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Criteria | Corporates | Industrials:

Key Credit Factors For The Media AndEntertainment Industry

Primary Credit Analysts:

Jeanne L Shoesmith, CFA, Chicago (1) 312-233-7026; [email protected]

Florence Devevey, Madrid (34) 91-788-7236; [email protected]

Naveen Sarma, New York (1) 212-438-7833; [email protected]

Criteria Officers:

Mark Puccia, New York (1) 212-438-7233; [email protected]

Peter Kernan, London (44) 20-7176-3618; [email protected]

Table Of Contents

SCOPE OF THE CRITERIA

SUMMARY OF THE CRITERIA

METHODOLOGY

Part 1: Business Risk Analysis

A. Industry Risk

B. Country Risk

C. Competitive Position (Including Profitability)

Part II: Financial Risk Analysis

D. Accounting And Analytical Adjustments

E. Cash Flow/Leverage Analysis

Part III: Rating Modifiers

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 24, 2013 1

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Table Of Contents (cont.)

F. Diversification/Portfolio Effect

G. Capital Structure

H. Liquidity

I. Financial Policy

J. Management And Governance

K. Comparable Ratings Analysis

RELATED CRITERIA

APPENDIX: MATERIAL RELATED TO THE INITIAL PUBLICATION OF

THIS CRITERIA


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Criteria | Corporates | Industrials:

Key Credit Factors For The Media AndEntertainment Industry(Editor's Note: We originally published this criteria article on Dec. 24, 2013. We're republishing this article following our

periodic review completed on Dec. 9, 2015. As a result of our review, we've updated contact information, updated criteria

references, and deleted outdated sections that previously appeared in paragraphs 2, 6, and 7 related to the initial publication of

our criteria, and which are no longer relevant.)

1. This article describes Standard & Poor's Ratings Services' methodology and assumptions for rating media and

entertainment companies. We are publishing this article in conjunction with our corporate criteria (see "Corporate

Methodology," published Nov. 19, 2013). This article is related to our criteria article "Principles Of Credit Ratings,"

published Feb. 16, 2011.

2. This paragraph has been deleted.

SCOPE OF THE CRITERIA

3. These criteria apply globally to ratings on issuers in the media and entertainment industry, which includes the

following subsectors:

• Ad agencies and marketing services companies;

• Ad-supported online content platforms;

• Broadcast networks;

• Cable TV networks;

• Data/professional publishers;

• Directories;

• E-commerce services;

• Educational publishing;

• Film and TV programming production;

• Magazines (consumer and B2B/trade magazines);

• Motion picture exhibitors (theater);

• Music publishing and recording;

• Newspapers;

• Outdoor;

• Printing;

• Radio stations;

• Trade shows; and

• Local TV stations.

The scope of this criteria article excludes cable TV systems and satellite video service providers. We analyze these

under "Key Credit Factors For The Telecommunications And Cable Industry," published Dec. 12, 2013.


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SUMMARY OF THE CRITERIA

4. Standard & Poor's is updating its criteria for analyzing media and entertainment companies, applying its corporate

criteria.

5. We view media and entertainment as an "intermediate" risk industry under our criteria, given its intermediate

cyclicality risk and intermediate degree of competitive risk and growth. In assessing the competitive position of a

media and entertainment company, we put particular emphasis on revenue stability, especially in light of industry-wide

migration to digital technology; market position; brand strength; asset quality; and ability to translate these factors into

pricing leadership and a strong EBITDA margin. We also consider other subsector-specific factors. In our assessment

of the financial risk profile, we consider industry- or company-specific risks in relation to working capital

characteristics (including seasonality, cash outflows and inflows over the course of the business cycle), as well as

investments in content, and their effect on strength and stability of cash flow coverage ratios.



METHODOLOGY

Part 1: Business Risk Analysis

A. Industry Risk

8. Within the framework of Standard & Poor's corporate criteria for assessing industry risk, we view media and

entertainment as having an "intermediate" median industry risk (category 3). We derive our industry risk assessment

for media and entertainment from our intermediate risk (3) cyclicality assessment, and our intermediate risk (3)

competitive risk and growth assessment.

9. While we characterize the median industry risk as intermediate, we view many of the constituent subsectors as

diverging from this industry risk median, both in terms of cyclicality and competitive risk and growth. We capture

these differences in our assessment of each company's competitive position (see table 1).

Table 1

Media And Entertainment Subsector Profile Compared With Industry's "Intermediate" Median Risk

More favorable

than industry

median

In line with

industry

median

Somewhat less

favorable than

median

Significantly less

favorable than

median

Unfavorable compared

with industry median

<---Lower Risk<---------------------------------------------------------------------------------->Higher Risk--->

Industry subsector

Professional/data

publishers

x


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Criteria | Corporates | Industrials: Key Credit Factors For The Media And Entertainment Industry

Table 1

Media And Entertainment Subsector Profile Compared With Industry's "Intermediate" Median Risk (cont.)

Ad agencies x

Cable TV networks x

Broadcast networks x

Outdoor x

Internet content

platforms (incl. social

media)

x

E-commerce services x

Trade shows x

Local TV stations x

Motion picture

exhibitors (theater)

x

Music publishing x

Local radio x

Recorded music x

Film and TV

programming

production

x

Educational publishers x

Consumer magazines x

Printing x

Trade/B2B magazine

publishing

x

Newspapers x

Directories x

10. More favorable: We view the ad agencies, cable TV networks, broadcast networks, outdoor advertising, and

professional/data publishers more favorably than the median industry risk assessment of intermediate because of

generally more favorable competitive risk and growth factors, including lower risk of structural declines, and less

severe cyclicality effects on revenue and profit ratios.

11. In line with industry median: We view e-commerce, Internet content platforms (including social media), local TV

stations, music publishing, trade shows, and theaters as in line with the median intermediate risk assessment for media

and entertainment because of generally moderate competitive risk and growth factors for these subsectors. These

factors include relatively solid barriers to entry (especially local TV stations, theaters, and trade shows), relatively low

risks to growth trends (especially e-commerce and internet content platforms), and moderate secular change exposure.

