by Steve McClellan @mp_mcclellan, 6 hours ago
The stock market tanked on Friday in reaction to the UK decision to leave the European Union.
The Dow Junes Industrial Average fell more than 600 points (over 3%), with the major ad holding companies all down. UK-based WPP American Depository Receipts on the NASDAQ exchange were down 10%. Dentsu fell 12% on the Tokyo Exchange. Omnicom, Publicis, Interpublic and MDC were all down in the 5% range. Media company stocks were down as well.
The vote to leave triggered much discussion at the Cannes Lions about the implications for ad industry, particularly how the UK ad business might be impacted.
At deadline, some of the holding companies were still in the process of formulating responses.
But WPP CEO Martin Sorrel issued this statement:
“Very disappointed, but the electorate has spoken. The resulting uncertainty, which will be considerable, will obviously slow decision-making and deter activity. This is not good news, to say the least. The PM’s resignation clearly adds to the uncertainty. However, we must deploy that stiff upper lip and make the best of it. Four of WPP’s top ten markets are in Western Continental Europe and we must build our presence there even further. It just underlines the importance of implementing our strategy: fast-growth markets (BRICs and Next 11), digital, data - and horizontality, which ironically means getting our people to work together, not apart!”
Omnicom Group issued this statement:
“The result of the vote has certainly led to volatility in the financial markets and political turmoil. Our focus during this initial period of uncertainty will be on working closely with our agencies in the UK and Europe as they help our clients to navigate the changes in the marketplace. Over the course of time, we expect these uncertainties to be resolved and our agencies, clients and consumers will adapt as markets normalize.”
Jerry Buhlmann, CEO, Dentsu Aegis Network said:
“Today’s referendum was a surprise result for our business and the industry. There is likely to be a short period of economic uncertainty in the UK and these economic adjustments are supported by a resilient UK financial system. What is important now is we focus on building political and economic stability. This should be driven by strong leadership who are united in negotiating positive trade agreements, strengthening relationships with key international bodies and bringing the country together.
As a global business we have a strong UK operation and whilst it is significantly important to us it only represents 6% of our global revenue. We expect our business to prosper both in the UK and globally irrespective of this result.”
Additionally................
Deadline Dateline Hollywood
3:18pm
Stocks for most media companies — especially those with extensive global operations — are reeling this morning following Britain’s surprising vote to leave the European Union.
Among Big Media, Discovery was hardest hit immediately after markets opened with shares off 5.3%. It was followed by Sony (-4.4%), Fox (-4.1%), CBS (-3.6%), Viacom (-3.3%), Time Warner (-2.9%), Disney (-2.7%), and Comcast (-1.9%)
Others battered include Altice (-9.6%), National CineMedia (-6.0%), and News Corp (-4.7%).
The Dow Jones U.S. Media Index is off 2.9%, ahead of the Dow Jones Industrial Average and Standard and Poor’s 500, both down 2.5%.
Virtually every company in the sector opened down on fears that the decision could further weaken currencies vs the U.S. dollar, and depress spending. Last year the value of the Euro dropped 16%, while the British Pound fell 7%, vs the U.S. dollar. That contributed to reductions in earnings guidance at Discovery, Fox, and Time Warner.
Discovery is especially vulnerable to a downturn in the British pound and the Euro following its acquisitions of Eurosport, SBS Nordic, and All3Media. About half of Discovery’s revenues come from overseas.
The vote “would potentially be a reason for bears/shorts to become incrementally negative especially as currency was a major headwind to reported Adj. EPS growth in 2015,” RBC Capital Markets’ Steven Cahall says.
But the company has hedged all of its Pound exposures, and 80% of its Euro exposures for 2016 — and much of 2017.
The company says it “respects the decision of the UK people in this historic vote to leave the European Union” and will “work closely with UK and EU leaders to successfully navigate this change and find new opportunities to shape our future.” Meanwhile, its hedges “will significantly minimize” any hit to Discovery’s financial performance “in the short-term and medium-term.”
Among other companies, Cahall says that a 10% drop in the value of the Pound could cut 1% from Fox’s pre-tax income — mostly by hitting the value of its 39% stake in Sky.
Others should only be nicked by such a currency change, Cahall says. Time Warner, which collects about 16% of its revenue from Europe, would only see a “modest impact.” Same with Viacom, which depends on Europe for about 17% of sales, especially from the UK’s Channel 5. Disney has “relatively limited exposure” with Europe accounting for about 12% of sales for the company’s cable networks, movies, and Euro Disney.
And CBS collects about 2% of its revenues from the U.K. and 5% from the rest of Europe.
A British exit from the European Union could cut U.K. ad spending by about 70 million Pounds a year, ad firm Zenith estimated ahead of the vote. It added, though, that the effects would not be felt for months with firms it surveyed saying that they would not make immediate changes.
Even so, an exit would have a long term cost and “threaten to make cross-border accounts in Europe more costly and cumbersome to operate,” Zenith Head of Forecasting Jonathan Barnard said.
Others like movie producer Harvey Weinsten said, Harvey Weinstein was in Cannes today for the Cannes Lions Creativity Festival. The exec who has business dealings in the UK told me that he was “shocked” over Britain’s vote to leave the EU and predicted “discrimination” against some productions going forward. His War And Peace miniseries, made with the BBC, qualified as European and thus was able to meet Europe’s quota requirements. “It could be very costly in the movie and TV industry in terms of content branding,” he said.
Further,
Weinstein added, “This is not about economics, this is about immigration. They
don’t want Muslims in the country. These guys who voted, voted out of fear.
It’s a huge mistake.”
“I’m shocked
and the thing that surprised me the most is a great Prime Minister like David Cameron resigning.
From his point of view — history is important to these guys in a big way — he
didn’t want to preside over a disaster and wanted to save his reputation as a
great Prime Minister. He’ll be proven right. This is not about economics, this is
about immigration. They don’t want Muslims in the country. These guys who
voted, voted out of fear. It’s a huge mistake.
“I think there
will be discrimination now against some of the product and what it means to be
European product. A lot of TV stations in Europe are under quotas. When you do War
And Peace, that was accepted as European. It could be very costly in the
movie and TV industry in terms of content branding. European branding is very
important. It’s a big deal for these young British filmmakers.
“I’m hoping in
60 days the country wakes up and says ‘Can we have a do-over?’ You know,
watching the stock market and Cameron coming back and saying, ‘These are the
things that are happening; it will get worse. Let’s do it again.’”
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