Media & Entertainment
In September of 2018, the Media & Entertainment industries underwent a radical change: moving from the consumer discretionary sector to the newly-created communication services sector. Industries within Media & Entertainment are:
- Media (502010) (This page)
- Advertising (50201010)
- Broadcasting (50201020)
- Cable & Satellite (50201030)
- Publishing (50201040)
- Entertainment (502020) (This page)
- Movies & Entertainment (50202010)
- Interactive Home Entertainment (50202020) (Think online gaming)
- Interactive Media & Services (502030) (See separate, dedicated page)
- Interactive Media & Services (50203010)
The following headlines have been reprinted from The Penn Wealth Report and are protected under copyright. Members can access the full stories by selecting the respective issue link. Once logged in, you will have access to all subsequent articles.
The streaming wars are heating up and getting (a lot) costlier as services pay big for hit TV shows. (18 Sep 2019) Two months ago we discussed how overvalued we thought Netflix ($231-$295-$387) was, especially after taking into account the slew of new entrants all vying to both create new hit shows and buy proven ones for their respective libraries. At the time, Netflix was selling for $380 per share—nearly $100 more than where the shares currently trade. We are beginning to get a taste for how the new platforms will cause upheaval in the industry as the feeding frenzy for proven shows heats up.
HBO Max, AT&T's (T $27-$37-$39) new service which will launch next spring, reportedly just paid around $500 million for the five-year rights to The Big Bang Theory, which is currently running on WarnerMedia's (now part of T) TBS network. That new service also yanked Friends away from Netflix for $425 million. Not to be outdone, Netflix acquired the global streaming rights to the classic sitcom Seinfeld for around $500 million. Rights to The Office, which has been running on Netflix, were purchased for $500 million by Comcast's (CMCSA $33-$47-$47) new NBCUniversal streaming service, which will be called "Peacock." The Walt Disney Company (DIS $100-$136-$147) pulled its entire library of Disney and Marvel shows and films from Netflix, as they will have exclusivity on the new Disney+ platform. Disney's streaming service will also be the only place to watch shows and movies from the Star Wars franchise. Whew. A lot of moving parts, and an incredible amount of cash being thrown around. This gives us a sense for how the moat around streaming pioneer Netflix has begun to shrink. And we didn't even touch on Apple TV+, Apple's (AAPL $142-$221-$233) new service coming this fall.
Is your head spinning after trying to keep track of where all these hit shows will land? That's part of the problem. Consumers of entertainment are only going to plop down so much per month for the various services, and you can bet there will be some losers. But let's focus on who will win the battle of the living room (or wherever you watch shows on your devices). From the above list, we see Disney and Apple coming away as the clear winners. Not so much because their services will outperform the competition, but because their platforms are just one part of growing array of other products and services they offer to the global marketplace.
HBO Max, AT&T's (T $27-$37-$39) new service which will launch next spring, reportedly just paid around $500 million for the five-year rights to The Big Bang Theory, which is currently running on WarnerMedia's (now part of T) TBS network. That new service also yanked Friends away from Netflix for $425 million. Not to be outdone, Netflix acquired the global streaming rights to the classic sitcom Seinfeld for around $500 million. Rights to The Office, which has been running on Netflix, were purchased for $500 million by Comcast's (CMCSA $33-$47-$47) new NBCUniversal streaming service, which will be called "Peacock." The Walt Disney Company (DIS $100-$136-$147) pulled its entire library of Disney and Marvel shows and films from Netflix, as they will have exclusivity on the new Disney+ platform. Disney's streaming service will also be the only place to watch shows and movies from the Star Wars franchise. Whew. A lot of moving parts, and an incredible amount of cash being thrown around. This gives us a sense for how the moat around streaming pioneer Netflix has begun to shrink. And we didn't even touch on Apple TV+, Apple's (AAPL $142-$221-$233) new service coming this fall.
Is your head spinning after trying to keep track of where all these hit shows will land? That's part of the problem. Consumers of entertainment are only going to plop down so much per month for the various services, and you can bet there will be some losers. But let's focus on who will win the battle of the living room (or wherever you watch shows on your devices). From the above list, we see Disney and Apple coming away as the clear winners. Not so much because their services will outperform the competition, but because their platforms are just one part of growing array of other products and services they offer to the global marketplace.
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CMCSA
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Following Disney's new Star Wars-themed area, Universal is building its own new theme park in Orlando. (19 Aug 2019) The Walt Disney Company (DIS $100-$137-$147) recently made a major splash at its US theme parks with the opening of Star Wars: Galaxy's Edge, a futuristic area based on the company's Star Wars franchise. Not to be outdone, Comcast's (CMCSA $32-$44-$45) Universal Studios just announced that it will build an entirely new theme park on a 750-acre plot of land the company owns near its existing Universal Orlando Resort™. Epic Universe will represent the largest-ever investment in Universal's park properties, with plans to include attractions, hotels, dining, and (of course) plenty of shopping. The ultimate goal, besides besting Disney World (which will never happen), is to create a week-long destination for travelers, rather than just a two- or three-day jaunt to the parks. Epic Universe will represent the company's fourth theme park area in Orlando. While Disney World remains the undisputed champion, Universal has been picking up steam in recent years, especially after its last big upgrade—The Wizarding World of Harry Potter™. From an investment standpoint, Disney continues to be one of our brightest stars in the Penn Global Leaders Club, while we continue to shy away from owning Comcast for various reasons. The company is awash in debt, we don't see much value in its recent Sky acquisition, and management seems to be struggling to cogently define its strategic vision.
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NFLX
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With a triple-digit multiple and bleeding shows to new platforms, how long until Netflix crashes? (10 Jul 2019) For years, Netflix (NFLX $231-$380-$420) was the only show in town. At least the only streaming show in town. Remember the red and white envelopes we would get in our mailboxes, containing the night's viewing entertainment? Then, as technology improved and the industry embraced (sort of) the Netflix model, the company had an app on virtually every smart TV sold. Despite our strong dislike for CEO Reed Hastings, with his smug attitude and strongly-biased views, it is hard to argue with the performance of NFLX shares. Now, however, the $166 billion company, with its ultra-rich multiple of 135, is beginning to face some tangible competition. First it was Disney (DIS), which pulled its entire library of shows and movies from the Netflix platform in anticipation of its own Disney+ streaming service. Then came the news that Comcast's (CMCSA) NBCUniversal will pull The Office when the contract with Netflix expires, as that media company launches its own service. Now, WarnerMedia (owned by AT&T) will pull Friends off of Netflix, as it will be a staple show on HBO Max when it launches. Sure, 41 million viewers have already tuned into the third season of Stranger Things, but the company will shell out $15 billion this year to keep its exclusive content rolling in. That's a lot, considering the company's 2018 net income of $1 billion. The company's cash burn is real, and it will only get worse as mega-competitors like Disney and Time Warner flood into the space. At $380 per share, we wouldn't touch the company. Back when NFLX was sitting at $353, we noted that we would love to have the guts to short the stock. While that bet would not have paid off, we would be more comfortable making that play right now.
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DIS
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Penn member Disney climbs 4% on Morgan Stanley upgrade. (13 Jun 2019) Penn Global Leaders Club The Walt Disney Co (DIS $100-$141-$142) jumped 4% after analysts at Morgan Stanley raised their price target on the entertainment giant from $135 to $160 per share. The foundation of this price upgrade was a belief that the growth in subs for Disney's new streaming service will be even greater than expected. DIS has gained 244% since we added it to the Penn strategy.
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DIS
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Disney gains, for all intents and purposes, complete control of Hulu. (14 May 2019) Last month we wrote about streaming service Hulu's repurchase of AT&T's (T) 9.5% stake in the firm, leaving Disney (DIS $99-$133-$142) with 67% ownership, and Comcast (CMCSA) with the remaining 33%. Now, as Disney prepares to launch its own streaming service, Disney+, it has struck a deal with Comcast giving it virtually complete control of Hulu, and its 25 million subscribers. Under the terms of the deal, Comcast will sell its stake to Disney by 2024 for at least $27.5 billion, but it is handing over complete operational control of the company effective immediately. This means that Disney will control customer management, the database, and the technology behind Hulu. It can even bundle the service with Disney+ if it prefers. This is a great deal for the company, especially considering that NBC, a division of Comcast, currently rakes in $500 million per year from Hulu for its library of films and TV shows. Disney is a member of the Penn Global Leaders Club and remains our favorite—by far—player in the Media & Entertainment industry.
