Key Takeaways
- We view the media sector as having above-average social risk compared to other industry sectors. Social risk is the most relevant ESG category for the media sector due to issuers' exposure to and increasing reliance on customer engagement, data security, and cultural social movements.
- Common risks, which are more pronounced and systemic, include client privacy, data security, content regulation, social media activism, and key man risk.
- Environmental risk factors are rarely material to our ratings, so environmental risk for media is considered below average compared to other industry sectors.
- Governance factors are important but we consider them case-by-case depending on the nature of each company's operating environment and organizational behavior.
Analytic Approach
Environmental, social, and governance (ESG) risks and opportunities can affect an entity's capacity to meet its financial commitments in many ways. S&P Global Ratings incorporates these considerations into its ratings methodology and analytics, which enables analysts to factor in short-, medium-, and long-term impacts--both qualitative and quantitative--to multiple steps of their credit analysis. Strong ESG credentials do not necessarily indicate strong creditworthiness (see "The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis," published Sept. 12, 2019).
Our ESG report cards qualitatively explore the relative exposures (average, below, above average) of sectors to environmental and social credit factors over the short, medium, and long term. For environmental exposures, chart 1 shows a more granular listing of key sectors and (in some cases) subsectors reflecting the qualitative views of our analytical rating teams. This sector comparison is not an input to our credit ratings and not a component of our credit rating methodologies; it is based on our current qualitative, forward-looking opinion of credit risks across sectors.
In addition to our sector views, this report card lists ESG insights for individual companies, including how and why ESG factors may have had a more positive or negative influence on an entity's credit quality compared to sector peers or the broader sector. These comparative views of environmental and social risks are qualitative and established by analysts during industry portfolio discussions, with the goal of providing more insight and transparency.
Environmental risks we considered include greenhouse gas (GHG) emissions, including carbon dioxide, pollution, and waste, water and land usage, and natural conditions (physical climate, including extreme and changing weather conditions, though these tend to be more geographic/entity-specific than a sector feature). Social risks include human capital management, safety management, community impacts, and consumer-related impacts from customer service and changing behavior to the extent influenced by environmental, health, human rights, and privacy (but excluding changes resulting from broader demographic, technological, or other disruptive industry trends). Our views on governance are directly embedded in our rating methodology as part of the management and governance assessment score.
Chart 1
The list of entities covered in this report is not exhaustive. We may provide additional ESG insights in individual company analyses throughout the year as they change or develop, with companies expected to increasingly focus on ESG in their communication and strategy updates.
Social Exposure
The most relevant ESG category for media companies is social risk due to issuers' exposure to and increasing reliance on customer engagement, data security, and cultural social movements. We believe social risks in the media sector are pronounced and systemic and are above average compared to other industry sectors. Common risks across our portfolio include client privacy, data security, content regulation, social media activism, and key man risk.
Data security: Data privacy risk (cybersecurity) is substantial for most media companies in order to safeguard client privacy, as well as intellectual property (IP) theft. For example, targeted advertising models collect consumer data that must be kept confidential, and many media companies develop and rely on proprietary IP that has exclusive-use rights. Any theft of consumer data or IP would have negative implications for these companies' reputations, competitive advantages, and profitability.
Content: We believe that, as content companies reach for more thrilling or nontraditional entertainment, they may face backlash or negative feedback from customers. Inappropriate content or behavior from talent can lead to negative publicity for content creators, reputational damage, loss of revenues and profitability due to potential show cancellations, delivery delays, or legal proceedings. Social media, particularly micro-blogging, has proliferated. We believe high-profile media companies or leading media personalities run the risk of being accused or implicated in controversies, which could hurt brand reputation and lower growth prospects and cash flows.
Key person: Content-producing media companies are substantially exposed to key person risk because they depend on key persons with extraordinary creative talent, charismatic influence, or similar leadership qualities. Without these, whether these organizations can maintain key sales relationships, comparative advantages related to creative content, or organizational inertia are all uncertain.
Local broadcasters: Television broadcasters must operate within the broadcast decency bounds set by the Federal Communications Commission (FCC), or risk fines or the loss of broadcast licenses. If programming material or on-air talent is considered controversial, consumers could boycott stations and harm their revenues. Further, local broadcasters are less exposed than their network affiliates to the brands and reputations of their networks, for which the former have little control over.
