Media Investors Are Living in Denial

Media company investors appear to be living in their own reality. Pay TV subscribers fell 2 percent in 2014, says Nielsen, while national TV advertising in the fourth quarter dropped 0.9 percent, according to MoffettNathanson. And everyone from Sony to Dish Network to Apple is making it easier for users to cut the cord.

Yet a three-year-long rally among major entertainment stocks has extended into this year, lifting the sector to a rich valuation of 18.4 times next year’s estimated earnings, up from a multiple of 10 in 2011, according to research firm MoffettNathanson based on Tuesday’s prices. That puts the sector at a premium to the S&P 500’s average multiple, a measure of the overall market, compared with a discount four years ago. By some measures, media valuations are at their highest since 2006, if not 2000.