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DIS
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Everyone knew this was coming: Disney's "Avengers: Endgame" shatters the box office records. (29 Apr 2019) When we heard that movie theaters would be open around-the-clock last weekend for the box office release of the latest installment of Disney's (DIS $98-$140-$140) Marvel Studios film, "Avengers: Endgame," we had a suspicion that it would break all kinds of opening weekend records, and did it ever. The movie raked in $1.22 billion around the world—$356 million of it in the US—and was responsible for nine out of ten tickets sold in North America this weekend. Critics gave rave reviews to the three-hour-long movie, which became the first flick to break the $1 billion debut mark, and odds are it will topple "Avatar" as the largest grossing film in history. Between news of the company's new streaming service and this movie, Penn Global Leaders Club member Disney is having its best month in 32 years. And for the icing on the cake: viewers will have one place to go to watch "Endgame" after it leave the big screen—their Disney+ subscription service. One more reason for Abigail Disney to take her complaints about Bob Iger's pay and go fly a kite. We view Disney as more than just a "great company to invest in." We see the company as a case study in greatness for anyone wishing to build and grow their business. While a study of Bob Iger's management style would have to be part of that curriculum, one should really go back to the beginning and study Walt Disney's life to fully understand what makes this iconic American company tick.
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Hulu
DIS T CMCSA |
Hulu buys back AT&T stake, strengthening Disney's position. (16 Apr 2019) There are a lot of moving parts in the real-life Game of Thrones that is the media and entertainment streaming business. The latest move? Hulu has purchased back AT&T's 9.5% stake it held in the streaming video company for $1.4 billion. Post sale, Hulu will be controlled by just two players: Disney (DIS), with its 67% stake (it gained about 34% when it bought the Fox assets); and Comcast (CMCSA), with the remaining 33%. With Disney's plans to compete head-to-head with Netflix (NFLX) via its Disney+ streaming service, why is it interested in controlling the money-losing Hulu instead of just focusing on its own new subs (subscribers)? It appears that the company is positioning Disney+ as the more "family-oriented" portion of the business, while Hulu attracts more mature content that Disney would prefer not to lend its name to. Additionally, despite its current losses, Disney wants to greatly expand Hulu's global footprint and bring the company to profitability within a few years, with a goal of doubling subs from 25 million to 50 million within four years. (For comparison, Netflix currently has around 130 million subscribers around the world.) And that's where Comcast comes in: its recent purchase of Rupert Murdoch's Sky assets will give Hulu a potentially-enormous footprint in Europe, allowing it to battle Netflix's overseas growth. Like we say, Game of Thrones. How can investors take advantage of this fast-paced industry? In the first place, own Disney (with its 18 P/E) over Netflix (132 P/E). Secondly, own the device makers: Amazon (AMZN) owns the Fire TV Stick and Fire TV Cube, and Roku (ROKU) provides the other set of streaming players and built-in software (on select sets).
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DIS
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Penn Member Disney jumps 12% at open following details on company's new streaming service. (12 Apr 2019) The Walt Disney Co (DIS $98-$130-$120) offered up some much-anticipated details on its new Disney+ streaming service, and investors loved what they heard—DIS punched through its 52-week-high by $10 per share, or nearly 12%. The new service will cost consumers $6.99 per month or $70 per year, and will include 30 seasons of "Simpsons" episodes, Pixar movies, Marvel films, Disney's own vault of movies, 5,000 episodes of Disney Channel shows, and over 100 Disney Channel original movies. There is also talk of a bundled package of Disney+, HULU (Disney owns 60%), and ESPN+ for subscribers. It is hard to imagine an American family with young kids at home not subscribing to this service. The company, in fact, is projecting 60-90 million new subscribers over the next five years. The new service will launch 12 November. Netflix (NFLX), with its 132 P/E ratio (DIS has a P/E ratio of 19), was down nearly 4% at Friday's open. We own DIS in the Penn Global Leaders Club, and continue to be impressed with CEO Bob Iger's leadership. Now, if someone could tell Roy Disney's daughter, Abigail, to shut up about Iger's pay, that would be awesome. Roy's kids have been a thorn in the side of the company for decades, which makes sense to anyone who has read the incredible story of Walt Disney's life. For anyone interested, my favorite book on Walt's life is, "Walt Disney: The Triumph of the American Imagination," by Neil Gabler. I would highly recommend it.
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EA
ATVI TTWO GAMR |
Gaming stocks got slashed the first week of February, but one has risen from the dead. (12 Feb 2019) Quick, answer this question: Of the three major online gaming companies—Activision Blizzard, Electronic Arts, and Take-Two Interactive—which one owns the big dog in the space, Fortnite? Alright, it was a trick question—none of them do. As we outlined in December, the world's most popular video game was actually created by North Carolina-based Epic Games, a private entity (though China's Tencent Holdings owns a 48% stake). Fortnite's success has apparently come at the expense of the three major publicly-traded gaming companies, as Q4 earnings reports from Electronic Arts (EA) and Take-Two Interactive (TTWO) came in weak, sending chills through investors' spines and driving the entire group down. Activision Blizzard (ATVI), in fact, has plunged 51% since October, while rival Take-Two has lost one-third of its value since then. But one company in the space, Electronic Arts, has separated from the pack and is staging a comeback. The reason? The surprise success of its Apex Legends game, which just topped the 25-million-users mark. Could this game, which is in the battle royale genre, supplant Fortnite as the world's most popular online gaming experience? It's hard to say, considering the fickle gaming community, but it has already surpassed Fortnite's early attraction rate. From a review of the financials, EA also appears to be the healthiest player, with a solid operating margin, a manageable debt load, and a P/E ratio less than half that of Activision Blizzard. Gaming stocks are nearly always speculative plays, and most have widely divergent ratings issued by industry analysts. Take Activision Blizzard as an example: some analysts have a $60 target price on the shares, which would represent a 50% upside from the current $40/share price. However, the rumor mill is abuzz about the company's plans to layoff hundreds of employees on weak sales. For investors wanting to make a play in the industry, consider GAMR ($37-$42-$55), the Video Gaming Tech ETF, which holds 78 gaming and related companies.
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NFLX
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Netflix raises prices yet again. (15 Jan 2019) It is too bad analysts don't give Tesla (TSLA) the kind of leeway they give Netflix (NFLX $216-$353-$423), even though the latter has a huge multiple of 127. The latest "pass" was given after Netflix announced they would be, yet again, raising the price customers must pay for the streaming service. The 13-18% price increase will affect all three layers of plans: Basic (one device, no HD) will go from $7.99 to $8.99; Standard (two devices, plurality of customers) will go from $10.99 to $12.99; Premium (four devices, 4K viewing option) will go from $13.99 to $15.99. The last price hike came just over a year ago. Sycophantic analysts argue that the company must keep hiking prices to pay the enormous production costs generated from their "original" shows. Meanwhile, an ever-increasing number of streaming service entrants (Disney will be the newest) should begin chipping away at Netflix's market share. Investors apparently sided with analysts, driving the stock up 7% on the day. Despite its 127 PE ratio, NFLX has been a "darling" stock over the past several years. It is also one subject to wild swings in price. We still consider it a speculative stock, and would love to have the guts to short the name.
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Epic
Games |
Fortnite parent pocketed $3 billion in 2018. (27 Dec 2018) It isn't a publicly-traded company (yet), but if it were, Epic Games would have a value of $15 billion or so. That is due, in great measure, to its Fortnite release, which happens to be the world's most popular video game. Despite being "free" to players, once sucked into the game the 125 million or so gamers it currently boasts can buy digital items for their characters, such as outfits and dance moves. But how much can these nickel and dime purchases really yield for the company? According to insider reports, Epic grossed a $3 billion profit in 2018. Not revenues; gross profit. Epic, which Chinese conglomerate Tencent Holdings purchased a 48% stake in six years ago, just made another big move: it launched the Epic Game Store. Online gaming is now a $100 billion industry, and there are no signs of player fatigue—at least for the industry overall. Individual games, of course, can lose a fickle audience overnight. Looking for a way to ride the latest video game wave? The top publicly-traded companies in the space are Activision Blizzard (ATVI), Take-Two Interactive (TTWO), and Electronic Arts (EA). The latter happens to be on sale: its stock is down roughly 50% from July highs.