12. Somewhat less favorable: We view educational publishers, film and TV programming production, local radio stations,

and recorded music somewhat less favorably than the median intermediate risk sector assessment because of higher

exposure to secular maturity (especially educational publishing, radio, and recorded music), inherent industry volatility

that obscures cyclicality (notably film production), and higher-than-average cyclicality (local radio stations).

13. Significantly less favorable: We view consumer magazines and printing significantly less favorably than the median risk

of media and entertainment because of structural declines across all of these subsectors and the corresponding effect


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on subsector margins, compounded by cyclicality.

14. Unfavorable: We view trade/B2B magazines, newspapers, and directories unfavorably compared with the median

intermediate industry risk assessment of the industry because of steady advertising and user migration online,

contracting margins, minimal barriers to entry, and substantial cyclicality.

1. Cyclicality

15. We assess the median cyclicality of media and entertainment services as "intermediate" (3). Based on our analysis of

global Compustat data, companies in the media and entertainment industry experienced an average peak-to-trough

(PTT) decline in revenue of about 0.6% and an average decline in EBITDA margin of about 8.1% during recessionary

periods since 1952. This calibrates to a cyclicality assessment of intermediate (see "Methodology: Industry Risk,"

published Nov. 19, 2013).

16. For the 2000-2002 and 2007-2009 periods, PTT revenue declines for the media and entertainment industry were 0%

and 3.27%, respectively. We expect cyclicality could increase based on mature growth in ad spending and consumer

spending on media and entertainment, as well as fragmentation across media and entertainment platforms, including

online content and advertising platforms. Particularly in relation to ad spending, the deflationary effect of ad spending

migration to lower-cost digital platforms suggests decelerating revenue growth over the very long term.

17. For the 2000-2002 and 2007-2009 periods, PTT EBITDA margin declines for the media and entertainment industry

were 7.53% and 6.89%, respectively. Based on the likelihood of increased revenue cyclicality, structural declines in

several subsectors (especially print-based media), and lower barriers to entry in digital media, we expect increased

EBITDA cyclicality over the very long term.

18. While the median industry cyclicality is intermediate, we view many of the constituent subsectors as diverging from

this median, as follows:

• Cable networks, motion picture exhibitors, and data/professional publishers have more favorable cyclicality

characteristics than the industry median, in our view.

• Internet content platforms (including social media), e-commerce, and broadcast networks have slightly more

favorable cyclicality characteristics than the industry median, in our view.

• Outdoor, trade shows, educational publishers, directories, music publishing, recorded music, and ad agencies'

cyclicality characteristics are in-line with the industry median, in our view.

• Local radio and local TV stations have cyclicality characteristics that are somewhat less favorable than the industry

median, in our view.

• Consumer magazines have significantly less favorable cyclicality characteristics than the industry median, in our

view.

• B2B/trade magazines, directories, newspapers, and printing have unfavorable cyclicality characteristics compared

with the industry median, in our view.

• Film and TV programming production have inherently high volatility associated with unpredictable audience

reception that masks any cyclicality. We believe Internet content platforms (including social media) and

e-commerce were in a stage of expanding user adoption that masked cyclicality in the 2007-2009 recession. We

expect these subsectors could exhibit more cyclicality in the next recession.


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2. Competitive risk and growth

19. We view the media and entertainment industry as warranting a median intermediate (3) competitive risk and growth

assessment. To determine competitive risk and growth, we assess four sub-factors as either low, medium, or high risk.

These sub-factors are:

• Effectiveness of industry barriers to entry;

• Level and trend of industry profit margins;

• Risk of secular change and substitution by products, services, and technologies; and

• Risk in growth trends.

20. While we consider the median competitive risk and growth for media and entertainment is intermediate, we view

many of the constituent subsectors as diverging from this median, as follows:

• Cable networks and data/professional publishers have competitive and growth risk characteristics that are slightly

more favorable than the industry median, in our view.

• Ad agencies, broadcast networks, feature film and TV programming production, Internet content platforms

(including social media), local TV stations, music publishing, outdoor, and trade shows have competitive and growth

risk characteristics in line with the industry median, in our view.

• Educational publishing, local radio stations, printing, recorded music, and theaters have competitive risk and growth

characteristics that are somewhat less favorable than the industry median, in our view.

• B2B/trade magazines, consumer magazines, directories, and newspapers have unfavorable competitive and growth

risk characteristics compared with the industry median, in our view.

a) Effectiveness of barriers to entry--medium risk

21. The median medium risk assessment for the industry reflects significant differences across subsectors.

22. We consider the risk for most TV and radio broadcasters to be lower than the industry median, relating to high

regulatory barriers such as limitations on broadcast licenses. Similar regulatory protection of local zoning restrictions

serve as competitive barriers for outdoor advertising. We believe cable TV networks, global professional/data

publishers, and trade shows face low risk related to high brand franchise barriers.

23. High fixed investments and competitive barriers protect movie theaters, despite digital competition.

24. Ad agencies, broadcast networks, directories, e-commerce, educational publishing, motion picture production (notably

independent production), music publishing, and Internet content platforms (including social media) have moderate risk

related to investment barriers.

25. High risks result from low barriers in certain other sectors, such as B2B/trade and consumer magazine publishing,

newspaper publishing, printing, and recorded music.

b) Level and trend of industry profit margins--medium risk

26. The median assessment of "medium risk" for the industry reflects significant differences across subsectors.

27. Low risk: Margins are high and steady for some subsectors, such as cable networks, local TV stations (despite

predictable presidential and Congressional election/Olympic cycles in the U.S.), data/professional publishers, and

trade shows. Margins are not as high, but are relatively steady for ad agencies.


