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Big Media Earnings: Just Getting By or Getting On?

Quite a few Big Media players are likely to join the chorus of public companies whose latest quarterly earnings results have matched or beat analyst forecasts. But don't be fooled -- they're really just getting by.

Fully three-quarters of all public companies that have so far met or exceeded analyst estimates for second-quarter earnings have also reported virtually no revenue growth. That means there are basically no promising signs of an economic recovery.

Most of the improved financial performance at traditional media companies reporting so far, including Gannett, New York Times Co. and McGraw-Hill, has resulted from aggressive cost-cutting and lower guidance. While that boosts short-term stock prices, such maneuvers don't promise future growth.

By the time a full-blown economic recovery is underway, traditional media players who haven't radically revamped their operations and invested for the future will continue to suffer as consumer and advertisers continue to shift their spending to digital venues. That makes the recent 30 percent-plus surge in traditional media stocks a by-product of premature optimism.

Take this note from Goldman Sachs analyst Mark Wienkes, for instance:

Print and local media remain mired in 20 percent-plus declines year over year. NBCU's broadcast and cable net trends revealed national TV ad pacing at low-mid single digit deadlines.
NBCU's second quarter profits fell 41 percent on an eight percent decline in revenues. The GE subsidiary reiterated lower full-year segment guidance and that "no improvement" is visible. Results for many pure publishing and broadcast companies have been as bad. Even Google's quarterly revenues stagnated (up a mere three percent from a year earlier) which prompted uncommon cost cuts at the search giant. Microsoft and Amazon disappointed investors to the downside, blunting hopes for a recovery led by Internet giants whose businesses increasingly interface with and influence all media.

With TV station and theme park revenues down at least 20 percent and publishing revenues generally down 35 percent from a year ago, Wienkes expects Time Warner and Disney -- reporting this week -- will point to their moderately performing cable networks as bright spots. Not so for Viacom, whose media networks' operating income fell 12 percent in the second quarter on an eight percent decline in revenues. Overall, Viacom net earnings tumbled 32 percent to $277 million on $3.3 billion in revenues, down 14 percent from last year's second quarter.

"The Internet is moving too fast, too far," Liberty Media chairman John Malone told reporters outside the recent Allen & Co. conference. Advertising revenue will be insufficient as a sole source of revenue. It may be "too late" for some companies such as in the newspaper industry, he said. Media companies must devise new ways of being compensated, Malone says, just as cable operators convinced consumers to pay for premium programming following decades of advertising-supported free broadcast TV.

The best case for that argument may well be the truth behind media's latest quarterly financial reports.

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