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DIS
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Disney hits $7 billion in global box office ticket sales for the second time in the industry's history. There have been only two times in which a movie studio has broken through the $7 billion mark in annual global ticket sales, and the same company is responsible for both. Walt Disney (DIS $98-$113-$120) just surpassed that mark with a strong box office showing by "Ralph Breaks the Internet," the animated sequel to their 2012 hit "Wreck-It Ralph." Disney is nearing its old Hollywood record of $7.6 billion in ticket sales which it racked up in 2016, but can it surpass that figure? Considering the fact that "Mary Poppins Returns" will hit theaters on the 19th of December, it is almost a given. What were the top two Disney blockbusters thus far in 2018? Marvel's "Avengers: Infinity War" and Marvel's "Black Panther" topped the global and domestic box offices, respectively. It appears the $4.24 billion Disney payed for Marvel back in 2009 was a pretty smart deal. Disney is one of the 40 holdings in the Penn Global Leaders Club. Although Disney is now in the new Communications Services sector (moving over from Consumer Discretionary in September), it is certainly still a "discretionary goods" company—meaning nobody really needs Disney's products to survive. While companies which sell discretionary goods and services are typically the first to get hit as an economy slows down on its way to a cyclical recession, Disney is moving forward at a fast clip with its strategic plan to create an annuitized stream of income through its planned subscription services. This should help the company weather any downturns quite nicely. With its 13 PE ratio and 40 Relative Strength Index rating, we still consider the company undervalued.
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AAPL
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Can an Apple TV subscription service really compete with Netflix? We are about to find out. (24 Oct 2018) Yes, Apple (AAPL $150-$223-$233) has a piece of hardware called Apple TV. But don’t confuse that with the new Apple TV subscription service the company is getting ready to launch. Let there be no doubt: the incredible success that Netflix (NFLX) has had in finding people willing to shell out $10.99 per month (there are currently 120 million of us) is the catalyst for this move. But can Apple really deliver? We will find out beginning in early, 2019. That is when, according to tech site The Information, the company will have a high-profile launch of the service in over 100 countries. In Vol. 6 Issue 04 of The Penn Wealth Report, we identify Apple's ace in the hole that will all but assure this program's success.
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DIS
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Fox to sell remaining Sky position to Comcast for $15 billion. (26 Sep 2018) Four days after a fat bidding war gave majority ownership of Sky PLC (BSYBF $12-$22-$23)—the UK's only satellite television provider and the country's largest pay-TV provider—to Comcast (CMCSA), Fox (FOX) threw in the towel and announced it would sell its remaining stake to Comcast for just over $15 billion. This is really a win-win for both Comcast and Disney (DIS), which would have gained control of Sky after its deal to buy a wide swath of Fox assets closed. While Comcast paid a huge premium for Sky, Disney can use the proceeds from Fox's 39% stake in Sky to help pay down some of the $71 billion it paid for the Fox assets. Additionally, had Disney ended up with Sky, the company would have probably been forced by regulators to divest itself of other units as part of the deal. For the record, we purchased Disney in the Penn Global Leaders Club last year for $96.92.
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SIRI
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SiriusXM to buy Pandora for $3.5 billion. (24 Sep 2018) In what would ultimately equate to bad news for listeners who enjoy free music, aggressive-marketing satellite radio service SiriusXM (SIRI $5-$7-$8) has announced its intent to buy rival Pandora Media (P $4-$9-$10) in an all-stock deal valued at $3.5 billion. Before news of the planned acquisition, Sirius had a surprisingly-high market cap of $30 billion (it fell 5% in pre-market) and Pandora had a market cap of $2.6 billion (it popped 8% on the news). If the deal goes through as expected, the new entity would be the largest audio entertainment company in the world. SiriusXM has over 35 million paid subscribers and Pandora has over 70 million active monthly listeners. Pandora, which has free listening option for members, has been bleeding money annually since it went public, while Sirius, which only has a subscription model, has recorded a positive net cash flow since 2010. Speaking from experience, the Sirius platform is simply unrivaled, but the sales tactics used as a subscription period nears its end are relentless and aggressive. In other words, the company uses a vastly different strategy than does Apple (AAPL) with its music streaming service. We love the SiriusXM service, but we wouldn't touch the stock.
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WPP
PUBGY OMC |
Global ad agencies getting hammered as technology disrupts industry. (19 Jul 2018) Ah, the glory days of Don Draper and Madison Avenue. Back when you had to be an enormous, established firm with a huge advertising budget to get noticed. Thankfully, technology has so disrupted the industry that the formerly-arrogant big boys are now scrambling for profits. WPP (WPP), the world's largest ad holding company based on revenues, has fallen 24% over the past year. The French ad giant Publicis Groupe (PUBGY) saw its shares falling as much as 9% on Thursday after missing on quarterly revenue expectations. Madison Avenue ad agency Omnicom Group (OMC) fell 10% on Tuesday after missing sales estimates. The companies with the largest ad budgets, such as Procter & Gamble, Inbev (Budweiser), and American Express, are suddenly rethinking how to best market in the digital age, and the big ad agencies are rapidly losing ground to their nimble new competitors. Of course, this is wonderful news for smaller companies—both those who advertise and those who deploy those ad dollars via digital media. Technology has given small companies filled with creative minds unprecedented leverage to market their goods and services to the world. Pardon us if we don't shed any tears for the fallen ad giants of New York and Paris.
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NFLX
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Say what?! Media darling Netflix actually missed a quarter. (17 Jul 2018) Shares of the company we love to hate (well, the CEO anyway), Netflix (NFLX $164-$346-$423), dropped about 14% after hours following a reported quarterly miss on both revenues and subscriber growth. Analysts had been expecting revenues of $3.94 billion for Q2; instead, they got $3.91 billion. The big miss came in projections for US subscriber growth. Instead of the 1.2 million "new subscribers" number expected, the street got just 670,000. Outside of the US, the company signed up 4.47 million new members versus the 5 million expected. Management also lowered its expectations for third-quarter growth. Yes, these are still huge numbers, but remember that NFLX has had negative free cash flow every quarter since Q3 of 2014, and the stock carries a sky-high p/e ratio of 269.
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DIS
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A Disney film just notched an incredible record. (11 Jul 2018) We waited fourteen years for the sequel, but boy did it ever pay off big for Walt Disney (DIS $96-$108-$113). Pixar's Incredibles 2 just became the first animated film in history to gross over $500 million at the North American box office. Forget animated, the film will also become just the 12th movie overall to reach that revenue mark. What movie did Incredibles 2 surpass on its way to the record? Disney's Finding Dory, which grossed $486 million in the US and Canada. Walt Disney is one of the 40 companies in the Penn Global Leaders Club.
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DIS
FOX CMCSA |
Pressure mounts on Comcast now that government has OK'd Disney/Fox deal. (23 Jun 2018) It's not that Comcast (CMCSA $30-$32-$44) is just going to walk away without making another bid, but this week's US Department of Justice approval of Walt Disney's (DIS $96-$104-$113) $71 billion bid to buy Twenty-First Century Fox's (FOX) entertainment assets just put another wall up for the NBC parent. It certainly helped Disney's case when they told regulators that they would immediately divest the company of all 21 regional sports networks (RSNs) if the deal was approved. One of Comcast's major arguments to the Fox board was that Disney would face the same battle it (Comcast) would in gaining government approval. Well, that's off the table. Comcast was reportedly looking to private equity funds for the financing to up their bid, and they may still be, but we believe Disney will end up the winner. Streaming service and Netflix (NFLX) competitor Hulu, by the way, would become a Disney asset via the deal.
Update 19 Jul 2018: Comcast actually did walk away, congratulating Bob Iger and Rupert Murdoch on their deal. |
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FOX
DIS CMCSA |
Fox "accepts" Disney's higher bid for assets, but this is not over yet. (21 Jun 2018) It is clear that Twenty-First Century Fox (FOX $24-$48-$48) would prefer to sell its golden goose to Walt Disney (DIS $96-$107-$113), but that pesky Comcast (CMCSA $30-$33-$44) simply won't walk away from the table. This past December, after Comcast seemingly walked away from the deal, it appeared that Bob Iger's Disney would pick up Fox for around $28 per share. After a federal judge approved the AT&T/Time Warner merger, however, Comcast immediately swooped back in with a $35/share offer, or $65 billion. This was trumped in short order by a new Disney offer of $38/share, or $71.3 billion. Fox then accepted the new offer. Here's the rub: it is the Fox board's fiduciary duty to seriously consider all real offers, and expect another salvo from Comcast. Rupert Murdoch obviously believes Disney would be a better fit for the empire he has built, but he is getting wealthier with each new bid.
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T
TWX |
As was widely expected, judge gives green light to AT&T/Time Warner merger. By most accounts, the US Department of Justice had a pretty thin case against the merger of telecom giants AT&T (T) and Time Warner (TWX). Sure enough, Judge Richard Leon's lengthy approval ruling said as much. In essence, the judge proclaimed this a dying—or at least greatly shifting—industry, with mergers and acquisitions the only way for companies to remain viable. The DoJ argued that the merger would hurt pay-TV customers, but the judge didn't buy it, and he strongly urged the department not to appeal the decision. The transaction values Time Warner at $107 per share, or $85 billion.
