Media and Entertainment Trends
in 2009
Things Will Likely Get Worse Before They Get Better
Entertainment
Imran KhanAC
(1-212) 622-6693
imran.t.khan@jpmorgan.com
Vasily Karasyov
(1-212) 622-5401
vasily.d.karasyov@jpmorgan.com
Lev Polinsky, CFA
(1-212) 622-8343
lev.x.polinsky@jpmchase.com
Bridget Weishaar
(1-212) 622-5032
bridget.a.weishaar@jpmchase.com
J.P. Morgan Securities Inc.
See page 115 for analyst certification and important disclosures.
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We see a difficult year ahead for media companies. However, looking through the
cycle, we believe companies with differentiated assets least exposed to secular
challenges will be able to regain earnings power once macro headwinds subside.
• We see limited secular growth potential for the companies in our universe.
We forecast large-cap US media companies to deliver an average EBITDA
decline of ~5% in FY09, with TWX delivering the highest growth rate of 1.3%
(but a decline of 3.1% ex-TWC). Even looking through the economic cycle, our
models return an average EBITDA CAGR of 3.1% over the next 4 fiscal years,
with DIS offering the fastest growth at 3.7%. We believe that, faced with a low
growth outlook, management teams are likely to be tempted to resort to
acquisitions.
• We continue to prefer affiliate revenue in these turbulent times; expect
programming costs to grow faster than advertising revenue. We continue to
like companies with above-average affiliate revenue growth rates driven by
differentiated networks, such as ESPN and Comedy Central. We forecast
advertising revenue declines of 9% at the big 4 and 2% at cable networks. We
think programming costs will outgrow ad sales in ’09, resulting in lower
profitability.
• Negative trends in home entertainment markets are likely to carry into ’09;
uplift from Blu-ray limited. We think compression of the tie ratios, i.e., the
relationship between home entertainment revenue and box office receipts, will
persist in ’09 due to reduced retail traffic, retailer bankruptcies and decreased
consumer spending. Our proprietary survey shows only modest consumer
appetite for Blu-ray, which, coupled with a likely slowdown in Blu-ray player
installed base, limits room for incremental revenue, at least in the near term.
• We believe that despite some success stories, such as MySpace, ESPN.com,
cnn.com, online initiatives in our coverage universe will continue to yield
mixed results. We see a number of structural factors limiting growth potential,
including difficulties building traffic at monetizeable scale, inadequate
advertising platforms, advertising sales execution issues and underinvestment in
talent and R&D.
• For the second year in a row, DIS is our top pick. We recognize that it’s
difficult to own any of our traditional large cap media companies in this
macroeconomic environment. Downward earnings revisions could further
pressure the stock prices in the near term. However, looking through the cycle,
we believe DIS is least exposed to secularly challenged businesses. We think
DIS’s EBITDA will grow at a 3.7% CAGR in ’08 – ’12, faster than its peer
group’s projected average of 3.1%. As such, despite significant outperformance
vs. the S&P (~800 bps), DIS remains our top pick for the second year in a row.

Table of Contents
Key Investment Themes ..........................................................3
Khan’s Top 10 Things to Watch in 2009 .................................8
A Year of Estimate Reductions ...............................................9
Broadcast Networks in 2009: Where Did All the Viewers
Go? ..........................................................................................11
Cable Networks in 2009: Advertising Headwinds................15
Filmed Entertainment in 2009................................................22
Disney Theme Parks in 2009 .................................................39
2009 Social Networks Primer ................................................44
The Challenges for Online Video ..........................................52
Company Overviews ..............................................................55
The Walt Disney Company, Overweight, (DIS-$21.36).........57
News Corp, Neutral (NWSA-$8.03) ........................................67
Time Warner, Inc, Neutral (TWX-$9.43).................................76
Viacom, Inc, Overweight, (VIAB-$16.57) ...............................85
Discovery Communications, Inc, Underweight, (DISCA-
$14.72) .....................................................................................93
AppendicesAppendix I: List of International Cable and
Satellite Networks.................................................................103
Appendix I: List of International Cable and Satellite
Networks ...............................................................................105
Appendix II: Project Canoe: Getting Ready to Set Sail .....110
Appendix III: Overview of Online Video Content Providers
...............................................................................................114