Environmental Exposure
We view environmental risk for the media sector as below average compared to other industry sectors. The lack of material environmental risk in the sector reflects the low and indirect use of raw materials and relatively minimal waste output for most of our issuers. For example, companies such as movie studios, advertising agencies, and television and radio broadcasters produce minimal waste due to their focus on creating content with their IP and distributing that content through their established networks. While this sector contains print-based media providers such as newspapers, magazine publishers, and printers that emit both liquid and solid waste in their manufacturing processes, we believe regulations and the declining use of the print medium means there is diminishing environmental risk for these companies.
Governance
We closely monitor governance risks, especially given the number of companies within the media sector with controlling shareholders. While we assess governance risks as neutral for the sector, we assess each company individually. Our analysis includes the quality of a company's public disclosures and the transparency it provides investors and industry stakeholders. We also evaluate company oversight characteristics such as independent representation on the board of directors, the concentration of controlling ownership, and internal controls behaviors that promote enterprise risk management.
ESG Risks In Media And Entertainment
| Company/Rating/Comments | Analyst | |
|---|---|---|
| Activision Blizzard Inc.(BBB+/Stable/--) | ||
| Activision faces higher social risk relative to its peers over ongoing concerns with violence in video games given its "Call of Duty" game, one of the most popular first-person shooter games globally, which we estimate represents about 15% of total revenue for the company. We believe social risks could intensify if the frequency of mass shootings in the U.S. increases substantially. Even though there is no research linking mass shootings with playing first-person shooter video games, we would expect social pressure to remain elevated if the frequency of mass shootings increases and if "Call of Duty" becomes the subject of negative publicity. Many of Activision's major franchises face increased brand risk due to the growing level of social interaction in its games. The rise of social media--for instance, micro-blogging and video game influencers--amplifies positive or negative feedback for games and can materially alter a game's perception. The company recently faced negative feedback when it disciplined a professional "Hearthstone" player for making political statements during a tournament regarding the ongoing protests in Hong Kong. While this instance didn't materially affect the company's operating performance, positive network effects and the ability to sustain a large user base significantly affect a video game's long-term success. Activision has historically incorporated user feedback, but as feedback loops shorten and more entertainment options split users' attention, the company will need to ensure it continually engages its users to maintain the brand strength and earnings potential of its major franchises. | Jawad Hussain | |
| Allen Media LLC(B/Stable/--) | ||
| We view Allen Media's governance risk as elevated compared to media peers. The company lacks an independent board and has material key-person risk, which we view as negative credit factors for management and governance, which we assess as weak. In our view, the absence of an independent board could lead to insufficient oversight and scrutiny of key enterprise risks, compensation, or unmanaged conflicts of interest. Furthermore, the level of control exercised by the CEO could promote outsize risk-taking. Given the CEO is also the single owner of Allen Media, we view the key-person risk as very high, as the loss of the CEO could seriously affect the enterprise's operations. | Dylan Singh | |
| AMC Entertainment Holdings Inc.(B/Stable/--) | ||
| We believe motion picture exhibitors are exposed to social and cultural risks related to the content they choose to exhibit in their theaters. While almost all of AMC's operations reside in countries with established motion picture content rating systems, these ratings do not completely protect the theaters from potential backlash related to controversial content. Alternatively, if the theater chooses not to exhibit politically or culturally driven content, it could be perceived as engaging in censorship. We view AMC's management and governance as fair. AMC's largest owner, Dalian Wanda Group, reduced its ownership to just below 50% in 2018 but retains voting control through its super-voting shares. Private equity firm Silver Lake invested $600 million of convertible notes, which would convert to roughly 20%-23% of the equity, to facilitate Wanda's reduction. Silver Lake has a board seat and a right of first refusal on any further share sales by Wanda. AMC will have to manage the expectations of its two largest stakeholders; however, we believe the independent board members sufficiently offset the reduced, yet remaining controlling influence and allows the company to maintain effective governance. | Scott Zari | |