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CMCSA
FOX DIS |
Comcast is back in the bidding for Fox, topping Disney's bid. Last December we reported that Comcast (CMCSA $30-$32-$44) had dropped its bid to buy Twenty-First Century Fox's (FOX) assets. Now, following judicial approval of the $85 billion AT&T/Time Warner merger, they are back in the running. The NBC parent company knows it must grow to remain viable, and it just made a $65 billion offer for the Fox assets. The all-cash bid tops Disney's (DIS) agreed-upon $52.4 billion offer, which includes stakes in streaming service HULU and British news outlet Sky, but the Disney deal would probably be a smoother (and shorter) transaction. If we had to bet, we would predict that Murdoch and his Little Lord Fauntleroy sons will use the Comcast bid to force Disney into upping their offer. In the end, however, we believe Disney will end up with the valuable assets. The fit would be a better one as well. Plus we really just cannot stand Comcast.
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FIFA
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Joint US, Canada, Mexico "United 2026" bid selected for 2026 FIFA World Cup. To non-soccer enthusiasts, this may seem like no big deal; but, to the growing throng of soccer fans in the US, it is an impressive win. 134 FIFA member nations voted to give the United States, Canada, and Mexico joint ownership of the 2026 World Cup games. Morocco came in second, with 65 votes. Canada has never hosted a World Cup, while the United States has hosted one (1994), and Mexico has hosted two (1986 and 1970). Canada did host the Women's World Cup three years ago, with the US Women's National Soccer Team beating Japan to bring home the championship. 48 teams will play 80 matches over a one month period, with 60 of the 80 matches taking place across 10 US cities (including Kansas City, Dallas, and Denver).
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NFL
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Holy cow, the NFL actually made a rational, thoughtful, decision!
(24 May 2018) We love football. Our local NFL team might not have been to a Super Bowl in, oh, say two generations, but each year brings new hope. We love America more than we love football, which is why it was so easy to take sides in the bungled, mismanaged, politically-correct comedy that was the National Anthem protest movement. Not only did the NFL fumble the entire incident, they re-hired the very guy at the center of the storm. Let a coach have a losing season and his head is on the chopping block. Let Roger Goodell drive the ratings of his "company" into the garbage, and he is given a five-year contract extension worth $40 million per year. We're not sure if his demands for the lifetime access to a corporate jet and a gold-plated health care plan were met, but at $40 mil a year he should be fine. After the travesty of Goodell's contract extension, the last thing we expected to see was a common-sense move made against the haters involved in the National Anthem protests, but that is what we got. Under the new rules, which the players' union is none too happy about, any player who refuses to stand for our National Anthem must park himself in the locker room until the fighters have left the skies above the field. In other words, no more grandstanding or shoving personal grievances down the throat of the fans who, ultimately, pay your outrageous salaries. Still, this sound decision begs the question, what the hell took so long? |
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CBS
VIA |
Fascinating battle for control of CBS/Viacom heats up between Redstone family and Moonves
(17 May 2018) Brief background to the unfolding drama: The Redstone family (primarily Shari, now that her 92-year-old father, Sumner, is essentially out of it) owns movie theater company National Amusements. National Amusements owns 80% of the voting stock of both CBS (CBS) and Viacom (VIA). However, under CBS' dual-class stock structure, their firm has only a 10% economic interest in the companies. Shari Redstone wants CBS and Viacom to merge, with her in ultimate control of the new entity. Les Moonves is the CEO of CBS, and is at war with Redstone over control. CBS has a $20 billion market cap, while Viacom is sitting at $13 billion. The latter, however, has had a string of recent television and movie successes, making Viacom shareholders greedy for a bigger premium in a merger. The latest: CBS has taken legal action to strip the Redstone family of voting rights, with the case in the courts right now. In retribution, Redstone's National Amusements just threw down a dictate changing how the CBS board functions, essentially stripping it of the power to water down the family's voting rights from 80% to 17%. A Delaware judge has just ruled that no more moves are to be made before a decision is issued on the CBS case. If nothing else, it looks like we have a great plot for Viacom's next blockbuster hit. (Update: CBS lost its legal bid to block the Redstone family's voting rights; odds are this means that Moonves is out. Don't feel too bad for him, however, as he will walk away with over $200 million if he is canned.) |
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SPOT
|
Spotify just became the third-largest tech IPO, taking unusual route
(03 Apr 2018) Shunning the traditional IPO route, digital music streaming service Spotify began trading on the New York Stock Exchange Tuesday. By not raising funds and receiving an official IPO price (no banks underwrote the offering), the Swedish company was taking quite a risk; the risk that it would fall flat during its public debut. That was not the case. With the NYSE issuing a simple "reference price" of $132 per share for the company on Monday night, pre-trading indicated more interest than expected. When the dust settled, Spotify had its new symbol, SPOT, up and running and looking at a 17% price spike within hours. This so-called "direct listing" means that major shareholders, like CEO Evan Spiegel, don't have the typical post-IPO lock-up period in which they cannot sell their shares, though Spiegel did say he would not sell within the first year of going public. It is estimated that the company saved tens of millions of dollars in legal fees by eschewing the big banking underwriters, like Goldman Sachs and JP Morgan, and going directly to the public. It will be very interesting to see if others follow their lead (we so hope they do). Spotify had over 70 million paying subscribers and 160 million monthly active users as of the end of 2017. |
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NFL
|
NFL fans, get ready for a "work stoppage"...in 2021
(28 Mar 2018) Sure, we know that the 2018 season is still way off in the distance, but we are ready to make a bold prediction about the ugliness which will occur three seasons beyond this fall. Right now, NFL players are working under an extended contract that will expire at the beginning of the 2021 season, and with the same floundering idiot, Roger Goodell, running the show at the start of that season, turmoil is all but guaranteed. The NFL's players' representatives have already telegraphed as much. In a Bloomberg interview, NFL Players Association Executive Director DeMaurice Smith said that players should "prepare for a work stoppage" at the start of the season. I watched the interview live, and can testify that his attitude was one of confrontation, not compromise. NFL Players Association president Eric Winston went even further. In an interview on WCPO, he made the comment that "if this thing (the NFL) dies out in 20 years, it dies out in 20 years...that's not really my concern." Well, this should work out beautifully. Agitators on one side, a bumbling fool on the other. At least we will still have college football. |
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MDP
Time |
More trouble for sinking TIME magazine as 1,000 layoffs announced
(22 Mar 2018) There can be only so many publications repeating the same, worn-out, ubiquitous stories, all with the same slanted point of view. More evidence of that comes to us from Meredith Corp. (MDP $50-$54-$72), publisher of the once-proud TIME magazine. Due to plummeting circulation and massive losses, Meredith has announced the firing of 1,000 staffers at the publication. More than likely, Meredith is simply slimming down the magazine to enhance the prospects of selling the brand to another buyer. Best of luck. Meredith purchased Time, Inc. last November for $2.8 billion. |
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IHRT
SIRI CCO |
iHeartMedia files for bankruptcy
(15 Mar 2018) With its stock price sitting at 48 cents on Wednesday, iHeartMedia (IHRT) has announced it is seeking Chapter 11 bankruptcy protection. The radio network, which runs about 850 radio stations across the US, is saddled with $20 billion of debt and declining revenues. The tipping point came when it missed a $106 million interest payment last month, triggering a 30-day grace period. A subsidiary of IHRT, billboard company Clear Channel Outdoor (CCO $3-$5-$6), did not take part in the bankruptcy proceedings. What happens now? It appears likely that John Malone's Liberty Media, which owns 69% of Sirius XM Holdings (SIRI), will swoop in and bail the company out, adding IHRT to the Sirius family. Of course, current owners of iHeart will walk away with nothing, and bondholders with next to nothing. |
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DIS
|
Rambling Oscars gets pounded as viewers continue to flee
(05 Mar 2018) Just as the NFL will never admit to why they are losing market share, self-adulation Hollywood awards shows will never have the courage to face up to the realities of their shrinking viewership. For the latest data point, look no further than Sunday's Oscars. The rambling, politically-infused yawner sank in the ratings, with an 18.9% household viewership rate. That represents a 16% annual drop in viewership from last year, which had lousy numbers in its own right. ABC, a Disney (DIS $96-$104-$116) entity, has the rights to air the Oscars through 2020. |
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ROKU
