Earnings Preview: What To Look For From Disney, Time Warner, Warner Music, EA

This story was written by Rory Maher.

Four entertainment companies, including two bellwethers, report quarterly earnings this week that should give investors and executives in the media space a picture of what to expect in what is starting off as an increasingly difficult 2009.  *Disney*, *Electronic Arts*, *Time Warner*, and Warner Music report throughout the week.  Here is what to look for:

The Walt *Disney* Company reports Tuesday after the market closes: TV and cable results are expected to have been weak in the quarter due to declining ratings and a deteriorating ad environment. However, look for any details about Disney (NYSE: DIS) management's expectations from the auto and consumer advertising sectors in 2009 (both large digital categories). TV and cable industry expectations are for a weak 2009, but indications that auto and consumer categories may suffer either more or less than expected in 2009 will have implications on industry forecasts across all media.

With Warner Brothers' recent announcement of impending layoffs, most analysts expect a difficult 2009 for the studios. Because Disney's results in the previous year's quarter were stronger than those of many of its competitors, comparatively weak results this quarter wouldn't necessarily indicate further industry softening.  A surprise on the upside would be a positive indicator for the industry, but this is unlikely. Current consensus estimates for the company call for 5 percent to 10 percent declines in the quarter.

Time Warner reports Wednesday before the market opens: The most relevant results for digital media clearly come from AOL (NYSE: TWX).  Anything better than double-digit declines in the quarter would indicate that the online display advertising environment is stabilizing heading into 2009.  More likely, though, is a worse-than-expected quarter and continued declines at least into 2H09 and probably into 2010. More importantly, listen for what management says about the lead-time of the typical online media buy. This window shrank significantly in 2008.  While it likely cannot get any tighter, more lead time on the part of advertisers would indicate increasing confidence about 2009 (also unlikely).

Turner Networks fared well throughout 2008, driven by above-average ratings and ad rates. However, watch for the cable and film division to forecast 2009 results in line with the industry, or close to flat.

Warner Music and *Electronic Arts* after the jump.

*Warner Music Group* reports Thursday before the market opens: Industry sales (CD and digital) were down 15 percent for the quarter so WMG'S growth relative to this number should indicate its ability to continue to gain market share, one of the only bright spots in the Warner story.

Many digital media executives will be watching for what management has to say about its negotiations with YouTube and other digital companies.  Even in recessionary times, the company continues to demand the same large upfront cash payments and guaranteed royalties per stream from its online partners. Will Warner management signal the company's desire to come to the negotiating table in a meaningful way?

*Electronic Arts* reports Tuesday after the market closes: EA's lack of blockbuster hits (it is largely a mid-tier player) doesn't make it the best benchmark for the gaming industry since its market share is relatively small. However, consensus for the company is for flat to 5 percent growth in the quarter, versus 10 percent to 15 percent for the industry, so results either above or below low-single-digit growth could indicate whether 2009 industry expectations are achievable.

By Rory Maher