Disney’s Darkened Outlook Leads to Meltdown in Media Stocks

Walt Disney Co.’s darkened outlook dragged down media stocks from Time Warner Inc. to 21st Century Fox Inc. and CBS Corp. Disney, which through Aug 4 had been the top-performing stock in the Dow Jones Industrial Average in 2015 with a record of stellar sales and profit, surprised investors by posting lower-than-estimated quarterly revenue and cutting its forecast for cable-television profit. The reduced forecast underscored the number one concern for media investors: the unraveling of the traditional pay-TV package, according to Paul Sweeney, an analyst at Bloomberg Intelligence. Fewer Americans are paying for bundles of hundreds of channels, which has underpinned the TV industry’s business model for decades, opting instead for online video services like Netflix Inc. or smaller packages.

Disney’s shares slumped as much as 10 percent -- the most since August 2011 -- while Fox and CBS Corp., which both report earnings after the close, dropped more than 5 percent. Time Warner and Scripps Networks Interactive Inc., the owner of Food Network and HGTV, also fell even though they beat second-quarter earnings predictions. Overall, the Bloomberg U.S. Media Index had its biggest intraday decline in almost four years. “Investors are definitely reading across the Disney earnings and extrapolating it to the broader media sector,” Sweeney said. Noticeably, Netflix gained 2.6 percent to a record high amid the media stock meltdown. Another factor weighing on media shares are concerns that cash returns that have boosted prices in the past seven years may be slowing, Sweeney said. Scripps’s earnings statement showed that the company didn’t repurchase shares last quarter, while Discovery said it’s unlikely to buy back more stock this year to maintain its credit ratings. “The market appears to be interpreting this cautious balance sheet management as reduced confidence in business trends going forward,” Sweeney said.