|
Greatly overvalued Roku comes tumbling back to earth
(22 Feb 2018) Streaming device-maker Roku's (ROKU $16-$43-$59) share price ascent has been stunning—up over 100% within the past six months. Well, at least before today. Shares came plummeting down 22% at the open (they subsequently rebounded a bit) after the Q4 earnings report disappointed with respect to sales guidance going forward. In actuality, investors have placed such a premium on this company that virtually any projection was going to disappoint. Traders can play with this stock; investors should stay away. What do we consider fair value for the company? Probably around $32 per share. But, in an inefficient, emotionally-driven market, the shares could well see $60 before they see $32. |
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NFLX
|
Another quarter, another eight million subscribers, another 10% share price jump for Netflix
(23 Jan 2018) It seems like just another quarter for entertainment-provider Netflix (NFLX $137-$249-$228). Against management's own forecast for 6.3 million new subscribers in Q4, the company actually added 8.3 million new subscribers. Revenues in the quarter beat expectations by nearly $10 million. Investors applauded the results and drove the stock up by 10% at Tuesday's open. A major milestone was also reached: Netflix became a $100 billion company. To be sure, the company is turning a profit; but its P/E ratio of 228 should send up some red flags. The company is not operating in a vacuum like, arguably, Amazon is with its 337 P/E. Big league competitors like Apple (AAPL) and Disney (DIS) are closing in fast. (Recall that Disney pulled all of its shows and movies from Netflix recently.) That being said, there are still hundreds of millions of potential subscribers around the world for content providers to target, and Netflix plans to increase its marketing budget to $2 billion (with a B) in 2018 to help assure they gain the lion's share of new streaming junkies. |
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DIS
Hulu NFLX |
Disney-controlled Hulu had a blowout year, added 40% to subscriber base
(09 Jan 2018) Direct-to-consumer streaming company Hulu isn't publicly-traded, but investors can now take advantage of its explosive growth by picking up some Walt Disney (DIS $96-$110-$116) stock. That's because Hulu, which had been controlled by equal stakes between Disney, Fox, and Comcast, came over to the House of Mouse when Disney bought most of the assets of 21st Century Fox last month. Hulu added 5 million new subscribers last year, bringing the total subscriber base to over 17 million. That, in turn, means that the streaming company's total audience size is now over 50 million. Hulu's advertising revenue topped $1 billion in 2017, and its original content programming won 10 Emmy Awards last September. Many pundits thought Disney should have purchased streaming giant Netflix (NFLX) years ago. They are taking a different path to domination, however. The company already announced it was pulling its programming from Netflix; now that it owns competitor Hulu, almost all Disney content will be accessible only on a platform owned by the company. Brilliant management. (Disney is a member of the Penn Global Leaders Club.) |
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FOX
DIS |
As Comcast drops bid, Disney will end up with Fox assets, minus Fox News
(12 Dec 2017) Perhaps Rupert Murdoch’s Twenty-First Century Fox (FOX $24-$33-$34) needed to merge with a bigger player sooner or later to remain relevant in an rapidly-changing industry, but Comcast (CMCSA) certainly wasn’t the answer. The NBC parent announced that it would no longer pursue the acquisition of Fox, leaving a deal with $157 billion Walt Disney (DIS $96-$107-$116) all but certain. From Disney’s standpoint, the deal is genius, as it will make the company Hollywood’s heaviest hitter, cherry-picking such assets as 20th Century Fox studios, the Fox broadcast network, hundreds of television channels around the world, and a large percentage of Britain’s Sky Plc TV. As for Fox News, which the boys disdain, it will be packaged with other assets not purchased by Disney and, perhaps, eventually go private. |
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RGC
AMC |
UK's Cineworld to buy Regal Entertainment, making all stocks in industry pop
(05 Dec 2017) AMC Entertainment Holdings (AMC $11-$15-$36) was jumping 5% after hours thanks to a story that had nothing to do with the Leawood, Kansas-based movie house. Earlier in the day it was reported that the UK's Cineworld Group had agreed to buy Regal Entertainment (RGC $14-$23-$24) for $23 per share, or $3.6 billion. Regal popped 9.5% on that news. AMC, for its part, reported that it had been approached by a number of possible suitors since the Cineworld/Regal deal was announced. This is an industry begging for mergers, as digital technology has disrupted the way movies are viewed by—mainly—younger generations. |
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ROKU
|
Roku spikes after its price target raised to $50
(28 Nov 2017) After a stellar rise over the past week, streaming device-maker Roku (ROKU $16-$47-$49) spiked another 18% after Needham & Co. raised the target price on the company to $50—nearly 80% above their prior price target. Essentially, Needham is now saying that Roku is a “poor man’s” Netflix. The company, which has yet to turn a profit, is now up 155% since the 8th of November, this year. |
|
MDP
TIME |
Meredith, backed by Koch brothers, to buy Time, Inc.
(28 Nov 2017) Meredith Inc., backed by the billionaire Koch brothers, has reached an agreement to buy Time (TIME $10-$17-$20) for $18.50 per share, valuing the struggling publisher at $2.8 billion—well above where it has been trading. For over two generations, Time Magazine was an American staple. Then, due to mismanagement and an inability to change with the times, the magazine’s subscriber rate began its slow decline into the abyss. Meredith, which owns Better Homes & Gardens and Family Circle, believes it can turn around Time’s struggling assets, which include the namesake magazine as well as Fortune, People, and Sport’s Illustrated. Time Warner (TWX) spun-off its Time unit in 2014, and its shares have been in relative freefall ever since. |
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TWX
|
Warner Brothers may lose $100 million on Justice League
(22 Nov 2017) Why does AT&T (T $33-$35-$43) want to own floundering Time Warner (TWX $86-$90-$104) again? It couldn't be due to the vibrancy of their assets, that's for sure. Take TWX unit Warner Brothers. Based on negative reviews and a pretty lousy opening weekend for its latest "Justice League" installment, the company is well positioned to lose $100 million or so on the flop—which reportedly cost north of $500 million to create and market. Here's an idea: try coming up with some new material. And that goes for Time Warner's CNN unit as well. Perhaps it will be a blessing in disguise for T if the DoJ successfully blocks the proposed merger. |
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T
TWX |
The Department of Justice will sue to stop the AT&T/Time Warner merger
(21 Nov 2017) In a widely-expected development, the US Department of Justice announced that it will sue to block the $85 billion AT&T/Time Warner merger on grounds that the joint company would wield too much power in the industry. In the lawsuit, the government makes the claim that the new, enormously-big enterprise would be able to squeeze out competitors and then raise prices to consumers. If the deal does go down in flames (which we rate at about 50-50 right now), AT&T (T $33-$34-$43) will be fine; Time Warner (TWX $86-$90-$104), however, will be in trouble—as is evidenced by its stock price since the DoJ first raised concerns. T is a member of the Penn Strategic Income Portfolio. For the record, Time Warner has the biggest rot-gut collection of stations on the air. |
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NFL
|
Highly-overrated jackass Roger Goodell makes new demands on NFL
(13 Nov 2017) The fact that the owners are even considering renewing commissioner Roger Goodell's contract shows how dysfunctional the National Football League really is. Not only shouldn't his contract be renewed, he should have been shown the door years ago. His bungling of virtually ever "social" issue that has raised its ugly head in the league over the past five years shows just what an incompetent boob Goodell has been. Now, the comedy has become even more laughable, as Goodell makes his own demands on the league before he agrees to a contract extension. What are his demands, according to leaked reports? He wants $49.5 million per year, lifetime health care for he and his family, and lifetime access to a corporate jet. So far, we've only seen one owner calling bull on this clown—Cowboys owner Jerry Jones. If this buffoon gets a contract extension, it is more of a reflection on the owners than on Puffy Goodell. |
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TTWO
|
Take-Two Interactive: magnet for millennial money
(08 Nov 2017) Having a tough time throwing love the way of the millennial generation? Maybe this will help: they support the US economy by spending what money they have. And where does their cash go? Video games. Specifically, Take-Two Interactive (TTWO $46-$117-$111). The video game maker punched through its 52-week high on Wednesday like Pac-Man eating through Pac-Dots. Why did the company jump double-digits? It beat on both top-line revenue (up 5.6% to $443.6 million) and bottom line net sales (which the company calls net bookings; up 20.4% to $577 million). The company's Grand Theft Auto V (yes, there's a nice trade to learn) is now the best-selling video game of all time, with 85 million units sold. I'm sure I sound like an old curmudgeon, and to be fair, there are plenty of millennials out there making straight-A grades who will become very productive members of our society. Odds are, however, this group is not spending four hours per day in a virtual realm filled with fantasy characters. |
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ROKU
|