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28. Medium risk: Relatively secure and stable margins are characteristic of broadcast networks (major national TV

networks), consumer magazines, e-commerce, educational publishers, film and TV programming production (notably

the major Hollywood studios), Internet content platforms (including social media), local radio, outdoor advertising,

theaters, music publishing, and recorded music.

29. High risk: Pure feature filmmakers are exposed to high upfront investments and low revenue predictability, lacking

participation in the more stable TV programming production segment. We also view print media, such as B2B/trade

and consumer magazines, newspapers, and printers, as subject to high risk related to the level and trend of profit

margins. These subsectors' moderately high fixed costs and trend of structural decline are important long-term risks.

c) Risk of secular change and substitution by other products, services, and technologies--medium risk

30. Generally, Internet and mobile technology pose the principal risks of change and substitution for media and

entertainment. We believe this risk is lowest for ad agencies, data/professional publishers, e-commerce, and outdoor

advertisers. We view risk as medium for broadcast TV and cable TV networks, film and TV programming production,

Internet content platforms (including social media), local TV stations, music publishing, recorded music, theaters, and

trade shows. And we view the risk as high for B2B/trade magazines, consumer magazines, newspapers, directories,

educational publishers, local radio stations, and printing.

d) Risk in growth trends--medium risk

31. We view the media and entertainment industry as subject to a median risk in growth of "medium." This assessment is

largely a function of the structural risks, in combination with cyclicality, and reflects significant differences across

subsectors.

32. Lowest risk: Internet content platforms (including social media) and e-commerce.

33. Medium risk: Ad agencies, broadcast and cable networks, data/professional publishers, local TV stations, outdoor

advertisers, and music publishing.

34. High risk: Print-based subsectors (B2B/trade magazines, consumer magazines, directories, educational publishing,

newspapers, and printing) because of the structural shift underway from print to digital. High risk in film and TV

programming production because of content fragmentation, in theaters because of audience fragmentation, and in

recorded music because of digitization of content.

35. Additional competitive and growth risks vary by country, relating to:

• Demographic and wealth differences that affect GDP, consumer spending, and therefore ad spending;

• Literacy differences that affect information and entertainment consumption;

• Differences in regulation that pertain to media ownership restrictions;

• Disadvantages that can arise from a very small population with specific language and cultural traditions that make

targeted entertainment programming costly to produce and uneconomic to exploit;

• Political risk in relation to censorship and media independence;

• Protectionist policies limiting entertainment imports; and

• Availability of financing, including tax-driven financing.


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B. Country Risk

36. Country risk plays a critical role in determining all ratings on companies in a given country. Country-related risk

factors can have a substantial effect on company creditworthiness, both directly and indirectly. In assessing country

risk for media and entertainment companies, our analysis uses the same methodology as with other corporate issuers

(see our corporate criteria). A key factor in our business risk analysis for corporate issuers is the country risk

assessment, which includes the broad range of economic, institutional, financial market, and legal risks that arise from

doing business in a specific country.

37. We generally determine exposure to country risk using EBITDA, discretionary cash flow, or in some instances, assets.

C. Competitive Position (Including Profitability)

38. Under our corporate criteria, we assess a company's competitive position as (1) excellent, (2) strong, (3) satisfactory,

(4) fair, (5) weak, or (6) vulnerable. In assessing the competitive position for media and entertainment companies, we

review the following factors of an individual company:

• Competitive advantage;

• Scale, scope, and diversity;

• Operating efficiency; and

• Profitability.

39. We assess independently the first three components as either (1) strong, (2) strong/adequate, (3) adequate, (4)

adequate/weak, or (5) weak. We assess profitability through the combination of two components--level of profitability

and volatility of profitability.

40. After separately assessing competitive advantage; scale, scope and diversity; and operating efficiency, we determine

the preliminary competitive position by ascribing a specific weight to each component. The applicable weightings will

depend on the company's Competitive Position Group Profile (CPGP).

41. We emphasize market position and scale/scope when assessing the competitive position of media and entertainment

companies. Important analytical factors include breadth of product suite, recurring revenues that provide a degree of

predictability, revenue diversity (both from a customer and geographical perspective), operating efficiency, and sales

and distribution capabilities.

42. The CPGP we assign to most media and entertainment companies is "Services or Product Focus," whereby

competitive position components are weighted as follows: competitive advantage (45%); scale, scope, and diversity

(30%); and operating efficiency (25%).

43. For companies in the printing sector, for which we typically use the "Commodity Focus/Scale Driven" CPGP, we

weight as follows: competitive advantage (10%); scale, scope, and diversity (55%); and operating efficiency (35%).

44. For film and TV programming production, we typically use the "Capital or Asset Focus" CPGP, which we weight as


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follows: competitive advantage (30%); scale, scope, and diversity (30%); and operating efficiency (40%).

1. Competitive advantage

45. In assessing the competitive advantage of a media and entertainment company, we consider:

• Brand strength;

• Market position;

• Revenue stability, especially in light of industry-wide migration to digital technology;

• Asset quality;

• Other subsector-specific factors, and

• The extent to which these factors support pricing leadership.

46. Although we assess competitive advantage of a media and entertainment company in the context of the overall

industry and not just within the company's subsector specifically, we consider how the above factors manifest

themselves across the various subsectors of media and entertainment as follows:

a) Ad agencies and marketing services companies

47. An assessment of "strong" or " strong/adequate" typically results from:

• Strong ad agency networks and marketing services brands;

• Stable client base and established added value that supports fee stability or increase;

• Consistent net new account or existing client business generation, resulting in steady positive organic revenue

growth;

• Growing contribution from emerging markets (above 20% of revenue) and digital services;

• Strong creative ability in traditional and digital formats; and

• Ability to adapt to technology shifts.

