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Media Stocks Slide As Pay TV Nears Day Of Reckoning

Media stocks continued their collapse Thursday, with investors worried that a day of reckoning is at hand for the pay-TV ecosystem. Walt Disney's (DIS) warning late Tuesday over slowing revenue growth from affiliate fees, the payments media firms garner from pay-TV companies, set the sell-off in motion. Generally soft media earnings didn't help. Disney shares fell 1.8% after losing 9% Wednesday.

Over the past two sessions, Viacom (VIA) crashed 20%, hitting its lowest level since 2010. Time Warner (TWX) fell 10% and 21st Century Fox Entertainment (FOXA) 13%.

Those affiliate fees — based on how many pay-TV subscribers have access to cable channels like ESPN or Nickelodeon as part of basic or premium programming packages — are at risk as consumers shift to watching on-demand content via the Internet.

Even sports content, the biggest driver of high affiliate fees, no longer seems a sanctuary, analysts say, in light of Disney's cut to ESPN subscriber guidance. Both Disney and Fox are spending more to acquire TV rights and need to recoup those costs in affiliate fees.

Sling Masks Dish Losses

Comcast (CMCSA) and satellite TV broadcaster Dish Network (DISH) were among pay-TV companies that reported higher video subscriber losses in Q2. Dish on Wednesday said it lost 81,000 video subscribers compared with 44,000 a year earlier. But its actual pay-TV loss may have been 237,000, obscured by the addition of "Sling" Web TV service customers, says UBS.

When cable TV companies report video subscriber losses, there's contagion for media companies aside from affiliate fees. As viewership falls, advertising rates go down.

In response to competition...