Roku provides further evidence that the market is not efficient
(08 Nov 2017) You've probably heard the baloney about EMH—the efficient market hypothesis. This is the theory that states it is impossible to beat the market because all relevant information is always incorporated into a share's price. What a joke. The truth is nearer the opposite of that: irrational investment decisions lead to golden opportunities for astute investors. Take streaming device company Roku (ROKU $16-$23-$30). The company, which just went public in September, faces fierce competition from the likes of Apple (Apple TV), Alphabet (Google Chromecast), and Amazon (Amazon Fire Stick/TV). Furthermore, as more televisions entering living rooms are "Smart TVs" there is no reason a manufacturer couldn't cut Roku out altogether. Nonetheless, immediately following the company's first earnings release showing it brought in $125 million, the stock skyrocketed 25% in after-hours trading. Never mind the fact that the company had net loss of $46.2 million for the quarter. Silliness. |
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DIS
FOX |
Walt Disney was in talks to buy 21st Century Fox
(06 Nov 2017) Twenty First Century Fox (FOX $24-$26-$32) shares spiked nearly 8% on news that the media company had been engaged in talks with Walt Disney (DIS $92-$101-$116) regarding a takeover by the latter. Fox currently (post spike) has a market cap of $48 billion, while Disney is worth about $155 billion. The talks are apparently off, but we suspect CEO James Murdoch would love to rid himself of the company his father, Rupert, helped build. As a member of the British Labuor Party, his disdain for the company he now runs is palpable. |
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PZZA
FOX |
Papa John's rethinking NFL strategy after declining viewership due to anthem protests
(06 Nov 2017) The NFL and their friends in the press may not want to admit the truth, but Papa John's (PZZA $59-$60-$90) isn't afraid to. The pizza maker ramped up attacks against the league this past week, saying it is reevaluating its massive sponsorship contract due to the national anthem protests and the ensuing drop in viewership. In the words of COO Steve Ritchie, "if the viewership decline continues, we will need to shift into other things that work more effectively for us." NFL ratings are down 15% since the anthem protests began. Last week Fox (FOX $24-$24-$31) CEO and trust fund baby James Murdoch claimed that the decline in NFL ratings had nothing to do with the anthem protests. |
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NFLX
|
Netflix adds 5.3 million subscribers during quarter
(16 Oct 2017) We now know why Netflix (NFLX $98-$203-$203) was so comfortable raising their rates yet again, even for faithful, longtime subscribers: the company blew past expectations for new subscribers in Q3, adding 5.3 million new paying members versus estimates for 4.5 million. Top-line revenues were about in-line, at just shy of $3 billion for the quarter. The company's record number of new subscribers is probably also why they just announced they increased their "new content" budget to between $7 billion and $8 billion over the next twelve months. |
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AAPL
NFLX |
Apple teams up with Steven Spielberg for production of TV programs
(11 Oct 2017) This past August we discussed Apple's (AAPL $104-$156-$165) intent to spend $1 billion over the next year in a strategic push to develop its own "original content" for a video library. It looks like they will begin spending some of that money on one of Hollywood's biggest names: Steven Spielberg. The Cupertino-based company will work with the director to resurrect his 30-year-old sci-fi series Amazing Stories. This will be their first step in building a Netflix-like library of content for subscribers to access. Seems like a good place to start—we enjoyed the series, which aired between 1985 and 1987. Apple is expected to spend about $50 million on ten episodes. The company's $1 billion commitment may seem like a lot, but it is around $5 billion less than Netflix's planned outlay for the coming year. I guess that is why our monthly Netflix bill just went up again. |
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SEAS
|
SeaWorld up, then down, on talks of deal with Legoland owner
(05 Oct 2017) It's been stormy waters for SeaWorld Entertainment (SEAS $11-$14-$20) pretty much ever since the company went public back in 2013—which they had no business doing, by the way. It appeared as if the troubled company was going to get a boost at Thursday's open following reports that Legoland's owner, the UK's Merlin Entertainments (MERL), wanted to buy part of the firm. It didn't take long for investors to realize that a total sale was the only viable option for this company, and shares quickly sank. SeaWorld needs to be taken private before they are forced into bankruptcy. |
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ROKU
|
Roku outlines its terms for taking the company public
(UPDATE: ROKU finished its first trading day up 68%, to close at $23.50. Now we really wouldn't touch it.) (28 Sep 2017) Over-the-top content provider Roku has set its IPO price at $14 per share, giving the company an implied value of $1.3 billion. Roku generated just under $200 million of revenue in the first six months of 2017, a 23% jump over the same period last year. While the company is still bleeding money, it has narrowed those losses from $33.2 million to $24.2 million over those periods. The company’s video streaming devices allow its 15 million users to access YouTube, Amazon, Netflix, and a number of other online channels. Roku will trade on the Nasdaq under the symbol ROKU. Would we touch the stock? No way. There are too many competitors, with billions more to spend, in this space. Apple TV comes to mind. Not to mention the television makers like Samsung which are building competing software systems directly into their machines. Finally, the CEO of Roku, Anthony Wood, doesn't seem to have a solid grasp on his competition, nor has he provided the strategic vision needed to increase the company's market share. |
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T
|
DirecTV offering refunds to upset NFL fans
(27 Sep 2017) If it looked like a revolt was going on in the NFL, considering the number of players who refused to stand for the national anthem, that was nothing compared to the far-less-reported-on story of the Great Fan Revolt of 2017. The mainstream media has no desire to focus on this aspect of the story, but millions of die-hard football fans across America are abandoning the NFL. Some are burning season tickets, others are burning their team-inspired gear on Facebook, and scores of others are trying to get out of their NFL Ticket television contract. One provider, DirecTV, is actually offering angered fans a refund. Customers are typically locked in for the season after signing up for the service, and many expressed pleasant surprise that AT&T’s (T $35-$39-$43) DirecTV unit would listen to their complaints. And the NFL’s hole gets bigger (thanks to the hole leading the league). |
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Emmys
|
Emmy ratings continue decline as viewership hits all-time low
(19 Sep 2017) Viewership for last year’s Emmy Awards was dreadful: just 11.3 million people watched the show, which garnered a pitiful 2.8 rating among adults aged 18 to 49. For anyone who thought, “well, there’s always next year,” more bad news just came in. This year’s Emmy viewership was actually worse than last year’s. We can’t figure it out. After all, producers brought in Stephen Colbert to perform even more Trump bashing, which is always a ratings hit, right? More evidence that Hollywood is living in a vacuum, completely out of touch with average, ordinary Americans. We want quality shows and movies which allow us a brief respite from the trials and tribulations of the day, not pablum from a bunch of arrogant multimillionaire actors who think they always know best. Hollywood’s problem can be summed up by this tweet from B-list actor (and we are being generous with that moniker) Taran Killam: “RURAL = STUPID.” To nobodies like Killam, whom we had never heard of before this tweet, the dearth of viewers “smart enough” to watch the Emmys simply proves his point. Life in a bubble plays out just fine, at least until you run into the sharp edge of reality. |
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AMC
CNK RGC TWX |
After lousy summer at the box-office, “It” shatters September record
(11 Sep 2017) To get an idea of just how bad the summer has been for the movie business, look no further than the share prices of AMC Entertainment (AMC), Cinemark Holdings (CNK), and Regal Entertainment (RGC). All three of the theatre chains are tickling their 52-week lows. AMC is off 55% from this time last year. One movie can’t bring an industry back, but the remake of Stephen King’s 1986 classic “It” sure provided a shot in the arm. The movie’s debut weekend shattered previous September records, raking in more than double the prior-highest opening for 2015’s “Hotel Transylvania 2.” The latter brought in $48.5 million the first weekend, while “It” notched $117.2 million in North American sales. Time Warner (TWX $74-$100-$103) spent just $35 in production costs for the horror movie. |
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DIS
|
Disney to cut staff at its ABC Television Group
(31 Aug 2017) With the goal of reducing costs of the unit by 10%, Disney (DIS $90-$103-$116) is planning significant budget cuts for its ABC Television Group, which includes firing hundreds of employees. ABC finished third in viewers last season, behind NBC and CBS, as it struggles to find new hit shows. Anchor (as in sinking to the bottom) ESPN is not part of the ABC Television Group, but the garbage affiliate Freeform (formerly ABC Family) is. Here’s an idea: completely eliminate that station. |
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DIS
TWTR FB |
Our advice to Disney: buy Twitter, dump ESPN
