Citigroup cuts media companies on cable TV fatigue

(Reuters) - Citigroup analysts, saying they were "flummoxed" by a steep fall in cable network ratings and slowing advertising growth, lowered their ratings on the stocks of several U.S. media companies.

The brokerage downgraded News Corp, Walt Disney Co, Discovery Communications Inc, CBS Corp and Scripps Network Interactive Inc to "neutral" from "buy."

Historically, cable network advertising has outpaced overall advertising, but the gap has narrowed sharply over the past few quarters, Citi analysts led by Jason Bazinet said in a client note.

"Beginning late last year we began to notice that the aggregate cable network ratings were falling. And, as the months progressed, the magnitude of the decline kept getting larger," Bazinet said.

Bazinet -- who has a four-star rating for the accuracy of his earnings estimates on the companies under his coverage, according to Thomson Reuters StarMine data -- said cable ads outpaced total ad growth by just 1 percent in the fourth quarter.

By comparison cable advertisements had outpaced overall ad growth by 14 percent in the first quarter, said Bazinet, who noticed the trend from Citi's AdverTracker database, which keeps track of the ad performance of all public companies whether they are covered by the brokerage or not.

The analyst said there is no clear explanation for the steep decline in cable ratings, with some in the industry and investors blaming Netflix, while others point to a lack of hit shows, or warmer weather resulting in less TV viewing.

"There does not seem to be any cogent narrative behind the steep decline in cable ratings ... the bottom line is that we can't explain the entire ratings shortfall. We are flummoxed," the analyst said.

Bazinet said CBS does not have any material cable network advertising, its stock, which has gained more than 20 percent since the start of the year, is no longer compelling, given its recent run up.