| Ancestry.com Holdings LLC(B/Stable/--) | ||
| Ancestry faces elevated social risks regarding data and privacy compared to peers due to the growing importance of its DNA business. Ancestry has collected over 16 million DNA samples and uses the data to provide insights on customers' geographic origins. There is a significant debate in the genealogy industry on whether DNA companies should assist law enforcement or protect the privacy of their users. This issue became more prevalent after law enforcement used a competitor's DNA database to identify the "Golden State Killer." While Ancestry has a strict policy of not voluntarily providing DNA data to law enforcement, its DNA kit sales have slowed since the Golden State Killer story broke and we believe this is due to privacy concerns. How its customers perceive who their data is shared with versus protecting privacy will significantly affect Ancestry's future revenue growth. | Scott Zari | |
| Banijay Group S.A.S(B+/Watch Neg/--) | ||
| In our view, Banijay is less favorably positioned than content-creating peers in terms of social risks. The group mostly focuses on producing reality shows, game shows, and entertainment and talk shows, representing about 80% of its 2018 revenues. The risk of misbehavior from participants on these shows is higher than for scripted shows, even though Banijay has taken steps to prevent such incidents. In 2018 Banijay cancelled one season of its survivor shows, Koh Lanta, aired in France, due to misbehavior by one of the show's contestants. This resulted in EBITDA loss of €10 million, or almost 10% of the group's 2018 reported EBITDA. Although Banijay tries to prevent these incidents by prudently choosing its participants and performing background checks, the group remains exposed to these risks because personal background checks don't guarantee appropriate behavior and go back no more than five years due to regulatory requirements. That said, following the announced acquisition of Endemol Shine Group in October 2019, which has fewer nonscripted shows, we expect social risks will somewhat lessen from 2020. | Tatsiana Harelyshava | |
| Beijing Kunlun Tech Co. Ltd.(BB-/Stable/--) | ||
| We consider Beijing Kunlun as less favorably positioned on social factors than peers given the large revenue and profit contribution from its online mah-jong game. Online mah-jong games could face increasing government scrutiny because they can be a way for users to gamble. While Kunlun does not allow gambling on its mah-jong game platform, which it heavily monitors, it's still possible for users to use third-party or offline channels that are not within Kunlun's control to cash out on a game. Because of this, the government could tighten regulations and impose more restrictions for these games or prohibit them altogether. Since 2016, the government has shut down some loosely managed poker apps in China that involved in-app gambling. Such actions could materially affect Kunlun's reputation and growth prospects since the mah-jong segment contributed more than half of Kunlun's EBITDA in 2018 by our estimate. | Charles Wang | |
| Bertelsmann SE & Co. KGaA(BBB+/Stable/A-2) | ||
| Bertelsmann is exposed to the typical social risks associated with companies in the media sector that produce or disseminate content (through its broadcasting, publishing, and magazine divisions). We believe that Bertelsmann's satisfactory management and governance mitigates these risks through established monitoring and management processes, which is also supported by a strong historical track record of strategic planning and execution and stable management team. As an example, Thomas Rabe, the group CEO since 2012, was previously the chief financial officer of RTL Group for six years and chief financial officer of Bertelsmann for another six years. | Patrick Janssen | |
| Clear Channel Outdoor Holdings Inc. (B-/Stable/--) | ||
| Clean Channel Outdoor Holdings Inc. (CCOH) completed its separation from iHeart Media on May 1, 2019, after which it established a new board of directors. CCOH's approach toward governance (such as communication with stakeholders and risk management), as well as its strategic priorities, has yet to demonstrate a track record. We will assess CCOH's strategy and governance as an independent company over the next few months. As an out-of-home advertiser, the company is subject to regulatory restrictions on outdoor advertising of certain products, which could limit its advertising base. For example, outdoor advertising of tobacco products is banned in the U.S. In addition, local jurisdictions have control over the placement and format of billboards, which could prevent CCOH's plans to add incremental billboards in new or existing markets or convert them to digital formats. This has made it difficult to add new boards organically, which raises the likelihood of costly acquisitions. | Thomas Hartman | |
| Discovery Inc. (BBB-/Stable/A-3) | ||