(24 Aug 2017) There was a rumor last October that Disney was one of the companies in the running to purchase the non-revenue-generating entity known as Twitter (TWTR $14-$17-$25). Those rumors were quickly quelled, but they appear to be back. Some critics say Twitter wouldn’t be a good fit for the wholesome family vibe that Disney puts off. Really? Have those people seen some of the rot-gut ABC Family, now Freeform, puts on the air? And what about the lunks at ESPN? Are those idiots family friendly? Here’s what it boils down to. Twitter was a brilliant concept. It’s market cap has dropped from $40 billion to $12.5 billion, however, because management has not been able to monetize it the way Zuck monetized Facebook (FB). Disney has the cash; they should pick up the company and bring some Disney magic to it. And if they have to keep that dog, ESPN, at least it would fit nicely with Twitter's push into the sports broadcasting arena. |
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WPPGY
|
World's largest ad agency falls double digits on dour outlook
(23 Aug 2017) With its $24 billion market cap and $19 billion in annual sales revenue, WPP plc (WPPGY $89-$91-$122) is the world’s largest ad agency—some say even bigger than McCann Erickson (sorry, that’s a Mad Men joke). The company was reduced in size by about 12% on Wednesday, however, after giving some pretty lousy forward guidance for the remainder of 2017. The company’s CEO, Sir Martin Sorrell came down from his white puffy cloud to give three reasons the number stunk: “digital disruption,” activist investors forcing companies (like Proctor & Gamble) to cut costs, and “zero-based budgeters” who demand all expenses be justified at the start of each period. In other words, the jerks who are making the marketing executives justify each outrageously-expensive TV buy. Here’s what Sorrell didn’t admit to, but it is a fact: new technology has allowed the average small business owner to compete with the really big boys without paying the extortion fee to companies like WPP. |
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AAPL
|
Our Apple TV may actually do something besides play music for us
(16 Aug 2017) We are convinced that when Steve Jobs died, Apple TV died with him…at least for an extra five years. Now, it appears the company (AAPL $103-$162-$162) is willing to get serious about making their $149 box something more than a glorified music device with really cool background scenes. Apple has just entered the “original content” fray by expressing its willingness to budget $1 billion over the next year on its own lineup of television shows and specials. Think HBO’s “Game of Thrones” or Netflix’s “Mad Men.” For $1 billion, the company should be able to produce up to ten new programs. Yes, it’s a crowded market, but think of the 30 million or so Apple TV devices collecting dust in living rooms across America, just waiting for something good to come on. |
|
AMC
RGC CNK IMAX |
Theater stocks fall after MoviePass lowers monthly fee to $9.99
(14 Aug 2017) MoviePass (www.moviepass.com) is a subscription-based service which allows members to go to their local theater and watch pretty much all the movies they want (no blackout dates) for one set, monthly price. Members can see one movie, no matter how new, every 24 hours at any of 4,000 theaters on 36,000 screens. Major theater chains like AMC (AMC), Regal (RGC), Cinemark (CNK), and Imax (IMAX) were down Tuesday following MoviePass’ decision to lower all memberships to one $9.99 per month fee. With the plethora of options we now have at our fingertips, the chains have been suffering. This decision by MoviePass to drop prices is further evidence of technology’s impact on the industry. |
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LYV
|
(09 Aug 2017) Live Nation has an easy beat, rallies after the bell.
Ticketmaster's parent company, Live Nation (LYV $26-$38-$38), should punch through its 52-week high at Thursday's open following an impressive, after-hour earnings report. The company was rallying over 7% after bringing in $2.82 billion during the quarter, with $81.5 million of that figure filtering through as profit. As the demand for live events defies the zeitgeist of staying at home and streaming, LYV has been raking in the dough. The stock is up 50% year-to-date, and that's before tomorrow's probable move. |
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DIS
NFLX |
(08 Aug 2017) Disney to pull all of its movies from Netflix and launch its own streaming service
Disney (DIS $90-$107-$116) wants to get in on the cord-cutting business, not just be part of someone else's technology platform. The diversified media giant has announced that it will pull all of its movies from Netflix (NFLX $93-$179-$192) and launch its own branded streaming service to consumers beginning in 2019. It will also be making a significant investment in original content for the new platform. We believe this is a great strategic move for the company, but our Netflix subscription thinks it stinks. |
(03 Aug 2017) CNBC ratings fall to 21-year low; network loses top business news spot
We remember back when The Nightly Business Report on PBS was the only show in town when it came to business news. Then came CNBC, with their 24-hour business and investment coverage (well, except for the 12+ hours of infomercials and fluffy shows being aired after market hours and on weekends). Now, the cable news network's reign has seemingly ended. According to Nielsen, the benchmark television rating agency, CNBC's viewership among the key 25-54 demographic has fallen to an all-time low. Additionally, it has been supplanted as the number one cable business news network. We know why this happened, but we will keep it to ourselves.
We remember back when The Nightly Business Report on PBS was the only show in town when it came to business news. Then came CNBC, with their 24-hour business and investment coverage (well, except for the 12+ hours of infomercials and fluffy shows being aired after market hours and on weekends). Now, the cable news network's reign has seemingly ended. According to Nielsen, the benchmark television rating agency, CNBC's viewership among the key 25-54 demographic has fallen to an all-time low. Additionally, it has been supplanted as the number one cable business news network. We know why this happened, but we will keep it to ourselves.
(03 Aug 2017) Dish Network sees lower revenue, steeper losses, fewer subscribers
There wasn't much good news to be gleaned from Wednesday's Dish Network (DISH $49-$64-$67) quarterly earnings report, other than the slower rate of subscriber losses—hardly anything to brag about. On revenues of $3.64 billion ($3.86B in 2016Q2), the company made 9 cents per share, down from 91 cents per share last year. Dish also reported a loss of 196,000 subscribers, which wasn't quite as bad as the 281,000 it lost in Q2 last year. Shares fell 3% after market following the release. There are rumors that the sleazy clown at T-Mobile, John Legere, wants to buy Dish. There's a combo we would stay away from. TMUS is worth about $53 billion; Dish has a market cap of $28B.
There wasn't much good news to be gleaned from Wednesday's Dish Network (DISH $49-$64-$67) quarterly earnings report, other than the slower rate of subscriber losses—hardly anything to brag about. On revenues of $3.64 billion ($3.86B in 2016Q2), the company made 9 cents per share, down from 91 cents per share last year. Dish also reported a loss of 196,000 subscribers, which wasn't quite as bad as the 281,000 it lost in Q2 last year. Shares fell 3% after market following the release. There are rumors that the sleazy clown at T-Mobile, John Legere, wants to buy Dish. There's a combo we would stay away from. TMUS is worth about $53 billion; Dish has a market cap of $28B.
(02 Aug 2017) AMC loses one quarter of its value after dire profit warnings
AMC Entertainment Holdings (AMC $20-$16-36) plunged below its 52-week low share price after the theater chain warned of "deep losses" in the second quarter. The company, which lost 25% of its value after the comments, also said it was undertaking a dramatic cost reduction plan to staunch losses. Up until this quarter AMC had been able to maintain a positive net income, and the plunge in stock price should bring the price-to-earnings multiple down to around 17.
AMC Entertainment Holdings (AMC $20-$16-36) plunged below its 52-week low share price after the theater chain warned of "deep losses" in the second quarter. The company, which lost 25% of its value after the comments, also said it was undertaking a dramatic cost reduction plan to staunch losses. Up until this quarter AMC had been able to maintain a positive net income, and the plunge in stock price should bring the price-to-earnings multiple down to around 17.
(18 Jul 2017) Netflix blows away its new-subscriber projections, earning it a price upgrade from RBC Capital
The figures were staggering. Against expectations for 3.2 million new members worldwide, Netflix (NFLX) actually signed up 5.2 million new viewers over the course of the quarter. This led RBC Capital Markets to raise their price target on the Internet-based entertainment provider from $175 to $210 per share. The stock hit a new all-time high of $177 per share at Tuesday's open.
The figures were staggering. Against expectations for 3.2 million new members worldwide, Netflix (NFLX) actually signed up 5.2 million new viewers over the course of the quarter. This led RBC Capital Markets to raise their price target on the Internet-based entertainment provider from $175 to $210 per share. The stock hit a new all-time high of $177 per share at Tuesday's open.
(31 May 2017) ESPN continues to be a big, fat drag on Disney. We stopped watching ESPN, at least as much as possible, when they decided to wade into the political arena via bloviating commentaries (we turn to sports to get away from politics, idiots). Apparently we weren't the only ones tuning out. According to the latest Nielsen ratings, the Disney (DIS $90-$108-$116) subsidiary lost an extraordinary 3.8% of its subscriber base in May alone. It takes a ton of money for networks to effectively bid on sports broadcasting rights, and the continued erosion of its subscriber base will make that task all the more difficult for ESPN.
