Media stocks continue to battle macro and industry concerns, despite signs that consumer and advertising spends have started to improve in many parts of Asia.

Media stock averages through Jan. 15 close, compiled and tracked by industry analysts Media Partners Asia (MPA), indicate that Indonesia, Korea and the Philippines were the biggest gainers, while the US and Australia shed the most.

US media stocks, including companies with a significant global presence such as 21st Century Fox, Discovery, Disney and Time Warner, continue to be weighed down by mounting worries over the growth of TV advertising and pay-TV subscriptions.

Significantly, Morgan Stanley downgraded its outlook on US media to 'Cautious' on Jan. 20. “We believe the next phase in the evolution of these well-run, high-margin businesses will be a challenging period of falling returns," stated senior analyst Benjamin Swinburne. "The days of pushing through double-digit price increases on its distributors will come to an end."

Swinburne added: "The growth in online video licensing, which has been staggering, has slowed, and the related erosion of viewership will accelerate. As a result, the operating leverage that drove margins up since 2010 will likely lead to margin compression. Finally, creating value by spinning off non-core assets and raising financial leverage has been played out.”

International Exposure

Discovery, 21st Century Fox and Viacom equities were the most sold through Jan. 15, shedding 10-16% on average. Investor concerns over Discovery center around falling ratings for the Discovery Channel and TLC in the US, along with tough macro concerns and currency shifts eating into growth across Discovery’s vital international business, especially in parts of Europe and Asia-Pacific.

“A lot of the global majors have increasingly significant exposure to international markets,” says MPA executive director Vivek Couto. "Here, currency headwinds and to some extent secular industry issues have started to potentially slow growth, across the branded channel business in particular."

Nonetheless, international markets – Asia, especially – offer good growth prospects and scale across all business lines (free and pay-TV, digital and movies) for companies that are structured appropriately with an appetite to invest, Couto notes.

“Slowly but surely, it’s across international markets where we will see an increased source of M&A activity and long-term alliances," he explains. "Discovery and Viacom have led the way, especially in Europe with sports, terrestrial TV and content acquisitions."

Couto adds: "Going forward, we see potentially more terrestrial TV buy-ins across other parts of the world, while players such as Fox and Disney will continue to bolster investment in local IP and digital assets in scalable markets or across strong growth industry verticals."

A closer Look at APAC

The Australia media stock average is probably oversold (-8.5% through Jan. 15 close), with significant year-to-date declines for all three free-to-air majors – Seven, Nine and Ten. The Aussie TV advertising market is fairly soft and a major rerating for the sector is likely, should macro and advertising conditions improve later this year.

Indonesia’s media stock average has been buoyed by a significant rally at Global Mediacom, MNC Group and MNC Sky Vision. This is because of discounted entry valuations and investor confidence in the companies' strategy to drive ratings and ad spend growth across free TV this year, along with the roll-out of a broadband media business (MNC Play Media) that leverages a fiber network.

Bundled broadband and cable TV provider LinkNet is also up 20% through Jan. 2015. The company expects to have passed more than 1.4 million homes by end-2014, with around 50% bundled service penetration for high-speed internet and digital cable TV services.

Near-term concerns for LinkNet include competition in Jakarta and beyond from MNC Play Media and the Sinar Mas-owned Innovate, although both of these potential rivals have yet to demonstrate long-term execution. For these players, much will depend on the pace of network roll-out and commercial deployment, which should start making an impact towards the end of 2015.

In the Philippines, a sharp spike in broadcast-based media group ABS-CBN’s share price has lifted the performance of the country’s media stock average. ABS-CBN continues to benefit from margin growth, driven by cost control and robust revenue across free TV and cable.

The Korea media average gained 3.5% through Jan. 2015, buoyed by buying across internet media (Daum, NHN) and media and entertainment (CJ E&M) stocks. Korean pay-TV and broadband operators however, led by KT SkyLife and CJ HelloVision, are still getting pummeled.