Weekly Media Notes: BskyB Transaction, CBS Blackout Averted And Disney’s Focus On China

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The media industry saw significant activity last week, with BSkyB completing the acquisition of Sky Italia and Sky Deutschland. In an another development, CBS Corporation and Dish Network has agreed to extend the deadline for carriage agreement, thus averting a blackout. However, Time Warner has warned Dish subscribers that the satellite company may also drop TNT and TBS networks. And in yet another, Disney expands its partnership with Shanghai Media Group to co-produce movies in the region. On that note, we discuss below these developments related to the media companies over the last week or so.

BSkyB Completes The Deal For Sky Italia And Sky Deutschland

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21st Century Fox (NASDAQ:FOX) has exited its DBS business with BSkyB acquiring Fox’s 57.4% stake in Sky Deutschland and 100% of Sky Italia for $8.6 billion cash and BSkyB’s 21% stake in National Geographic Channel. Fox will invest $900 million into BSkyB to retain its 39.1% stake. BSkyB is now the largest pay-TV operator in the Europe with close to 20 million subscribers. With this acquisition, BSkyB’s potential subscriber base will be around 97 million, with operations in the U.K., Ireland, Italy, Germany and Austria. [1]

We estimate revenues of about $31.4 billion for 21st Century Fox in 2014, with EPS of $1.54, which is in line with the market consensus of $1.45-$1.64, compiled by Thomson Reuters. We currently have a $39 price estimate for 21st Century Fox, which is about 15% ahead of the current market price.

CBS And Dish Extend Carriage Deadline

CBS Corporation (NYSE:CBS) and Dish Network (NASDAQ:DISH) have agreed to a short-term contract extension while negotiations continue. CBS is the most watched network with solid primetime programming and it would expect a substantial increment in retransmission fees. It has been learned that the both the companies are wrangling over several points including, Dish’s AutoHop feature and digital rights to CBS’ content. [2] While it will be interesting to see the outcome of these negotiations, a blackout of CBS networks can weigh heavily on Dish Network. Last year, Time Warner Cable (NYSE:TWC) dropped CBS in some of the markets for almost a month and it led to a subscriber decline of more than 300,000 during that quarter. Dish’s deal with Turner Networks is also expiring soon. Turner noted on its website that Dish Network may drop TNT and TBS networks. The company’s other 8 networks including, CNN, Adult Swim and Cartoon Network have not been available to Dish customers since October 21st. The current agreement for TNT and TBS will expire on December 5th. It must be noted that TNT and TBS, unlike CNN or Cartoon Network, command higher ratings and dropping them may hurt Dish in the near term.

We estimate revenues of about $14.56 billion for CBS Corporation in 2014, with EPS of $3.00, which is in line with the market consensus of $2.90-$3.30, compiled by Thomson Reuters. We currently have a $52 price estimate for CBS Corporation, which is slightly lower than the current market price of $53.

Disney

Disney (NYSE:DIS) expanded its relationship with Shanghai Media Group to co-produce movies with its first project Born in China, which is expected to release in 2016. [3] China is one of the key markets for movie studios and brings in a significant amount of box-office grossing. It accounted for close to 10% of the Disney’s overseas box-office grossing in 2013, according to our estimates. Disney has been eyeing China for growth in the coming years and is developing a $4 billion theme park resort in Shanghai. It is also building world’s largest Disney Store in Shanghai and it is expected to open in 2015.

We estimate revenues of around $49 billion for Disney in 2014 and EPS of $4.08, which is in line with the market consensus of $3.87-$4.38, compiled by Thomson Reuters. We maintain a $93 price estimate for Disney’s shares, which is close to the current market price of $88.

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Notes:
  1. BSkyB Completes £7bn German And Italian Deal, Sky News, Nov 13, 2014 []
  2. CBS, Dish Network Agree to Short-Term Extension to Avoid Blackout, Variety, Nov 20, 2014 []
  3. Disney Expands Shanghai Media Group Partnership, The Wall Street Journal, Nov 21, 2014 []