim, Cartoon Network and truTV. The networks are unavailable to 14 million households. [2] The contract between the two companies ended in June and got multiple extensions but the talks failed this week over the issue of time distance between smaller and larger networks. Dish wants to maintain the time distance while Turner wants it to be closer. It must be noted that TNT and TBS are not impacted by this dispute as they are provided to Dish under a separate contract. Such blackouts are usually not good for either of the parties involved. However, in this case, it won’t have a significant impact on either of the company. Time Warner earns around 3% of its subscription revenues from Dish and even if these networks are blacked out for a year, it may drop Time Warner’s earnings by a mere 1%. [3] Dish also is unlikely to lose many subscribers, as these networks do not command high ratings.

We estimate revenues of around $14.4 billion for Dish Network in 2014, with EPS of $1.9, which is in line with the market consensus of $1.5-$1.9, compiled by Thomson Reuters. The stock price has moved up more than 4% in this week. We currently have a $65 price estimate for Dish Network, which is more than 5% ahead of the current market price.

DirecTV

The FCC has paused its review deadline of the proposed merger of DirecTV (NASDAQ:DTV) with AT&T (NYSE:T). The review was in its 76th day of a 180-day deadline window. The FCC also paused the review of Time Warner Cable’s (NYSE:TWC) proposed merger with Comcast a day earlier. [4] The move is a routine administrative measure as the FCC needed more time to look at the issue of sharing sensitive information about pay-TV carriage contracts with third parties. Several media houses, including CBS (NYSE:CBS), Disney (NYSE:DIS) and Viacom (NASDAQ:VIA) have protested a ruling to allow certain third-parties to view parts of their contracts with Comcast and DirecTV. While it will be interesting to see how this issue will be handled by the FCC, Comcast still hopes to close the transaction in early 2015. [5]

We estimate gross revenues of around $33 billion for DirecTV in 2014, with EPS of $5.75, which is in line with the market consensus of $5.73-$6.17, compiled by Thomson Reuters. We currently have a $95 price estimate for DirecTV, which is more than 10% ahead of the current market price.

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Notes:
  1. Comcast’s SEC Filings []
  2. Turner Networks Removes Channels from DISH as Contract Deadline Passes, Dish Network’s SEC Filings, Oct 21, 2014 []
  3. Will Time Warner Feel A Bruise From Its Battle With Dish Network?, Deadline, Oct 21, 2014 []
  4. FCC stops clock on Comcast, AT&T-DirecTV reviews, The Los Angles Times, Oct 22, 2014 []
  5. Comcast Corporations’ (CMCSA) CEO Brian Roberts on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 23, 2014 []