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The Next Issue for Media Firms: Rising Debt

Last week’s media stock implosion reflected an overdue recognition that cord-cutting is hurting media companies’ core television businesses. But there’s another risk that deserves more attention: Debt levels among major media companies have crept up to levels that could become worrisome if their business continues to deteriorate.

What makes this particularly noteworthy is that most of the media companies haven’t taken on debt for expansionary moves like acquisitions or big investments. Instead, they’ve been borrowing more and more to fund stock buybacks, which they see as an easy way to keep their stock prices aloft. Investors have been big supporters of buybacks but there are signs that’s beginning to change as they focus more on the shaky fundamentals of the business.

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None of these risks may become a reality tomorrow or even in the next few months. But if the deterioration in the television businesses isn’t enough to persuade media companies to be more aggressive in their investment, and less focused on buybacks, then their debt levels should be.

Martin Peers and Alexandre Roche commented on this article.
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There’s no mystery surrounding the buyback addiction. With media companies’ revenue growth anemic—typically single-digit percentage terms or lower—stock buybacks offer an easy way to show growth in earnings per share, by reducing the number of shares outstanding.