Brexit and the media: publishing executives certainly not eager to see any economic weakening
Morning Brief: The second trading day follow the UK’s vote to exit the EU finds stock markets down less severely than Friday, but the British pound continues its decline in value
Welcome to Day Two of the post-Brexit vote, and the first full week where investors and the media can try to absorb what the British electorate just did to the world economy. Stock markets this morning have continued their declines, with most European markets down around 2 percent (less than Friday, but still not good). The Pound is getting hammered again, down over 3 percent to under $1.32, down over 12 percent from where it rose to during the early hours of vote counting.
(Dow futures point to another down day, though not as bad as Friday.)
One question that many covering the Brexit story don’t seem very interested in right now is how this economic turmoil with effect publishing. While any big news story helps drive web traffic initially, the big effect on the media will occur should the UK fall into recession – something a few economists are predicting.
The last recession, a doozy, initiated a sharp decline in the fortunes of many traditional media jobs. Many publishers have been hoping that better times would be arriving, and a few have actually seen somewhat better times in the past year or two. But few will be well positioned for another economic dip so soon after the last one – especially in the UK, which is likely to feel the effects of Brexit far more than Europe and certainly more than the US.
For tech companies, a rise in the value of the dollar is a double edged sword. As most assemble their products in China, a rising dollar actually lowers their production costs. But, of course, a rising dollar makes their products more expensive. A company exclusively assembling abroad, but mostly selling domestically, fair best in this scenario. Apple, though, is looking for sales gains in India, so a stronger dollar will not be helpful.
When I was in the newspaper business, the first Gulf War was a real tipping point for us. Our paper had enjoyed three straight years of good performance, and my own department had made its budget 36 months in a row. The war was just the excuse local advertisers needed to cut back on their ad spending. For us, it was a temporary blip, though moves by management eventually led most of the talent at the newspaper group to leave and the papers were sold off twice – and were in recent years shuttered by MediaNews Group.
The point is that some media categories are especially vulnerable to economic uncertainty, with newspapers the most vulnerable.
Will we see more of this: ITV sees almost £2.5bn wiped from stock market value after Brexit. The Guardian story tells of the stock declines for ITV and the rising speculation that it will be the target of a takeover bid.
“This increases the chance of a bid by one one of the major US media companies where there is a historical and present interest in the UK market,” said Ian Whittaker, an analyst at Liberum. “Not only from the established media giants, but also from new media/tech companies (for example, we believe that several of the US internet giants explored a bid for the English Premier League rights in the last bidding round).”
The story that a possibly suitor might be NBCUniversal (Comcast), as well as Liberty Global, which owns Virgin Media.
Not mentioned was the name of Rupert Murdoch who was in Scotland this weekend to dine with Donald Trump. With Rupert’s boy David Cameron in trouble, I’m sure he is hedging his bets to make sure his media empire is taken care of should Trump will in the fall.
With the second quarter winding down, my guess would be that a far bigger shock to media stock values will come from the next round of earnings reports which will begin to appear towards the end of July and into early August.