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How Would Major Media Companies Fare In A Downturn

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How Would Major Media Companies Fare In A Downturn

Highlights

- Media companies are less exposed to economic cyclicality than in the past as nonadvertising revenues, such as per-subscriber distribution fees, account for a greater share of overall revenues.

- Balance sheets for the companies we surveyed are already stretched because of merger and acquisition (M&A) activity or aggressive share repurchases. Those companies, which already suspended or will soon suspend, share repurchases to reduce leverage, have limited financial tools to increase the pace of debt reduction in the event of an economic downturn.

- Our stress analysis shows that our ratings on Comcast, Disney, and Viacom are more vulnerable to economic stress.

Oct. 29 2018 — Investors are attracted to U.S. media companies because of their favorable financial characteristics, including healthy EBITDA margins, low capital expenditures, strong cash flow generation, and healthy shareholder returns. Still, the media industry remains vulnerable to economic cycles as advertising is strongly correlated to GDP and an integral part of the industry. Lest anyone forget, many media companies survived the great recession of 2008 during which advertising dropped precipitously by halting share repurchases, and in some cases, slashing dividends.

To investigate whether a recession could trigger rating actions for rated media companies, we applied an economic stress scenario to six major global media companies: AT&T Inc. (owner of Warner Media), CBS Corp., Comcast Corp. (owner of NBCUniversal), Discovery Inc., Viacom Inc., and The Walt Disney Co. We modeled in a two-year recession, with the global economy beginning to unravel in the first quarter of 2019, an economic trough in mid-2020, and a recovery in 2021. 

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