48. An assessment of "weak" or "adequate/weak" typically results from:

• Lack of business diversity and brand recognition;

• High client turnover;

• Low net new business wins or net client losses;

• Limited presence in emerging markets and in digital services; and

• Inability to adapt to technology shifts.

b) Ad-supported online content platforms


• Strong and stable market share,

• Strong targeting and demographic reporting capability;

• Strong brand recognition;

• Quality audience traffic;

• Proprietary technology that is difficult or very costly to duplicate;

• A critical mass of user-generated content that makes the company's services highly valuable to users and imposes

high switching costs;

• Method and ability to monetize content and audience traffic; and

• High customer engagement and usage frequency.


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• Weak analytic reporting capabilities;

• Heavy dependence on ad exchanges;

• Dependence on external search engine traffic such that Google search engine changes could have a significant affect

to audience reach;

• Limited product appeal (e.g., focusing on a highly specialized market or niche);

• Lack of valuable content or technology to generate good cost per thousand impressions (CPMs);

• Other pricing measures (e.g. "cost per click"); and

• Limited global presence.

c) Broadcast networks

51. An assessment of "strong" or "strong/adequate" typically results from:

• More favorable national TV market structure, including supportive regulation (Germany, France, Brazil, Mexico,

U.S.), and limited circle of direct competitors for programming/audience/advertising money by other private

free-to-air broadcasters or public broadcasters;

• Audience rating leadership and below average declines in ratings;

• High retransmission consent fees from affiliate stations;

• Track record of generating programming successes; and

• Industry-leading CPMs and CPM growth.


• Less favorable or adverse national TV market structure, including unfavorable regulation (Poland, Russia) and tough

competition for programming/audience/advertising by public broadcasters or a large number of over-the-air

private broadcasters;

• More severe declines in audience ratings;

• Second-tier networks;

• Dependence on few shows for successes;

• Limited track record of generating programming successes; and

• Inability to drive CPM growth.

d) Cable networks


• High distribution across TV homes;

• Above average affiliate fees;

• Leadership in general entertainment or specialized programming; and

• Audience ratings leadership and either growth or less-than-average declines in ratings.


• Lower reach among TV homes;

• Weak competitor based on audience ratings, whether for general interest cable TV networks or high interest,

niche-based networks; and

• More severe declines in audience ratings.


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e) Consumer & B2B/trade magazines

55. We do not assess consumer and B2B/trade magazine publishers as "strong" or "strong/adequate" because of the

persistent structural decline underway in the industry, fueling steady revenue and EBITDA declines. An assessment of

"adequate" may result from:

• Content leadership in a niche or category that supports slower-than-average declines in newsstand sales,

subscriptions, and ad rates amid secular decline; and

• Well-developed multimedia presence.


• Lack of category leadership, resulting in higher-than-average declines in newsstand sales, subscriptions, and ad

rates amid secular decline; and

• Inability to gain online or multimedia traction.

f) Data/professional publishing


• Exclusive data or expertise that confer pricing power, high barriers to entry and client retention, lack of substitutes,

and technological expertise to migrate platforms successfully;

• Platform redundancy to minimize service delays/downtime;

• Low proportion of revenues from print products; and

• History of continuous product and service innovation.


• Leading content, albeit in a niche area, or data/services that are subject to intense competition;

• Limited or no pricing power;

• Lack of consistent success migrating technology with client needs; and

• Poor system service with frequent downtime.

g) Directories

59. We do not assess directory publishers as "strong" or "strong/adequate" because of the persistent structural decline

underway in the industry, fueling steady revenue and EBITDA declines. An assessment of "adequate" may result from:

• Good online brand awareness;

• Good customer counts among advertisers that can afford high price points--lawyers, dentists, plumbers, AC, roofers,

pest control, doctors, etc.;

• Well-developed and competitive presence in Web site services for small-to-midsize advertisers.


• Uncompetitive print product;

• Low online awareness and value; and

• Rapidly declining sales force.

h) E-commerce services



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• Strong and stable market share;

• Brand recognition;

• Good conversion rate (i.e. conversion of online user traffic to revenues);

• Consumer-friendly interface feedback; and

• High repeat purchases or usage.


• Dependence on external search engines or third-party traffic;

• Absence of exclusive products or notable distinctions versus competitors;

• Overly complicated purchase path; and

• Poor customer service.

i) Educational publishing


• Commanding elementary through high school market shares in key U.S. "adoption" states (e.g. California, Florida,

and Texas) as well as "open" states;

• Positions in key junior and senior year subjects, which are less susceptible to used book sales rentals;

• College/university backlist with numerous important titles;

• Low percentage of textbook sales derived from first editions;

• Ability to raise college textbook pricing and revise editions with minimal impact on volume; and

• Significant presence in digital learning solutions that complement textbooks.


• Low market shares;

• Minor positions in more stable junior and senior year subjects;

• Concentration in freshman and sophomore textbooks (more sensitive to competition from used book rentals and

sales, and less able to raise prices);

• Dependence on for-profit sector (weakest sector due to continued enrollment declines); and

• Weak presence in digital learning.

j) Feature film and TV programming production


• Top-tier studios with well-established ability to develop, market, finance, and distribute profitable films and

television shows globally.


• Track record of minimal success developing film and television hits.

k) Local TV stations


• No. 1 or No. 2 in local market audience ratings (news and full-day);

• Large percentage of market duopolies;

• Diversified affiliations with strongest broadcast networks;


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• High percentage of stations in markets in key political battleground states resulting in higher-than-average political

revenues;

• High percentage of retransmission revenues (over 30% of overall revenues); and

• Stronger ad sales as a percent of share of local audience than peers (subject to data availability)


• Low news and full-day audience ratings versus peers;

• Lack of market duopolies;

• Exposure to few broadcast networks or weaker ones;

• Limited political revenues due to station locations;

• Low percentage of retransmission revenues (less than 15% of total revenues); and

• Weaker ad sales as a percent of share of local audience than peers (subject to data availability).

l) Local radio stations

69. We do not assess radio broadcasters as "strong" because of the structural decline underway in the industry. An

assessment of "strong/adequate" may result from:

• Leading audience ratings during key day parts (i.e. morning drive);

• Ability to leverage ratings to capture and maintain appropriate share of advertising spending; and

• Stronger ad sales as a percent of share of local audience than peers (subject to data availability).


