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Europe's media, entertainment firms see negative rating actions amid COVID-19

Media and entertainment firms received 5% of negative credit ratings actions from S&P Global Ratings in Europe, the Middle East and Africa in the wake of the coronavirus pandemic, making it the hardest-hit sector within the broader technology, media and telecoms landscape.

As of April 16, of the 295 negative actions taken against companies in the region, 16 were issued to media and entertainment companies who depend on in-person attendance or advertising — including broadcasters, event organizers and movie theater chains. Technology and telecoms companies received seven and four negative actions respectively.

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Negative credit ratings actions are more evenly spread across sectors in EMEA than in North America, where, as of March 24, more than a quarter were taken against media and entertainment companies. In EMEA, capital goods saw the most negative ratings actions at 11%, followed by automotive, banks and retailing with around 9%.

The impact on movie theaters — shut across Europe and the U.S. for the duration of lockdowns — is similar across regions.

U.K.-based cinema operator VUE Cinema had its outlook revised to negative, while its counterpart Cineworld Group PLC was downgraded from BB- to B by S&P Global Ratings in March. Uncertainty around the length of country-wide lockdowns, and whether the public will return to theaters once restrictions are eased, exacerbated fears of a long-term economic impact on cinema operators, S&P Global Ratings said.

Site closures have also led to uncertainty regarding the companies' respective pending acquisitions. Cineworld is in the process of acquiring Canada-based cinema operator Cineplex Inc. — a move that would transform it into one of the world's largest cinema companies with over 11,200 screens globally — but S&P Global Ratings warns that the coronavirus disruption means "Cineplex might not be able to satisfy the conditions precedent for the transaction." Though private-equity-backed Vue's acquisition of CineStar s.r.o. has been cleared by German authorities, S&P Global Ratings said uncertainty around the timing and financing of the takeover and its implications for Vue's credit quality has increased.

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To add to operators' concerns, video streaming, gaming and social media usage has surged as people remain indoors due to stay-at-home measures. But even broadcasters that provide popular streaming options are not immune to negative rating actions, as evidenced by S&P Global Ratings' decision to revise ITV PLC's outlook to negative on lower profitability and expected higher leverage. In addition, Germany-based global media group Bertelsmann SE & Co. KGaA's outlook was revised to negative, with the peers expected to spend more on their respective subscription streaming services, BritBox and TV Now, resulting in a negative impact on earnings, S&P Global Ratings said.

Broadband and mobile companies are experiencing increased demand and thus could be more resilient from a credit perspective, said Mark Habib, an S&P Global Ratings credit analyst specializing in telecoms and technology. But telcos that own pay TV units are exposed to the same advertising and content headwinds as other broadcasters, he said.

"If you are an operator that owns some media subsidiaries, there is potential to see a negative impact, as we are witnessing a slowdown in ad spending," Habib said in an interview. "In addition, companies that have exclusive sports rights are facing uncertainty because we don’t know when games and matches are going to resume."

BT Group and Comcast Corp. unit Sky Ltd. paid over £4.6 billion for the lion's share of rights to the top-flight English soccer league until 2022. But with no official word on when unplayed matches will take place, the two have been forced to pause subscriptions for customers of their lucrative sports packages. Both firms are due to pay the English Premier League the six-month license fee for the first half of the 2020-21 season, which amounts to about £530 million, in July. However, fees owed for unplayed matches could lead to contractual disputes, Habib said.

"The situation is currently in flux and evolving in real-time, and could even spill over into a legal arena, leading to a clear sense of exposure," Habib said.

Meanwhile, the U.K.'s leading commercial broadcaster, ITV, faces a dip in advertising revenue growth this year as ad buyers curb spend in response to lower consumer confidence, S&P Global Ratings said in a note.

ITV is more exposed to cyclical advertising revenue and lacks the scale of its peer, U.S.-based Discovery Inc., which also has a better geographic spread that allows it to partially offset the decline in traditional video subscribers, S&P Global Ratings said.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.