| Discovery has two major shareholders that together control more than 45% of the voting stock. John Malone controls 21.4% and Advance/Newhouse controls 24.1%. While the two have material influence on the company's strategic direction, they have balanced the needs of Discovery's various stakeholders. After the acquisition of Scripps, which increased leverage substantially, the board stopped its shareholder repurchases to focus on debt reduction and deleveraging and returned to pre-acquisition leverage in under 18 months. However, the concentrated voting control makes it easier to shift to a less-balanced approach to stakeholder needs that could affect credit quality. The company faces brand risk from social issues affecting the media industry similar to other large content creating peers. As these risks evolve, it will need to continue enhancing and systematizing its policies and proactively communicating them with external stakeholders to mitigate any negative effects and preserve brand integrity. | Jawad Hussain | |
| Fox Corp.(BBB/Stable/--) | ||
| Although Fox is a new company, it is more exposed to governance risks than its media peers. Its core management team has a long track record of running two publicly traded companies, News Corp. (until 2013) and Twenty-First Century Fox Inc. (until 2019). Our fair corporate governance assessment for this management team incorporates our view that the company has historically had insufficient operational controls over its various business lines. Poor oversight by senior management and its board of directors has allowed for significant ethical lapses, most notably the 2005 phone hacking scandal at News Corp.'s U.K.-based tabloid newspaper, News of the World and, more recently, the allegations of sexual harassment at its Fox News business. In the latter, Fox has had several lawsuits associated with sexual harassment and misconduct allegations at its cable network (and previously owned 20th Century Fox's film and TV studio). Following both scandals, Fox has taken steps to tighten governance, including strengthening internal compliance structures and processes and removing executives as needed. The company has a new board of directors, most of whom are independent; three are new to the company and its board. While neither scandal materially affected Fox's operating and financial results (although the company settled multiple lawsuits and the phone hacking scandal meant jail time for several executives), we believe they did ultimately harm Fox's ability to implement its strategic plans. Specifically, the company twice attempted to acquire the 61% of Sky PLC that it did not already own. In 2011, just after news of the phone hacking scandal broke, News Corp. withdrew its offer because of opposition from the U.K. government; in 2018, a longer-than-expected regulatory process ultimately allowed Comcast Corp. to outbid Fox for Sky. | Naveen Sarma | |
| Globo Comunicação e Participações S.A.(BB+/Positive/--) | ||
| Globo is exposed to cultural and regulatory issues related to broadcast content and political agendas. We believe risks pertaining to inappropriate content could result in boycotts affecting audience viewership or potential fines from regulators. Although Globo hasn't experienced it, we believe this industry includes the risk of advertisers deciding to decrease their exposure to the company's channels. We assess Globo's management and governance as satisfactory, despite its family controlled ownership, since the company has historically shown high governance standards. The board comprises family and independent members. We believe management has demonstrated significant market expertise and knowledge, and it has delivered on most of the company's standards and strategies. The company has historically executed well in implementing their strategies, thought the recent delays in putting in place digital initiatives has weakened profitability and revenue. | Fabiana Gobbi | |
| Hoya Midco LLC(B/Stable/--) | ||
| We believe that Hoya Midco (doing business as Vivid Seats) faces elevated social risks compared to the broader media sector stemming from regulatory scrutiny and brand risk as an online ticket reseller. As one of the larger players in the secondary ticketing market, Vivid Seats has significant customer interactions and occasionally faces criticism from perceived high fees and inadequate disclosures regarding ticket surcharges, which are a common source of customer backlash. We believe key industry risks, such as restrictions on the resale of tickets and variable pricing by primary ticket sellers, could reduce Vivid Seats' sales volume and compress its fees, which would also hurt conditions in the secondary ticket market over the longer term. Regulatory restrictions on ticket resale could adversely affect industry dynamics. For example, the BOTS Act was signed in 2016 making it illegal to use computer programs to bypass ticket sellers' online security systems. Additionally, a bill was introduced in June 2019 requiring ticket sellers to disclose all fees and make it clear that they are in possession of the ticket for resale. To date these regulatory and transparency issues have not materially affected operating performance, and we believe future industry standardization may benefit entrenched players like Vivid Seats. | David Snowden | |
