The media stocks could be in for a rough ride ahead depending on the depth and length of the credit crunch.
What would probably cause the major problems would be the existing debt and cost of future debt the companies would have to pay to buy the loans.
If credit tightens up more, existing debt could increase in cost as lenders increase the interest payments in response to the crisis. This is after a poor performance of media stocks since mid-July.
Like any tough time, those carrying less debt will be in better shape, while those carrying the heaviest debt could have deeper and longer problems.
Disney (DIS) at this time carries about $13.7 billion in debt; News Corp. (NWS-A) around $12.5 billion; and Time Warner has a whopping $36 billion in debt.
Media Metrics analyst Laura Martin, cited by Media Biz writer Paul R. La Monica, says that heavily leveraged, large cable companies could be exposed to steep downturns as they tend to carry huge debt as well.
She refers to the Savings & Loans crisis of the late 1980s and early 1990s as an indicator of how the companies may respond in this climate, including cable and media firms.
Some of the performances of the companies during the crisis were Comcast (CMCSA) dropping by 47 percent from August 1989 to October 1990. The largest cable operator at the time, TCI, plunged by 34 percent during the same period.
Disney, like now, was one of the better performing media companies at that time, dropping 23 percent during August 1989 to October 1990, while News Corp. was in such heavy debt, they almost collapsed, dropping 72 percent over the same time frame.
What is important is that was probably a much more difficult and exposed time than now, although it wasn't as expanded and spread out as now. I lived in Texas at the time of the Savings & Loan debacle, and the general area was far more exposed than other areas of the country. The subprime problems and tightening credit by contrast, are having an effect on countries and banking around the world.
Now, as Martin says about that time in reference to media stocks, they came storming back after being hit hard, and Disney and TCI more than doubled their share prices between November 1990 and January 1994. Comcast exploded with a 234 percent increase and News Corp. went out of this world with an explosive 700 percent increase in share price.
All of this means is the stocks are probably in for a rough ride and even more pressure in the immediate future. Those that are looking for some bargain prices and long-term gains in the future, will do good to heed the ebb and flow of the media stocks in the time ahead.
To me, the best-positioned stocks of those in media are Disney and News Corp. They seem to have much less exposure to any one area, by their multiple streams of revenue.
I don't know the other media stocks quite as well as I know News Corp. and Disney, so that's more of an observation than a recommendation.
Even so, if the credit crunch lingers, these media companies could take some drastic dives. Those looking for some cheap share prices they want to hold over a period of time, will probably have some of their best opportunities in about 20 years in the media space.
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