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Media stocks dive deeper than broad sell-off

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Media stocks dive deeper than broad sell-off

U.S. stock markets took a dip during the week ending April 8,and media and communications companies were feeling the drag.

After a boom starting in mid-February, stocks have shown someshakiness in recent weeks, with all eyes now focused on the upcoming second-quarterearnings season.

SNL Kagan's media indexes felt the down week, with the SNL KaganMedia & Entertainment Index and the SNL Kagan Communications Index both downover 1%, outpacing declines in the broad markets as the S&P 500 and NASDAQ.

In turn, there were more major decliners among media stocks thanmajor gainers.

Viacom Inc.was not an exception.

Investors were spooked by a downgrade from Citi analyst Jason Bazinet, who put the companyat "neutral" just weeks after upgrading it to "buy." At issuewas the company's stake in Paramount Pictures. The studio's box office results havebeen uninspired lately, the analyst argued, and forecasters believe Viacom's stockwill suffer as Paramount continues to "perform poorly."

Though Viacom might soon sell a portion of its stake in the moviestudio, Bazinet was not happy with the valuations being discussed. "First,we would rather see Viacom sell 100% of Paramount. Second, the valuations in pressreports are below the $7 billion EV we used previously," the analyst said,according to

The consensus EPS estimate dropped to $5.14 for fiscal year 2016,according to S&P Global Market Intelligence. Shares of the television mediagiant plummeted 7.3% from their March 31 close through the April 7 close. 

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Elsewhere in television, premium network Starz made headlines during the week, and it was also notspared from bearish sentiment on the markets.

The company was the object of much M&A during the early days of theyear. Investors seem to have grown less enthusiastic about the company's sharesas the speculation has worn off.

On April 5, the programmer launched a stand-alone subscription streaming app that willprovide access to 2,400 selections per month, including original series like "Outlander."The platform will also allow up to four users to watch simultaneously and providefor offline viewing.

Starz, like many other traditional television companies, is feelingpressure as consumers increasingly shift their viewing habits to digital, and thenew app represents the company's forward-lookingresponse to those trends. However, it was not enough to rally sentiment from theinvestment community, which had already begun selling off shares before the OTTnews broke.

Starz shed about 6.6% of its market cap during the week.

Starz was not the only media name to get clobbered on the backof what some considered good news.

World WrestlingEntertainment Inc. shares dropped precipitously after it reported recordsubscribers for its digital service. Driving signups was the annual WrestleManiaevent on April 3, after which the company counted subscriptions at 1.8 million,39% above the prior year's post-event total.

The company went for a rollercoaster ride April 4, with sharesdropping over 10% in 30 minutes near the end of the trading day, Profit Confidentialreports.Despite the record top-line subscriber number, which helped make WrestleMania 32the highest-grossing live event in WWE history at $17.3 million in revenue, investorsseemed to be distracted by a subset of the total. Total domestic subscribers alsohit a record 1.4 million, up 24% year over year, but total domestic paid subscribersactually saw a modest decline, down 1%.

While the decline was partially due to a one-month trial offerfor WWE's digital service, investors took no excuses. Shares traded down throughthe week, despite a modest rebound April 5, to close April 7 in the red by 9.4%.

Turning to movie studios, Lions Gate will also close out a difficultweek on April 8. The company was already troubledas some M&A speculation has not yet materialized and the studio's 2016 filmshave largely underperformed.

The company absorbed a new round of bearishness April 1 as Moody'srevised its credit outlookon Lions Gate to negative from stable. The Moody's action came just about two weeksafter Standard & Poor's Ratings Services placed the company on CreditWatch withnegative implications,citing underperformance at the box office.

Lions Gate shares cratered by 7.5% from the March 31 close throughApril 7.        

Yet it was not all bad news for the sector.

Groupon Inc.enjoyed a rare week in the sun. Investors began to rethink the daily deals site— which had been trading deeply in the red for the trailing one-month period — afterit received a high-profile investment.Investment firm Atairos will purchase $250 million of 3.25% convertible senior notesdue 2022 with an initial conversion price of about $5.40 per share, and MichaelAngelakis, the former Comcast Corp.CFO at the helm of Atairos, will join the board of the local deals company.

Probably not hurting the investment case, Groupon also approveda $200 million increase in its share repurchase program and extended it throughApril 2018. Comcast, meanwhile, committed to working with Groupon to identify andimplement potential strategic partnership opportunities.

"The potential in combining Groupon's local expertise withComcast's vast subscriber and advertiser network is something we look forward toclosely exploring together," Comcast's President and CEO Neil Smit said, accordingto YahooFinance.

After many months struggling to imagine a new growth story forGroupon, investors liked the sound of Comcast's enthusiasm. The company's sharescatapulted over 7% for the week through April 7.

Six Flags EntertainmentCorp. also enjoyed a wave of bullishness that defied the prevailingclimate during the week. The theme park company recently announced a forthe Six Flags Magic Mountain park in Valencia, Calif.

The New Revolution — North America's first fully integrated VRroller coaster using Samsung Gear VR, powered by Facebook Inc.'s Oculus — provides a multidimensional virtualride experience for riders wearing Samsung Gear VR headsets, the company said March29.

While the new offering may be considered little more than a noveltyto some, it seems the investment community sees some real opportunity for the format.FBR Capital Markets analyst Barton Crockett, for example, went so far as to Six Flags to "outperform"on the news.

He raised his price target to $64 from $58, saying the new technologywill translate into more momentum for the stock.

S&P Ratings and S&PGlobal Market Intelligence are owned by McGraw Hill Financial Inc.