| iHeartMedia Inc.(B+/Stable/--) | ||
| We believe that iHeartMedia faces social risks, including cultural and regulatory, related to content as well as data privacy risk around customer information. Radio broadcasters are required to operate within the broadcast decency bounds set by the FCC or risk fines or the loss of broadcast licenses. iHeartMedia has not incurred any material penalties. iHeartMedia is also subject to data privacy risk since its streaming platform (and other technology platforms) collects consumer data for analytics, attribution, and advertising that must be kept confidential. While the company regularly reviews and implements security measures to protect personal information, any failure or perceived failure to protect consumer data could have negative implications for its reputation and profitability. | Rose Oberman | |
| Joye Media(BB-/Stable/--) | ||
| We believe Joye Media's activity in the sports rights industry entails elevated social and governance risks relative to other rated peers in the media and leisure space. Social risks include reputational damage, lower growth prospects, and cash flow volatility due to litigation. Litigation risks arise from its participation in the highly regulated auction processes to acquire exclusive sports rights, which could lead to exposure to antitrust regulations or legal action from competitors to dispute a contract's validity. While unusual, these disputes can add uncertainty to future financial results and cash flows, like in the ongoing legal dispute between Mediapro Italia and the Lega Nazionale Professionisti Serie A, for which the company faces a potential fine of up to €194 million but is also claiming back up to €200 million from the Lega. In addition, the company faces governance risks as evidenced by its involvement in the FIFA corruption scandal in 2015, for which it was sentenced to pay about €20 million. However, these risks have lessened significantly, as the company implemented several measures to reinforce internal control and compliance systems to the highest standards, which we believe render the occurrence of similar events unlikely. | Gregoire Rycx | |
| Live Nation Entertainment Inc.(BB-/Stable/--) | ||
| We believe that Live Nation--Ticketmaster's parent company--faces elevated social risk compared to the broader media sector given its primary business surrounding online ticket sales. For example, the company has faced litigation related to its online ticketing practices in the past, some of which resulted in modest fines and additional disclosure requirements on its websites, and we believe it could face more litigation in the future. Live Nation also faces elevated antitrust risk. Following the merger of Ticketmaster and Live Nation in 2010, the company has to comply with a Department of Justice consent decree, which was recently extended to 2025, to ensure continued competition in ticketing following its vertical integration. While these restrictive regulations prevent the company from engaging in retaliatory business tactics or improper tying arrangements, probes into anticompetitive practices can also subject it to potential litigation if it misinterprets regulations. In addition, new laws restricting Live Nation's access to certain business practices could disadvantage the company if similar restrictions are not placed on competitors, though it has not had a material impact to date. | David Snowden | |
| Meredith Corp.(B+/Stable/--) | ||
| As a publisher of magazines and operator of digital websites, Meredith is exposed to the brand and reputation of its portfolio of publications and digital properties. If any of its brand or published materials are considered controversial, customers could cancel subscriptions and advertisers could cut advertising, which would harm revenues. | Thomas Hartman | |
| National Amusements Inc.(B+/Stable/--) | ||
| NAI is majority-owned and fully controlled by the Redstone family trust. While the trust is governed by a seven-member board, we believe NAI's president and minority owner Shari Redstone has effective control of the board and therefore controls NAI. The lack of independence on the board creates a risk that Shari Redstone could place her interests above the interests of other stakeholders, including NAI debtholders. Additionally, the company has a history of high leverage, consistently negative cash flow caused by elevated corporate-level expenses, and using debt to fund investments outside of its core competencies. We believe that NAI's aggressive financial policy is driven by its controlling ownership and presents an incremental risk for debtholders. | Scott Zari | |
| Netflix Inc.(BB-/Stable/--) | ||
