US Media 2025 Outlook: Picks, Pans, and New Issue

• • IG Media: The sector faces significant pressures in the pay TV landscape and uncertainty linked to potential M&A. Our IG Media coverage universe has a blended rating of BBB and currently trades at an OAS of ~115 bp, which is only ~10 bp wide to the BBB Index. Despite optimism about Disney and Netflix’s operational and financial trajectories, their tightening potential is limited as they trade well inside the A Index. Meanwhile, WBD and Paramount offer a significant spread pickup relative to the BBB Index, but this is warranted due to their material fallen angel risk. The sector remains highly concentrated, with WBD and Disney comprising over 60% of the notional value and M&A risk skewed to the downside.
  • HY Media: Over the last month, support has grown in D.C. for local TV, potentially leading to deregulation via the FCC and/or Congress. This could result in consolidation, while the FCC has warned networks about aggressive reverse retrans fees, possibly opening a pathway for stations to negotiate better terms with vMVPDs. There has been a shift towards skinnier bundles (broadcast+streaming).
  • IG Picks & Pans. We employ a barbell strategy with Netflix at the high-end of the credit scale and Paramount for its spread pickup and positive M&A optionality at the low-end. WBD and Fox both have high exposure to the challenged linear TV market. WBD may pursue a business breakup, leaving bondholder exposure with the cable network business.

Sector Views

IG US Media

Sector Weighing:

• The sector faces challenges such as declining EBITDA at TV networks due to cord cutting and dropping national TV advertising. DTC is progressing toward profitability, but scaling remains a concern. Potential transformational M&A activity is possible under a supportive regulatory regime. Credit metrics are improving as rating agencies tighten triggers. WBD and PARA will significantly influence sector performance.
• We expect leverage to moderately decline in 2025 due to EBITDA growth primarily from improved DTC profitability and Studio recoveries, and debt reduction at WBD and PARA. Netflix, Disney, and Fox benefit from strong credit metrics, allocating most FCF to shareholder returns, with modest leverage reductions anticipated at Netflix and Disney due to double-digit EBITDA growth. Deleveraging will start from elevated points for WBD and PARA, with WBD’s progress primarily organic and Paramount’s aided by a $1.5 billion cash injection and Skydance’s EBITDA consolidation. Rating agencies are expected to continue tightening requirements for companies with high exposure to the linear TV market.
• Event Risk: The pay TV industry is at a tipping point, likely leading to major M&A activity in 2025. Cord cutting may accelerate with ESPN’s flagship DTC service launch and the NBA’s shift to Amazon/Peacock. Carriage renewals may remain contentious following past blackouts. Ratings agencies have begun to crack down on the BBB- spectrum, with potential fallen angel candidates in PARA and WBD. In the advertising agency subsector, Omnicom’s acquisition of Interpublic raises questions about the need for scale, with Stagwell as a potential target.
• 2024 Performance: IG Media underperformed the market in 2024, with an excess return of 1.9% versus 2.8% for the IG index due to mixed issuer-specific results. Paramount was the top performer with a 5.2% excess return, managing to stay in the IG index after Skydance’s acquisition. Warner Bros. Discovery saw 0.0% excess return, affected by fallen angel risk and potential division splits. Interpublic and Fox outperformed the BBB index, while Omnicom, Disney, and Netflix trailed their respective indices.