• Low audience ratings versus peers;

• Under-index share of ad spending in market;

• Limited ability to increase advertising rates; and

• Weaker ad sales as a percent of share of local audience than peers (subject to data availability).

m) Motion picture exhibitors (theaters)

71. We do not assess motion picture exhibitors as "strong" or " strong/adequate" because of production studios' incentives

and business initiatives to distribute directly to the consumer via digital platforms, and exhibitors' inflexible cost

structures. An assessment of "adequate" may result from:

• Modern theater amenities (stadium seating, IMAX theaters, etc.);

• 4K digital projection;

• Good locations relative to local traffic; and

• Lack of in-zone competition that leads to product-splitting.


• Chronic underperformance due to weak locations;

• Alternatively, theaters may lack modern amenities or upkeep, or compete with alternative entertainment and

theaters in the area; and

• Comparison with peers based on attendance per screen and concessions per screen metrics.


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n) Music publishing


• Catalog of leading, well-known artists/bands that are "must-have" content for venues and media; and

• Negotiating clout to vary rights fees to writers/artists according to marketability.


• Smaller catalog with few key artists/bands; and

• Limited or no flexibility to alter rights fees.

o) Music recording


• Strong roster of popular artists that have history of solid album sales;

• Established and growing digital platform(s); and

• Successful A&R development capability.


• More-limited or less productive artist roster that lacks a demonstrated history of consistently strong album sales;

and

• Less successful A&R effort.

p) Newspapers

77. We do not assess newspaper publishers as "strong" because of the persistent structural decline underway in the

industry, fueling steady revenue and EBITDA declines. An assessment of "strong/adequate" or "adequate" may result

from:

• Position as sole major newspaper in a local market, supporting slower-than-average declines in ad sales amid

secular decline;

• Balanced contribution from advertising and circulation well-developed digital subscription revenue stream; and

• Diverse ad revenue stream, with contribution from national advertising.


• Participation in competitive markets with more than one newspaper targeting the same readers/advertisers;

• Low contribution from circulation revenue;

• Weak ad rate and circulation pricing; and

• Minimal or declining digital revenue amid continued loss of advertising to search engines and specialized Web sites.

q) Outdoor advertising


• Above industry rate and occupancy levels; and

• Large percentage of digital displays when compared with the relevant average regional market levels.


• Below industry rate and occupancy; and


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• Low proportion of digital displays compared with the relevant average regional market levels.

r) Printing

81. We do not assess printers as "strong" or "adequate/strong" because of the persistent structural decline underway in the

industry, fueling steady modest revenue and EBITDA declines. An assessment of "adequate" may result from:

• High quality output and service;

• Integration with clients; and

• Minimal focus on end markets with the weakest fundamentals and margins.


• Less ability to compete on quality and service without heavy discounting to retain clients; and

• More exposure to weakest end markets.

s) Trade shows


• Leading show in each category that clients attend even in downturn;

• Leadership across a multi-regional area; and

• Balanced mix of exhibitor/attendee/visitor fees.


• Exposure to declining end markets; and

• Small shows that are not the leading national or regional show in the industry.

2. Scale, scope, and diversity

85. In assessing the scale, scope, and diversity of a media and entertainment company, we consider the extent to which

these factors support revenue, profit, and cash flow stability:

• Degree of profitable diversification across a range of products and services, content, audience, titles, or market

segment;

• Geographic diversity; and

• Critical mass of operation (viewed in the context of the industry subsector's degree of consolidation or

fragmentation).

86. A media and entertainment company with a "strong" or "strong/adequate" assessment of scale, scope, and diversity is

typically characterized by:

• Profitable diversification across a variety of market segments;

• Good international presence or distribution capabilities, or broad domestic presence where applicable (e.g. local TV

stations and local radio stations);

• Good presence in digital or mobile market where relevant; and

• Broad customer base, audience, or distribution channels.

87. We do not typically assess the scale, scope, and diversity of companies in the following subsectors as "strong" (nor in

select subsectors as "strong/adequate") because of the persistent structural decline underway that limits benefits of

scale, scope, and diversity:


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• Consumer and B2B/trade magazines: An assessment of "adequate" may be warranted if the company has numerous

titles with leadership positions and virtually no money-losing titles; a large U.S. Internet and mobile presence

contributing more than 25% of revenue; vertical integration with other, more stable media and content; limited

revenue concentration (more than 10% in any single title); a variety of multimedia relationships and ongoing

development of new ones; strong contribution from related trade shows (for trade magazines); and distribution

across multiple platforms.

• Directories: An assessment of "adequate" may be warranted if supported by geographic diversity across midsize and

large/urban markets (30% share); large Internet and mobile presence (for U.S. firms, within top 50 firms in U.S.

unique visitor count) generating a majority of total revenue; growing customer base; and limited revenue

concentration (35% revenue concentration in top 50 titles).

• Local radio stations: An assessment of "adequate/strong" may be supported by a large number of geographically

diversified stations in markets of all sizes.

• Newspapers: An assessment of "adequate/strong" may be supported by a portfolio of newspapers with leadership

positions; profitable Internet and mobile presence; stake in online classified businesses that are integrated with

papers; vertical integration with other, more stable media and content; and limited revenue concentration of less

than 10% in any one newspaper.

• Printing: An assessment of "adequate" may be supported by a national scale of operation and broad product line. A

"weak" or "adequate/weak" assessment may be supported by limited geographic reach or a limited product line

with exposure to more competitive, lower-margin products.