| Netflix's position as the leading global streaming video platform creates elevated social, cultural, and regulatory risks relative to its peer group, in part because it relies on strong subscriber growth to improve its currently negative free cash flow profile. As Netflix introduces content more quickly in countries throughout the world, it needs to manage potential cultural and regulatory backlash from how different countries perceive it. A negative interaction that limits its availability in a country/region could affect its growth potential and limit its competitive strength. Netflix encountered issues in India and Saudi Arabia, where some of its content faced pushback from regulatory bodies, though both cases have been resolved without a material impact on growth. The company's policy is to comply with regulatory authorities in each country it operates in, but it has to balance compliance with its desire to maintain its free speech standards. After Netflix removed content in Saudi Arabia, it faced some backlash from consumers that it gave in to censorship by complying with the regulatory requirements. The company will need to think about these issues as it continues to grow around the world in order to ensure it can continue its strong growth trajectory. Netflix has taken steps to address these issues by increasing its governmental affairs staff and by adding former Ambassador to the U.N. and National Security Advisor, Susan Rice, to its board. These additions should help it better navigate various stakeholder interests in the future. Netflix also faces elevated brand risk from social issues including the gender wage gap and sexual harassment. As the brand has grown, the potential for customer backlash or boycotts from failing to address these concerns has also grown. The company has reacted to high-profile sexual harassment cases by swiftly removing offenders from its offerings. Netflix's ability to continue enhancing and systematizing its policies and proactively communicating them with external stakeholders is a key factor in preventing brand degradation that could hurt subscriber growth. | Jawad Hussain | |
| Nexstar Media Group Inc. (BB-/Stable/--) | ||
| Similar to most TV broadcasters, Nexstar is less subject to social risk stemming from content creation because it primarily redistributes content from its affiliated broadcast networks. Nexstar has taken a proactive approach with regulators to obtain approval for acquisitions, announcing plans to divest certain television stations to comply with regulatory requirements when initially announcing its plans to acquire Media General in 2016 and Tribune Media in 2018. Nexstar has not had material fines, complaints, or rulings against it. | Rose Oberman | |
| Nielsen Holdings PLC(BB/Watch Neg/--) | ||
| We believe that Nielsen faces social risks stemming from its focus on collecting and using personal and consumer data in a variety of its businesses. As data collection becomes more pervasive and the digital economy continues to grow, we expect increased regulatory and social pressure on companies to ensure high standards of data integrity and privacy. The EU enacted Global Data Protection Regulation in 2018 and we expect other jurisdictions to introduce regulations on how companies use consumer data. Nielsen, as a leading data analytics company, will need to ensure that it is ahead of these evolving regulatory and consumer trends so that it does not face any negative effects on its business. We consider its current level of investment as sufficient to meet these needs. While risks for data analytics companies will continue to increase, we believe Nielsen has a strong record of maintaining data integrity and privacy. Nielsen has a long history of collecting and monetizing consumer data in its media and consumer retail businesses. It has built a reputation as a trusted third-party source for data analytics, which we believe helps its position with consumers, customers, and regulators as data privacy and integrity issues become more prominent. | Jawad Hussain | |
| Playtika Holdings Corp.(B+/Stable/--) | ||
| We believe Playtika is more exposed to governance risk than its peers given its lack of a board and its nontraditional ownership structure, and Giant Corp.'s voting control on behalf of the ownership consortium. In our view, the absence of a board could lead to insufficient oversight and scrutiny of key enterprise risks, compensation, or unmanaged conflicts of interest. Furthermore, Giant's previous inability to get Chinese regulatory approval to acquire Playtika eventually resulted in the company raising $2.6 billion to accommodate a debt-funded dividend and repay existing debt. The debt-funded dividend was issued to provide liquidity to current shareholders and significantly increased leverage. In our view, the confluence of these factors elevates event risk with respect to operational and financial considerations and our assessment of a weak management and governance score. | Jawad Hussain | |
| PT MNC Investama Tbk(B-/Negative/--) | ||
| We regard MNC Investama's governance as weaker than peers in the sector and as a limiting factor to its creditworthiness. The company has a complex corporate structure that reduces transparency. It has rapidly expanded in areas with limited operational expertise, including coal mining and financial services. We also regard its financial policies as aggressive given the extensive use of debt and a debt restructuring in 2018. Additionally, the company has continued a modest amount of shareholder distributions and share buybacks, despite recurring refinancing requirements. While the amount is not significant, it demonstrates the company's shareholder-friendly orientations. Finally, we believe the company's CEO and major shareholder, M. Hary Tanoesoedibjo, heavily influences business decisions, and therefore exposes the company to key-man and event risk. We also view the presence of just one independent director on a panel of seven directors as insufficient to ensure board effectiveness. | Yijing Ng | |
