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Major business

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The numbers are in, and US cable, satellite and telco platforms collectively shed more than 625,000 video subscribers in the three months ended 30 June, falling to 101.4 million combined residential and commercial subs at mid-year.

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Media Investment

Netflix shares slide amid media sell-off

Stock in leading subscription VOD company Netflix stock was trading sharply lower this week as it was pulled into the broad media stock sell-off.

Warren Buffet sells on Viacom, ups Charter stake in media trade-out

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Major media sees continued sell-off amid cord-cutting fears

Major media companies have seen their stock beaten up lately, amid fears that cord-cutting is an irreversible trend that will permanently eat away at profits — it's a trend now affecting firms with a cable or pay-TV component.

Netflix shares slide amid media sell-off

Michelle Clancy

Stock in leading subscription VOD company Netflix stock was trading sharply lower this week as it was pulled into the broad media stock sell-off.

When media giants such as Disney and Time Warner began their descent earlier this month, Netflix was considered the anti-establishment bet and moved in the opposite direction. Now, the decline can be attributed to some profit-taking and valuation anxiety.

“Netflix has a high PEG ratio of 22.18 compared with the industry figure’s 3.07 which makes the company highly overvalued and indicates a possible continuation of the downtrend,” Zacks Equity noted in an investor analysis. “Nonetheless, though the company has lost value in the past one month (10.6%), it has returned over 64% in the past one year, against the S&P 500’s return of 2.4% in the same period. Furthermore, the company’s long-term growth rate of 12% is well above the industry figure of 4.9%.”

Netflix has been delivering strong results over the past few quarters and is poised to expand rapidly in international markets, with Japan up next. In the recently reported quarter, Netflix recorded 3.3 million new members as against 1.7 million in the prior-year quarter.

In total, Netflix now has over 65 million subscribers across the globe. It aims to enter over 100 new markets by 2016-end. Furthermore, in the quarter, Netflix’s revenues from the international market grew at a much higher pace than the domestic market.

While international expansion will generate revenue growth, it will come at the cost of content acquisition and marketing costs. These factors along with pricing pressure in some regions are pressures on its profitability.

On July 14, the company also made a 7:1 stock split after increasing its share authorization from 170 million to 5 billion (including preferred stock) to make it more affordable for a broader section of investors.

The news comes amid a prolonged media massacre stemming from cord-cutting fears.

One of the main components of media companies' earnings and stock prices have been the steadily rising fees that pay-TV providers give them in return for content carriage rights. But subscriber losses erode per-subscriber affiliate fees for the major programmers, and reduce the number of people who advertisers pay to reach. And cable, satellite and IPTV are losing subscribers in record numbers — a trend that, if it continues, eviscerates the growth assumptions built into media stocks and places significant pressure over time on revenue and profits.

Pay-TV turned in its worst quarter for subscriber losses, ever. According to SNL Kagan, US cable, satellite and telco platforms collectively shed more than 625,000 video subscribers in the three months ended June 30, falling to 101.4 million combined residential and commercial subs at mid-year.

So, earlier in the month, shares of Time Warner fell by 9%, Discovery Communications shares fell by 12%, 21st Century Fox shares fell by 7%, Viacom by 7.5% and Disney by 9.2%. Comcast shares fell by almost 5%, and Charter, Cablevision and Time Warner Cable all fell to varying degrees in sympathy with the media stocks.

And this week, Warren Buffett’s Berkshire Hathaway reduced its stake in Viacom by 32%, to about 5.5 million shares, or $250 million worth. In all, it sold 2.6 million shares in Viacom in the second quarter to mitigate the sell-off’s effect on its portfolio.