Impact of Japan quake on North American media companies


The March 11 Japanese earthquake and its aftermath are likely to cut into the revenues of North American media and communications companies, says Moody’s Investors Service. However, the impact is expected to be modest and not nearly deeply enough to affect credit ratings.

The North American media and entertainment companies rated by Moody’s make approximately $5 billion a year in revenues from Japan. But that amount is only 2.5% of the $200 billion in total revenues Moody’s expects the affected companies to collect worldwide in 2011.

“Certainly a moderate amount of the $5 billion could be lost,” said Neil Begley, a Moody’s Senior Vice President. “Interruptions to routine daily life and to the Japanese economy in the aftermath of the disaster would be expected to affect box-office receipts, advertising, and retail sales of entertainment-related merchandise, for instance.”

“But longer term we expect the disaster in Japan to have little lasting effect on North American media and entertainment companies,” Begley added.

Moody’s notes that the film and home entertainment sector accounts for 30% of the $5 billion in annual revenues from Japan, while electronic and consumer product companies account for 28%.

Among the North American-based rated media and entertainment companies, The Walt Disney Company and QVC Inc. are most exposed to Japanese revenues, says Moody’s. Although both Disney and QVC generate more than $1 billion of annual revenue in Japan, the sums likely to be affected by the disaster are a small part of their total revenues.

The disaster could also less directly cut into some US revenues. Japanese auto makers have already stated that they have about two months of inventory supply, will likely reduce spending on advertising in the US as supply-chain problems lead to manufacturing disruptions and in turn sustain low inventories for the near-term. Automotive advertising represents between 20% and 25% of North American advertising spending, so a disruption could be meaningful for networks and broadcast stations in 2011, which already is an off year for both political spending and the Olympic games, Moody’s noted.

A temporary shortage of high tech components from supply chain operations could also hurt the margins at cable companies and satellite-TV providers who rely heavily on set top boxes, and disruption in consumer electronics inventories could impact advertising as well as consumption of entertainment which tends to rise with consumer purchases.