| RELX PLC(BBB+/Stable/A-2) | ||
| Similar to other media companies, RELX is exposed to social risks including content regulation, IP theft, and protection of personal data. We view RELX as broadly in line with peers in its exposure to these factors. At the same time, greater global demand for compliance, fraud prevention, cybersecurity, and public safety information and technologies support RELX's strong business position and provides long-term growth potential. This especially benefits RELX's fastest-growing risk and business analytics division. The scientific, technical and medical business benefits from growing demand for scientific research and increasing research and development spending by governments, academic institutions, and corporations. RELX's strong management and governance assessment is supported by its transparent governance and clearly stated and predictable financial policy. | Alexandra Balod | |
| Sinclair Broadcast Group Inc.(BB-/Positive/NR) | ||
| We view Sinclair's governance risk in line with its peers, despite a significant family controlling ownership, as family ownership is common among broadcasters. The Smith family, including David Smith (chairman of the board), controls 76.6% of the common voting rights of Sinclair, such that they have meaningful influence over the company's strategic decisions. The Smith family also has four members on Sinclair's nine-member board and has an agreement to vote for each other as candidates for election to the board until Dec. 31, 2025. However, as broadcasters have sought external financing to fund strategic plans, many have made organizational changes over the past several years to improve transparency and accountability. In 2017, Chris Ripley replaced David Smith, who had been CEO for nearly 30 years. Since then, we believe Sinclair has provided greater visibility into its operations and strategic plans. | Rose Oberman | |
| Thomson Reuters Corp.(BBB/Stable/A-2) | ||
| We assess Thomson Reuter's (TR) management and governance risk as satisfactory, despite being a controlled company. The Woodbridge Co. Ltd., a private company that is owned by members of the Thomson family, owns a majority (approximately 66%) of TR's stock and can elect the board of directors and direct the corporation's management and policies. However, most (eight out of 13 members) on the board are currently independent and the company is professionally run. Furthermore, the company has committed to upholding trust principles, which aim to preserve its independence, integrity, and freedom from bias. In our view, these principles help manage potential social risk that might arise from its ownership of the Reuters news business and the news stories it covers. | Vishal Merani | |
| Univision Communications Inc.(B/Stable/--) | ||
| We believe Univision primarily faces social risk, including cultural and regulatory issues, related to content. The FCC also reviews applications for foreign investments above 25% in U.S. entities that control broadcast licenses. The FCC approved a petition in 2016 to increase Televisa's stake in Univision to 49% (although it currently owns about 36%). Univision has a program licensing agreement with Televisa that provides it with a steady pipeline of content. The company faces brand risk from social issues affecting the media industry similar to other large content-creating peers. As these risks evolve, it will need to continue enhancing and systematizing its policies and proactively communicating them with external stakeholders to mitigate any negative effects and preserve brand integrity. | Rose Oberman | |
| ViacomCBS Inc.(BBB/Stable/A-2) | ||
| Although ViacomCBS Inc. is a new company created through the merger of CBS Corp. and Viacom Inc., it is more exposed to governance risks than its media peers. Its corporate and governance structure, like its predecessor companies, gives its controlling shareholder significant influence over the company. The Redstone family (Sumner and Shari Redstone), through National Amusements Inc. (NAI), maintain a 79.4% voting control over ViacomCBS despite having a 10.1% economic interest. At times historically, NAI has unilaterally determined each company's strategic direction in 2016 when it amended Viacom's corporate bylaws by requiring unanimous board approval to sell any portion of the Paramount film studio. More recently, NAI and CBS (all of its independent board members and its management team at the time) were involved in a very public dispute over control of CBS. While this dispute was eventually settled and lawsuits were dropped, the occurrence reflected poorly on the governance structures and systems compared to media peers. Viacom had been active in promoting socially responsible causes over the years through several of its networks that focus on youth and minority demographics. This should benefit ViacomCBS in the current social environment as media companies and large content creators face increasing brand risk from social issues (sexual harassment, gender wage gap, etc.). As these risks evolve, ViacomCBS will need to continue enhancing and systematizing its policies and proactively communicating them with external stakeholders to mitigate any potential negative effects and preserve brand integrity. | Naveen Sarma | |
