Disruption put on hold by Supreme Court

The US Supreme court’s recent Aereo ruling looks set to put a halt on this particular flavour of tech disruption. This ruling saw broadcast firms, many of whom came under renewed pressure from short sellers in recent weeks, surge.

• Broadcast firms have seen short interest rise by a third since the start of the year
• Yesterday’s court announcement saw the companies surge by 2% across the board
• Heavily shorted Sinclair, Nexstar and Media General posted double digit gains

Yesterday saw the US Supreme Court pass judgment on whether start up Aero had the right to virtually host and stream local broadcasts captured through individual physical antennas located in faraway media markets. To a layman, Aereo’s aim was to capture free to air local broadcasts, such as sporting events, and stream them to out of market locations. This ambition was strongly opposed by local broadcasters, which viewed it as an infringement of their broadcast. It comes as no surprise, therefore, that these companies rallied strongly upon the 6-3 Supreme Court ruling in their favour.

Shorts piled in

The ongoing legal saga saw short sellers pile into broadcasters facing the prospects of losing one of their key selling points to virtual upstarts, which essentially piggyback on their programing. Current demand to borrow broadcast shares across North America has surged by a third in the last six months, a trend that has outpaced the broader media universe whose demand to borrow has jumped by a quarter.

While the average percentage of shares out on loan is roughly in line with that of the broader world, the increase shows unease in what was arguably one of the least volatile segments of the media universe.

Shares squeeze

This court-dictated reversal of fortunes saw shares in publically traded broadcasting firms surge ahead of all their media peers in the wake of the ruling yesterday. Broadcasters jumped by 2.3% on average yesterday, nearly four times the 0.6% appreciation seen across the whole spectrum of North American media firms.

Leading this pack are three firms which were at the centre of the Aereo controversy. Local broadcast conglomerates Sinclair, Nexstar and Media General made up three of the four media firms whose shares surged by more than 10% yesterday. These firms, whose entire business stems from operating, have been at the forefront of the recent surge in short interest. All three firms have seen more than five times the average demand to borrow across their media peers.

Despite the recent squeeze however, all three firms still trade below where they did at the start of the year. With the advent of web based streaming services, the recent swing shows that while the firms may have swatted away one potential threat, they still face tough competition to stay relevant in today’s media ecosystem.

Another name seeing its shares surge was CBS, the largest publically traded broadcaster, which had its best trading day in nearly three years after it posted a 6% increase.