How can two of the most popular TV shows hurt investors? Easily."American Idol's" season 8 debut this week attracted more than 30 million viewers, making it the most watched TV show of the season, according to Nielsen Media Research. But as the Associated Press notes, that's not good news for Fox corporate parent News Corp. (NYSE: NWS) because it represents a viewership decline of 10 percent from the 2008 season.
Blame the Hollywood writers' strike and changing media habits. Couch potatoes across the U.S. got tired of watching rerun after rerun and decided to do other things such as play video games, watch movies and, heaven help us, read books. People got out of the television viewing habit that it took decades to develop. Getting people to come back to network TV is proving to be difficult.
It will be interesting to see if the audience returns to ABC's "Lost" when its newest season begins airing next week. The program's ratings began to decline last season as the plot lines got goofier. You can bet that the Walt Disney Co. (NYSE: DIS) has more than a passing interest in whether Jack convinces the other survivors to return to the island.
Advertisers pay premium rates to be seen on "Idol" and "Lost." They do this based on guarantees of how many viewers will watch the show. If the network fails to deliver the promised audience, the advertiser gets what is called make goods. That is usually free commercial time on another program.
Obviously, that's the last thing either company wants to do. Shares of News Corp. and Disney (which I own) are out of favor with Wall Street as investors suspect -- correctly in my view -- that the companies will be hurt by declining advertising spending. News Corp shares have plunged more than 56% over the past year. Disney is down more than 27%.
News Corp's television business saw its operating income plunge more than 58% to $129 in the fiscal first quarter. Results from the Fox Broadcasting Co. were little changed. Further details were not provided. The picture was similar at Disney where operating income at the broadcasting unit fell 6 percent to $655 million in the year ended September 29. Results at ABC were "comparable to last year," according to Disney. It did not elaborate further.
The lesson here is that you do not buy media stocks because of one program or movies. Tastes change and it is investors who wind up holding the bag when they do.
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