88. A media and entertainment company with a "weak" or "adequate/weak" assessment of scale, scope, and diversity is


• Heavy dependence on a small number of brands, products, services, talent, or titles; niche player in brands,

products, services, or end-market clients with questionable long-term staying power; or more limited scope of

products and services than direct competitors;

• Lack of convincing leadership in stable or growing categories;

• Lack of presence in digital or mobile markets and a lack of multimedia relationships that support business

reinvention and technology migration, or revenue decline in online businesses, where applicable;

• Lack of international presence; or

• Declining customer base, concentration in business segments where competition hampers pricing integrity,

dependence on a small number of distributors, or uncompetitive internal distribution.

3. Operating efficiency

89. In assessing the operating efficiency of a media and entertainment company, we consider:

• Cost structure, which vary widely by subsector. This includes, where applicable, the ability/inability to convert from

defined-benefit to defined-contribution plans, and dependence on union workforce;

• The extent to which a company can pare costs in response to client or competitive pressure; and

• The resulting EBITDA margin or subsector-specific operating profit metric.

90. A media and entertainment company with a "strong" or "strong/adequate" assessment of operating efficiency is


• Economies of scale and efficiencies that lead to above average profit margins;

• Operationally critical costs at competitive levels (programming, marketing, distribution, content, labor, or overhead

costs); and


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• Ability to reduce cost without sacrificing content quality or losing the ability to pass on cost increases.

91. We do not typically assess companies in the below subsectors as "strong" (nor in select subsectors "strong/adequate")

for operating efficiency because of the persistent structural decline underway in the sector that is fueling revenue

decline, an inability to achieve cost reductions (especially critical for fixed-cost intensive subsectors) quickly enough

necessary to preserve EBITDA margins, loss of operating efficiency, and the resulting steady margin contraction.

• Consumer and B2B/trade magazines: An assessment of "adequate" may supported by economies of scale or

effective outsourcing that leads to an above average profit margin; ability to cut costs or establish cost-sharing

ventures as revenues decline under secular pressure; and absence of money-losing titles.

• Directories: An assessment of "adequate" may be supported by economies of scale and efficiencies that lead to

above average profit margins and/or good "pay-for-performance" compensation/payment programs (or variable

cost structure).

• Local radio stations: An assessment of "strong/adequate" or "adequate" may supported by a low level of fixed costs

with willingness and ability to reduce expenses at a rate that keeps pace with secular declines in revenue; and ability

to target programming costs to highest-margin format.

• Motion picture exhibitors: An assessment of "adequate" may be supported by a balance of screens per theater,

staffing flexibility to accommodate peak versus trough attendance, by season; the ability to reduce some variable

costs during slower times; minimal money-losing locations; and/or staggered theater lease expirations that confer

flexibility in closing money-losing theaters.

• Newspapers: An assessment of "adequate/strong" or "adequate" may be supported by newsgathering shared among

papers and consolidation of printing, accounting, and payroll functions with adjacent papers, which lead to above

average EBITDA margin of over 15%; ability to cut costs as revenues decline under secular pressure; and absence

of money-losing papers.

• Printing: An assessment of "adequate" may be supported by investment in leading technology to maximize margins;

ability to downsize capacity to moderate pace of margin erosion from secular decline; and EBITDA margin above

15%.

92. A media and entertainment company with a "weak" or "adequate/weak" assessment of operating efficiency is typically

characterized by:

• Lack of economies of scale advantage or efficiencies, potentially aggravated by intense price competition, which

lead to below average profit margins;

• Dependence on costly marketing and promotions, as a result of severe competitive pressure;

• Key costs at uncompetitive levels (programming, marketing, distribution, content, labor, or overhead costs);

• Limited ability to reduce cost without sacrificing content quality, losing efficiency; limited ability to pass on cost

increases; and

• Below average profit margins because of unsatisfactory audience ratings or unsuccessful programming format

changes, and inability to quickly turn around.

4. Profitability

93. The profitability assessment can confirm or modify the preliminary competitive position assessment. The profitability

assessment consists of two components: (1) level of profitability and (2) the volatility of profitability. We combine the

two components for the final profitability assessment using a matrix (see corporate criteria).


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a) Level of profitability

94. We assess the level of profitability on a three-point scale: "above average," "average," and "below average."

95. We use EBITDA margin as the primary metric to evaluate the level of profitability of media and entertainment

companies. We use different thresholds to differentiate between the various subsectors in the media and entertainment

industry (see table 2). We may also complement our analysis by using sector-specific measures (see paragraph 98) and

return on capital.

Table 2

Level Of Profitability

Subsector Below average Average Above average

Ad agencies <15% 15%-20% >20%

Ad-supported online content platforms <20% 20%-30% >30%

Broadcast networks <15% 15%-30% >30%

Cable networks <20% 20%-35% >35%

Data publishing <20% 20%-30% >30%

Directories <20% >20% -

E-commerce <15% 15%-30% >30%

Educational publishing <15% 15%-30% >30%

Film and TV programming production <12% >12% -

Internet search engines <15% 15%-30% >30%

Magazines <15% >15% -

Miscellaneous media and entertainment <15% 15%-30% >30%

Motion picture exhibitors <30% 30%-40% >40%

Music publishing and recording <15% 15%-30% >30%

Marketing services <15% 15%-30% >30%

Newspapers <15% >15% -

Outdoor <20% 20%-40% >40%

Printing <15% >15% -

Trade shows <20% 20%-30% >30%

TV stations <20% 20%-35% >35%

96. In accordance with the corporate criteria, for most media and entertainment companies, we assess EBITDA margin

using five years of data (two years of historical data, and our forecasts for the current year and the next two years). We

may put more emphasis on forecast years if historical data are not representative, for instance because of acquisitions

or certain unusual items.

97. For U.S. and European TV broadcasters, we may use only four years of EBITDA margin data to avoid skewing toward

an election/Olympic, or nonelection/non-Olympic year. For European broadcasters, using four years prevents having

two World Cup years in a five-year period. The four years would consist of one historical year, the current year, and

two forecast years.