| Vivendi S.A.(BBB/Stable/A-2) | ||
| Some governance aspects, reflected in the rating, play a material role in our ESG assessment. In particular, against other companies of the French CAC 40 index, we believe Vivendi's board is more exposed to potential conflict of interests. For instance, in December 2019, the French Financial Market Authority, in a yearly report on governance standards of listed companies, pointed the risk of a potential conflict of interests between Bolloré group and Vivendi in the business ties that the two companies have. Also, the board's independence was under scrutiny from the same regulatory body when Bolloré group took control of Vivendi in April 2017 with only 20.65% ownership and 29% voting rights. A month later, in May 2017, Bolloré group sold its communication agency Havas to Vivendi, raising concerns about the allocation of cash held at Vivendi to the sole benefit of one shareholder, Bolloré group. In addition, Vivendi's board chairman, Yannick Bolloré, is also CEO of Havas, now one of the group's main subsidiaries, which is contrary to both the French corporate governance code of conduct and standard market practices. It also questions the board's independence vis-à-vis Vivendi's management. The Bolloré family also has a strong presence at the supervisory board. That said, the regulator hasn't pronounced any sanction against the group on the points it raised and Vivendi's supervisory board complies with market practices in terms of independent members representation and more generally with regulations and law in force. Adding to the governance aspects, the group faces some litigation and regulation risk that might affect its strategy. In particular, the ongoing litigation with Mediaset and the pressures from the Italian regulator AGCOM due to its holdings of capital in both Mediaset and Telecom Italia, which is forbidden under Italian law, will likely hinder the group's ambition of becoming a European media conglomerate. Still, there is no financial impact on Vivendi to date because it did not dispose any of its stakes. Furthermore, a recent opinion issued by the Advocate General of the European Court of Justice questions the Italian legislation's conformity with EU law. | Mickael Vidal | |
| Walt Disney Co. (The)(A/Stable/A-1) | ||
| Social risks are an important consideration in our credit ratings on Disney. The brand, universally perceived as family friendly, is crucial to the company's continued success, so the company aggressively protects its IP and brands from anything that could harm consumers' view of Disney, especially misuse or misrepresentation of its brands. Threats to this image could come from terror or health threats to the company's global theme parks. Disney spends considerable time and resources to protect its parks, and interacts with international, national, and local authorities, to ensure customer experience at its theme parks is not harmed. As a producer of film and television content, the company also faces the risk if any of its content material is considered offensive, not Disney-like, or controversial though Disney has protected its brand well over the years. | Naveen Sarma | |
| WPP PLC(BBB/Negative/A-2) | ||
| We view WPP as broadly in line with the media industry and with other advertising agencies in its exposure to social risk factors. Similar to peers, WPP may face backlash or negative feedback from regulators or the public relating to the advertising content that it produces. To date, WPP has a good track record of managing potentially controversial campaigns. For example, in early 2019 WPP's agency Grey produced a "We Believe" campaign for Gillette that sparked additional debate about negative male behavior. In our view it had a very wide reach and overall achieved positive results for the client and the agency. Another increasing social risk that WPP, like other advertising agencies, needs to manage relates to use and protection of personal data for targeted advertising, and growing regulation in this area. We think WPP is better placed to manage this risk than small independent agencies or advertisers that are in-housing these functions because the latter may lack appropriate infrastructure. | Alexandra Balod | |
| Ratings as of Feb. 11, 2020. | ||
This report does not constitute a rating action.
| Primary Credit Analysts: | Naveen Sarma, New York (1) 212-438-7833; naveen.sarma@spglobal.com |
| Florence Devevey, Paris (33) 1-4075-2501; florence.devevey@spglobal.com | |
| Jawad Hussain, Chicago + 1 (312) 233 7045; jawad.hussain@spglobal.com | |
| Secondary Contact: | David Snowden, CFA, Chicago (1) 312-233-7077; david.snowden@spglobal.com |
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