Market Overview

How Will MSG Networks Fare In The New TV Environment?

How Will MSG Networks Fare In The New TV Environment?
30 Stocks Moving In Wednesday's Pre-Market Session
Earnings Scheduled For August 15, 2018

MSG Networks Inc (NYSE: MSGN), formerly The Madison Square Garden Company, got a Halloween scare from Morgan Stanley with a downgrade from Equal-Weight to Underweight.

MSG Networks has risks not reflected in the consensus as it moves through distribution renewals, analyst Benjamin Swinburne said in a Tuesday note.

As an independent regional sports network, the company “lacks the benefit of negotiating distribution alongside a broader network portfolio,” Swinburne said (see Swinburne's track record here). 

MSG Networks’ distribution revenue is concentrated with two distributors, according to Morgan Stanley: Altice USA Inc (NYSE: ATUS), which accounts for 25 percent of revenue, and Charter Communications, Inc. (NASDAQ: CHTR), which accounts for 20-25 percent of revenue.

The company has a levered cost structure in the form of contractually obligated rights fees paid to sports teams under long-term agreements, Swinburne said. Such fees make up 80 percent of MSG Network’s operating expenses, the analyst said.

Morgan Stanley has a $20 price target on the shares.

The Impact Of Sports-Free TV

As MSG Networks’ distribution contracts expire, the company is facing a different TV ecosystem where distribution minimums could be reduced, Swinburne said.

The network’s existing agreements have protected revenues from rising adoption of sports-free TV bundles, meaning that the number of paying subscribers likely exceeds the number of viewing subscribers, the analyst said.

“As agreements renew, we see risk that those minimums are reduced — perhaps meaningfully — leading to an acceleration in paying subscriber losses.”

The combination of a loss of paying subscribers; 4 percent yearly growth in rights fees; and limited means to reduce expenses create a scenario of declining EBITDA over time, according to Morgan Stanley.

At publication, shares of MSG Networks were down 9.56 percent at $17.50.

Related Links:

Analyst: Why Jim Dolan Could Sell The New York Knicks

Takeover Speculation In MSG Networks Is 'Inefficient'; Loop Downgrades To Sell

Image Credit: "Steve Cangialosi calling NJ Devils on MSG Network" Bruce C. Cooper (uploader) (Bruce C. Cooper (uploader)) [GFDL ( or CC BY-SA 4.0-3.0-2.5-2.0-1.0 (], via Wikimedia Commons

Latest Ratings for MSGN

Aug 2018Imperial CapitalInitiates Coverage OnOutperform
Jun 2018Morgan StanleyMaintainsUnderweightUnderweight
Apr 2018BTIG ResearchDowngradesBuyNeutral

View More Analyst Ratings for MSGN
View the Latest Analyst Ratings

Posted-In: Analyst Color Short Ideas Downgrades Price Target Sports Analyst Ratings Movers Trading Ideas Best of Benzinga


Related Articles (CHTR + ATUS)

View Comments and Join the Discussion!

Latest Ratings

XECImperial CapitalDowngrades35.0
SSTIImperial CapitalUpgrades49.0
AVDLoop CapitalUpgrades29.0
FCREYDeutsche BankUpgrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Zacks Industry Outlook Highlights: The State Of Retail

Micron: A Strong Growth Stock Powering Self-Driving Cars