98. In addition to EBITDA margin, we consider certain subsector-specific supplemental measures. These may include

such metrics as staff costs to revenue and occupancy costs to revenue (for ad agencies). For motion picture theaters,


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we supplement the standard lease-adjusted EBITDA margin with our analysis of companies' non-lease-adjusted

margin, providing an assessment of management's skill in selecting high-potential theater sites and negotiating

advantageous terms with landlords. For local TV stations, in addition to the standard EBITDA margin, we may use a

supplemental measure of EBITDA margin based on trailing-eight-quarter average EBITDA margin (calculated as the

sum of trailing-eight-quarter EBITDA divided by two), to avoid skewing assessments based on elections (in the U.S)

and Olympic versus nonelection, non-Olympic years. This metric is most relevant for U.S. local TV stations, but we

may use an analogous adjustment for some European broadcasters that broadcast high-profile sports events such as

the football World Cup and European Football Championship--both held every four years. Latin American TV

broadcasters usually do not evidence the same EBITDA margin swings. For local U.S. TV and local radio stations, we

use sales pacing (defined as the percent increase or decrease in sales already booked for the coming month, or even

two months out, compared with the relevant year-ago period) to shape our expectations for near-to-intermediate term

profitability. For multi segment companies with sufficient data availability, we use and pre-corporate overhead

segment EBITDA margin.

b) Volatility of profitability

99. We determine the volatility of profitability on a six point scale, from: "1" (lowest volatility) to "6" (highest volatility).

100. In accordance with our corporate criteria, we determine the volatility of profitability assessment using the standard

error of regression (SER), subject to having at least seven years of historical annual data. Given moderate swings in

revenue, we use EBITDA margin to calculate the SER for media and entertainment companies. In accordance with the

corporate criteria, we may--subject to certain conditions being met--adjust the SER assessment by up to two categories

upward (less volatile) or downward (more volatile). If we do not have sufficient historical information to calculate the

SER, we follow the general corporate criteria guidelines to determine the volatility of profitability assessment.

Part II: Financial Risk Analysis

D. Accounting And Analytical Adjustments

101. In assessing the accounting characteristics of media and entertainment companies, the analysis uses the same

methodology as with other corporate issuers (see "Corporate Methodology"). Our analysis of a company's financial

statements begins with a review of the accounting to determine whether the statements accurately measure a

company's performance and position relative to its peers and the larger universe of corporate entities. To allow for

globally consistent and comparable financial analyses, our rating analysis may include quantitative adjustments to a

company's reported results. These adjustments also enable better alignment of a company's reported figures with our

view of underlying economic conditions. Moreover, they allow a more accurate portrayal of a company's ongoing

business. Adjustments that pertain broadly to all corporate sectors, including these sectors, are discussed in "Corporate

Methodology: Ratios and Adjustments," published Nov. 19, 2013. We discuss below accounting characteristics and

analytical adjustments that are unique to media and entertainment companies.


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1. Revenue recognition

102. Media and entertainment companies generally follow the practice of recognizing revenue when services are

performed. Broadcasters (cable, TV, and radio) recognize ad revenue when the ad airs. Publishers (both print and

online) recognize ad revenue when an ad is published. Under U.S. GAAP, TV entertainment producers typically

recognize revenue for sales of TV series at the time of contractual availability to the licensee--effectively upfront. By

contrast, cash collections related to the sale may span three-to-four years. While the mismatch of revenue recognition

versus cash receipt may be substantial, leading to diminished quality of earnings, data provided are usually insufficient

for us to analytically adjust. As a result, profitability metrics may not reflect the variability of these issuers' underlying

cash flows. Moreover, we believe that the timing of revenue recognition may vary between U.S. GAAP and IFRS,

hampering comparability of entertainment producers across regions. For these reasons, we often rely on discretionary

cash flow to debt as our supplemental cash flow to leverage ratio for media and entertainment companies. Separately,

Internet domain name registrars base their public filings on GAAP, recognizing revenue ratably over a contract. Their

non-GAAP metrics, however, strongly emphasize cash-basis accounting that recognizes all revenues from a given

contract upfront, at the time of receipt of payment, for the entire contract. We base our analysis of these companies on

GAAP financials, while acknowledging that financial covenants tied to cash basis accounting are key liquidity

barometers. For these companies, we often rely on discretionary cash flow to debt as our supplementary cash

flow-to-leverage ratio.

2. Programming valuation

103. Programming expense recognition practices for broadcast and cable TV networks as well as local TV stations vary

somewhat from company to company and region to region, but generally focus on expensing the majority of an

episode's cost on the first airing of repeat-able entertainment programming. They are required to accelerate

recognition of a series if audience and revenue expectations are not materializing, and write down the related carrying

value. With increasing audience segmentation (especially in the U.S. and Europe), shifts of audience share, or in any

economic downturn that pressures advertising revenues, it is not uncommon for broadcasters to impair programming

inventory. Data are generally insufficient for us to analytically adjust for accounting differences from company to

company or region to region, but we track audience ratings to develop a view of situations in which failing shows will

require accelerated cash expenditures for replacement shows, and in which write-offs likely are warranted.

Additionally, given the diversity in practice around expense recognition, we often rely on discretionary cash flow to

debt as our supplementary cash flow to leverage ratio for media and entertainment companies.

3. Program development and acquisition costs

104. Across multiple media subsectors, program development and acquisition costs (e.g., film producers' programming and

film expenditures, educational publishers' program development costs, and local TV broadcasters' program rights) are

capitalized and amortized to income using various systematic approaches. For all subsectors, we view this

amortization as a cost of sales (i.e., an operating cost) and therefore include the amortization (and any related

write-downs) in our measure of EBITDA. Consistent with this characterization, we also view the cash paid for these

assets to be operating in nature. However, there is diversity in practice among companies as to where they classify

cash paid in the statement of cash flows. We make adjustments to the cash flows of those companies that classify these

cash outflows as anything other than an operating activity in order to achieve better comparability.


