Suddenly, TV Stocks Are Attractive Again

After years of lobbying, a major buyer agrees to a new standard for advertising sales. TV stocks may see upside as a result.

Jun 6, 2014 at 7:26PM

TV stocks may enjoy a rally soon. Why? There's a key change to the way ads are sold. According to The Hollywood Reporter, media-buying company GroupM has agreed to negotiate ad deals based on live plus seven days of delayed viewing, or "C7" as it's known in the industry. The agreement could forever alter how primetime TV ads are bought and sold.

To this point, most buyers have insisted on using the "C3" standard that counts views only through the first three days of airing. Network executives have long argued against C3 because it unfairly punishes shows that add millions of DVR and video-on-demand viewers in the final seven-day tally.

Who's right? Both, it turns out. AdWeek's study of the numbers found that most shows wouldn't enjoy a material boost on conversion from C3 to C7. And yet, there are notable exceptions, and most of them seem to air on Walt Disney's (NYSE:DIS) ABC television network.

Through April 28, had ABC as home to five of the top 10 gainers in live+7 days ratings. Modern FamilyGrey's AnatomyMarvel's Agents of SHIELD, and Scandal all gained between 1.6 and 2.0 ratings points under the broader standard. A shift to C7 would allow ABC to count those figures when negotiating new ad rates for those shows and others like it. Take Marvel's Agent Carter, for example, which is due to fill in next season when SHIELD is on hiatus.

Coulson Gun Agents Of Shield

Marvel's Agents of SHIELD tends to draw well among on-demand viewers. Credit: Marvel Entertainment.

So is it time to buy TV stocks? We're still in the early stages of the shift to C7. The good news is that we're likely to see continued momentum as the summer and fall TV seasons get under way, which could lead to more creative video-on-demand advertising campaigns, and additional support for niche hits that tend to draw best among audiences who watch at their own pace. In the meantime, Disney remains attractive because of its rich licensing pipeline, thriving theme park business, and box office bonafides. Better TV ad rates for ABC is gravy for the meaty earnings that the House of Mouse should deliver in fiscal 2014.

It's your turn to weigh in. Are you more willing to buy TV stocks now that ad buyers are looking at more comprehensive data? Leave a comment with your take, including your thoughts on whether it's time to buy, sell, or short Disney stock now.

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Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Walt Disney at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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