It was a tight race, but in the end, it was a race between two firms: Walt Disney and News Corp. One is represented by a friendly mouse, the other, Rupert Murdoch. I’d usually place bets on the Australian Octogenarian, but you just never know in the whacky world of media.
CBS, Viacom and Time Warner wobbled more than anything else. Ironically, Viacom was supposed to be the growth stock after Sumner Redstone spun it off from CBS. Yet, CBS outperformed Viacom, which was the worst stock of all. Not surprisingly, this led to the dismissal of Viacom’s boss Tom Freston. Redstone replaced Freston with dealmaker Philippe Dauman. Time will tell if the move was wise.
CBS too saw some changes. Its digital unit saw the hiring of dealmaker Quincy Smith, a M&A specialist. Les Moonves continued to be at the helm of the parent company. As for Time Warner, the company continued to turn things around, powered by the promise of its AOL division. There, Jon Miller was shown the door abruptly, while Randy Falco, an experienced ad man from NBC was brought it.
On the other hand, Disney and News Corp. led the charge, with stock increases of 30% this year. Between the two, Disney had the more impressive year: its fiscal year ended on September 30 and it boasted a fourth quarter earnings increase of 89% compared to the prior-year period. The growth came from Studio Entertainment, Parks and Resorts, and Media Networks. For the year, EPS increased 34%, reflecting growth at each operating segment.
“Disney had a spectacular year, posting record revenues, record net income, and record cash flow,” said Bob Iger, president and chief executive officer of the Walt Disney Company. “It is a result of the incredible creativity at our company.”
What makes this twice as impressive is that it came on the heels of a major management change at the top. We’re not saying that Michael Eisner could not have delivered similar results, we’re just saying that usually when a new man comes on top, there is so much room for nightmare scenarios.
More impressive, the company is predicting solid growth in 2007 as well.
Promise of Tomorrow
As for News Corp., whose fiscal year ends June 30th, we give Rupert Murdoch a lot of credit for trusting Ross Levinsohn to spend $1.2B on IGN and MySpace, the latter went on to triple in size and generate much buzz and excitement, much of which explains the 30% spike in share price this year. But the fact remains that the acquisitions did not really trickle down to the bottom line. They might in the future, but there is no guarantee.
Murdoch is so content with his digital assets that he seems to have closed the tap, so to speak. In fact, when Murdoch boasted that MySpace would fetch $6B in a sale, he could have been talking about the spike in News Corp. value since the beginning of the year. Of course, this - and a UBS report - suggested that FIM’s assets are worth more separate than combined. For that, click here.
News Corp.’s stock price was fueled mainly by the promise of tomorrow. Its income statement was nowhere near as glossy as Disney’s: News Corp.’s operating income rose by a paltry 9%, to $3.9B. It experienced sharp declines in its unpredictable film and TV business, but had nice gains in broadcast and cable television networks. Its book unit, HarperCollins, suffered a decline in earnings in the most recent quarter. It did sign a massive $900M online ad deal with search leader Google (NASDAQ:GOOG), but that won’t trickle in until next year. To see if Google might have overspent, click here.
Between the two though, News Corp., was more buzz and flash (thanks to MySpace), its film business did well but it did suffer a few intangible black eyes with the OJ Simpson brouhaha, frankly.
Disney, however, was off the radar in many ways but it delivered the most. It’s also well positioned for next year.
As such, our pick for Media Stock and Company of 2006: Disney.
Check out how the laggards fared: That’s Disney and News on top, with Time Warner, CBS and Viacom at the bottom.
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DIS vs. NWS vs. CBS vs. TWX vs. VIA 1-yr chart:
Disclosure: News Corp. is involved in a litigation matter against me. But that notwithstanding, Disney’s performance earned it the top slot.