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105. Adjustment procedures:

• Data requirements: Cash paid for programming development and acquisition costs that are classified as investing

activities, and often disclosed as capital expenditures.

• Calculations: Cash flow from operations (CFO): Subtract from CFO cash paid for program development and

acquisition costs to the extent classified as an investing cash outflow in the reported financial statements.

• Capital expenditures: Subtract from capital expenditures any cash paid for program development and acquisition

costs to the extent classified as capital expenditure

E. Cash Flow/Leverage Analysis

106. In assessing the cash flow to leverage for media and entertainment companies, our analysis uses the same

methodology we use with other corporate issuers (see "Corporate Methodology"). We assess cash flow to leverage on

a six-point scale--ranging from (1) minimal to (6) highly leveraged--by aggregating the assessments of a range of credit

ratios, predominantly cash-flow based, which complement each other by focusing attention on the different levels of a

company's cash flows in relation to its obligations.

1. Core ratios

107. For each company, we determine, in accordance with Standard & Poor's ratios and adjustments criteria, two core

credit ratios: FFO/debt and debt/EBITDA.

2. Supplemental ratios

108. In addition to our analysis of a company's core ratios, we also consider supplemental ratios in order to develop a fuller

understanding of a company's credit risk profile and refine our cash flow analysis. We apply the below supplemental

ratios as circumstances warrant.

109. If the preliminary cash flow-to-leverage ratio indicated by the core ratios is "intermediate" or better, we frequently use:

• FOCF/debt (e.g. for capital intensive companies);

• CFO/debt (e.g. for working capital intensive companies); and

• DCF/debt (e.g. for companies that pay a significant dividend or follow diverging revenue or cost recognition

practices).

110. If the preliminary cash flow-to-leverage ratio indicated by the core ratios is "significant" or weaker, interest coverage

ratios will frequently be given greater weight.

111. We may also use DCF/debt in the case of companies with characteristically positive, but steadily declining or volatile

discretionary cash flow.

112. Specifically for U.S. local TV stations (to avoid skewing ratio results toward either an election/Olympic or

nonelection/non-Olympic year) we may consider an additional supplemental ratio:

• Debt to average trailing eight quarters' average EBITDA (denominator calculated as the sum of trailing eight

quarters' EBITDA divided by two). We use the same thresholds as for the core ratio of debt/EBITDA for our

assessment of this supplemental ratio.


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3. Volatility adjustment

113. In accordance with the corporate criteria, we may adjust our cash flow leverage assessment based on the volatility

adjustment. Notwithstanding U.S. local TV broadcasters' election/Olympic advertising cycles, we do not view them as

warranting this adjustment, given the regularity and reasonable predictability of their revenue trends. We regard major

(top 10 global) ad agencies, most cable networks (except very small players with low penetration of cable systems),

motion picture exhibitors, most radio and local TV station groups (except those with extremely weak EBITDA

margins), major TV networks (top national networks, generally integrated with production), major film production

studios (those that are vertically integrated, self-distribute globally, have a lengthy history of steady production, and

have significant library cash flow), and most data/professional publishers (largest players focused on content that

clients need irrespective of economic cycles) as warranting an assessment of relative cash flow stability. Generally, low

barriers to entry in e-commerce and ad-supported online content result in situation-specific assessments of these

companies as "volatile" or "highly volatile."

114. Cash flow volatility varies by company and subsector. We typically classify marketing services, newspaper, and

printing companies as "volatile" and directory publishers and pure-play feature film producers as "highly volatile".

Part III: Rating Modifiers

F. Diversification/Portfolio Effect

115. In assessing diversification/portfolio effect for a media and entertainment company, our analysis uses the same

methodology as for other corporate issuers (see "Corporate Methodology"). We rarely use this modifier for media and

entertainment companies, which tend to be highly concentrated within their subsectors.

G. Capital Structure

116. In assessing capital structure for a media and entertainment company, our analysis uses the same methodology as for

other corporate issuers (see "Corporate Methodology").

H. Liquidity

117. In assessing liquidity for a media and entertainment company, our analysis uses the same methodology as for other

corporate issuers (see "Corporate Methodology").

I. Financial Policy

118. In assessing financial policy for media and entertainment companies, our analysis uses the same methodology as for

other corporate issuers (see "Corporate Methodology").


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J. Management And Governance

119. In assessing management and governance for media and entertainment companies, our analysis uses the same

methodology we use with other corporate issuers (see "Corporate Methodology").

K. Comparable Ratings Analysis

120. In assessing the comparable ratings analysis for media and entertainment companies, our analysis uses the same

methodology as for other corporate issuers (see "Corporate Methodology").

RELATED CRITERIA

• Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014

• Corporate Methodology, Nov. 19, 2013

• Methodology: Industry Risk, Nov. 19, 2013

• Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013

• Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

• Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012

• Principles of Credit Ratings, Feb. 16, 2011

APPENDIX: MATERIAL RELATED TO THE INITIAL PUBLICATION OF THISCRITERIA

These criteria became effective on Dec. 24, 2013.

121. These criteria supersede the following:

• Key Credit Factors: Criteria For Rating The Television And Radio Broadcasting Industry, Dec. 11, 2009

• Key Credit Factors: Methodology And Assumptions On Business And Financial Risks In The U.S. Movie Exhibitors

Industry, Aug. 28, 2009

• Key Credit Factors: Methodology And Assumptions On Risks In The Advertising Industry, Aug. 18, 2009

• Key Credit Factors: Methodology And Assumptions On Risks In The Newspaper And Magazine Industries, Aug. 18,

2009These criteria represent the specific application of fundamental principles that define credit risk and ratings opinions.

Their use is determined by issuer- or issue-specific attributes as well as Standard & Poor's Ratings Services' assessment

of the credit and, if applicable, structural risks for a given issuer or issue rating. Methodology and assumptions may

change from time to time as a result of market and economic conditions, issuer- or issue-specific factors, or new

empirical evidence that would affect our credit judgment.


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