(01 May 2017) Fox may make bid for Tribune Media. Twenty-First Century Fox (FOX $24-$30-$32) is reportedly talking joint venture with private equity venture firm Blackstone (BX $22-$31-$31) to buy Tribune Media (TRCO $28-$37-$41). Tribune, after emerging from bankruptcy and spinning off its newspaper assets, has a market cap of just $3 billion, making it about 1/20th the size of Fox.
(28 Apr 2017) Biggest loser Time, Inc. decides not to sell itself—plummets 18%. The only thing dumber than someone actually willing to buy perennial money loser Time, Inc. (TIME $13-$15-$20) is the $1.5 billion midget taking itself off the auction block. After the board announced it would "pursue its own strategic plan," investors gave the company a big raspberry, pushing shares down 18% at the open. Time was spun-off from its parent company, Time Warner (TWX $69-$100-$100), in May of 2014.
(18 Apr 2017) Netflix should reach 100-million-subscriber mark this weekend. We remember getting those little red envelopes in the mailbox. We tried to time it so we had a good movie to watch over the weekend, remember to send it back, and then order another to repeat the process. Netflix (NFLX $85-$143-$148) has certainly come a long way over the past decade, and it is about to hit another major milestone: its 100 millionth paying subscriber. The company expects to add over 8 million new subscribers to the rolls in the first half of the year, with the majority coming from overseas markets. Now, if they could only add a few classic movies from the 80s to their streaming lineup, we would be golden.
(15 Mar 2017) Best March opening in history with Disney's Beauty and the Beast. A new record has been set: no film with a March opening has ever done as well as Disney's (DIS $90-$113-$113) weekend release, Beauty and the Beast, featuring Emma Watson as Belle. The soon-to-be-blockbuster raked in $170 million domestically over the three-day period, with an early global tally of another $180 million. If the numbers hold, it would be the 14th biggest open ever—at least from a revenue standpoint. Disney was up slightly Monday, although it was already at a 52-week high.
(27 Feb 2017) Count us in the "didn't watch" camp—Oscars draw lowest ratings in nearly a decade. The NFL is facing its biggest ratings crisis in at least a generation, but it has nothing do to with the anti-American pre-game antics by some players, according to NFL commish Goodell. The Oscars drew their weakest viewership ratings since 2008 at last night's event, but that has nothing to do with the politically-infused bloviating, according to the press.
Actually, in the latter's case, the political BS is only part of a much bigger problem: The Hollywood business model is dying. While power used to center around a few square miles of LA and rested in the hands of the media elite, new technologies are giving American consumers more choices outside of the traditional venues, and this trend will certainly continue, to Hollywood's detriment. As for the 32.9 million viewers, it sounds like they could have slept through the first three hours and just tuned in for the inept fireworks at the end.
Actually, in the latter's case, the political BS is only part of a much bigger problem: The Hollywood business model is dying. While power used to center around a few square miles of LA and rested in the hands of the media elite, new technologies are giving American consumers more choices outside of the traditional venues, and this trend will certainly continue, to Hollywood's detriment. As for the 32.9 million viewers, it sounds like they could have slept through the first three hours and just tuned in for the inept fireworks at the end.
(06 Feb 2017) Russian chief executive sues BuzzFeed over fake news story on President Trump. A Russian tech executive whose name appeared in a false news story about President Donald Trump has filed a defamation suit against BuzzFeed, the website "media" outlet which ran with the unsubstantiated story. The suit claims that BuzzFeed knew critical portions of the story were untrue, yet published it anyway, encouraging readers to "make up their own minds." The story, filled with bizarre details, claims that Russia had compromising personal information about then-President-elect Trump which it could use as blackmail at some future date. Aleksej Gubarev, CEO of XBD Holdings, said he and his wife had become the target of harassment and compromised personal security thanks to the fake news. BuzzFeed has since apologized for including Gubarev's name.
(04 Jan 2017) Media & Fake News...er...Entertainment. The enemy of my enemy is...China? Reds ban New York Times app. Hot dogs and mustard. Apple pie and ice cream. The Communist Party and the New York Times. Some matches fit like a small hand in a silk glove. That's why we found it a bit odd when we heard that Apple (AAPL $89-$116-$119) removed the New York Times apps from its iTunes store in China at the "request" of the Chinese Communist Party. Following a series of 2012 articles critical of the wealth amassed by a leading party member, the government began blocking online access to the left-leaning publication. The app was just about the last legal conduit for Chinese citizens to access the paper. They still have access to China Daily, the Communist Party's paper of choice, so we have to wonder what stories they are missing without the Times app.
(15 Dec 2016) Murdoch's Fox to buy Euro pay-TV firm Sky. Rupert Murdoch's Twenty-First Century Fox (FOX $23-$28-$31) has agreed to buy the 61% of European pay-TV firm Sky for $14.6 billion. Fox will acquire Sky's 22 million customers in Britain, Ireland, Italy, Germany, and Austria when the deal closes.
First the New York Times, now News Corp gets Hammered
Last week the New York Times (NYT) reported dismal quarterly numbers, portending bad things ahead. But was this a problem unique to the ill-managed company, or was it industry-wide? When News Corp (NWS) reported Monday, the answer became clear: the Old Gray Lady is, indeed, a member of a dying industry.
It’s not that news, per se, is dead; just the delivery system being used by the old curmudgeonly players. Let’s start with the Times. Earnings dropped sharply in the third quarter, as print advertising fell by one-fifth. Spending on newspaper ads is going the way of the dinosaur. The Times is trying to push its way into the 21st century, but the effort has been feeble thus far. In the old days, due to the sheer cost of creating and operating a physical print business, competitors were held at bay. Now, thanks to technology, the Times must compete on merit and substance, not tenure. That is bad news for the crotchety old bird. In Q3 of 2015, the Times had a net income of $9.4 million on $367 million of revenue. This year, the company brought in a paltry $406,000 on almost the same amount of revenue.
As for News Corp, the picture is not much brighter. On revenue of $2 billion (no change from same-quarter last year), NWS actually recorded a new loss of $15 million, compared to a net gain of $175 million in Q3 of 2015. This was almost exclusively due to weak print advertising (NWS owns the Wall Street Journal), with increased programming costs on the cable side and currency headwinds hurting as well.
We should have seen the writing on the wall last week with respect to News Corp. The Wall Street Journal division announced it would offer a buyout to any news employee who wished to take one. The paper also announced it was combining or eliminating parts of the Journal, such as the Greater New York section. Our guess is few subscribers will miss that section.
(Reprinted from next Sunday's Penn Wealth Report, Vol. 4 Issue 45.)
“Star Wars: The Force Awakens” will become the biggest money maker in history
Early numbers have it surpassing Jurassic World and Avatar
(21 Dec 15) Disney’s venerable CEO, Bob Iger, knew that his company’s first version of the Star Wars saga would be big, but it appears that even he underestimated its international draw. Viewers lining up to see the movie not just once, but two and three times over the opening weekend have helped launch the seventh installment of the franchise into the stratosphere—and the history books.
Let’s look at the early numbers. The best international performance by a movie during its opening weekend had been Jurassic World, which brought in $525 million during its initial release. According to Bob Iger, Star Wars hit the $528 million mark in global ticket sales since its Friday release. Roughly half of that came from the United States and Canada.
The top grossing movie of all time was Avatar, which premiered back in 2009. That smash hit brought in nearly $2.8 billion worldwide. Considering that Star Wars: The Force Awakens won’t open in the world’s second largest market—China—until 9 January, the movie is almost guaranteed to easily take the top spot.
Many media analysts mocked Disney for paying $4 billion for Lucasfilm back in 2012, doubting the firm would ever recoup its outlay. Setting aside all of the future sequels, the spinoffs, the toys, the video games, and the theme parks, it now looks like this one movie will just about pay for that purchase, all on its own.
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 52.)
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Fox’s Fantastic Four Flop Gives Disney Leverage over Orphaned Marvel Characters
(10 Aug 15) Here’s a quiz: If Disney acquired the struggling Marvel comic franchise back in 2009, how is it that Fox just released the third “Fantastic Four” movie (the first came in 2005 and the second came in 2007, before the purchase)?
Before answering that riddle, let’s take a look at the absolute bomb that was the latest “Fantastic Four.” The film, released by Fox this past weekend, was what is known in Hollywood as a “reboot.” Instead of being a continuation of a story line, a reboot is just that—it starts all over at the beginning and tries to spin a new yarn. Bad news, Fox—your reboot was worse than the first Fantastic Four you released back in 2005.
How bad? Media analysts had expected an opening weekend take of a paltry $40 million or so. Pretty beastly, considering the $126 million cost of making the film. Well, Dr. Doom apparently crashed the party, as the movie barely pulled in over half that number: $26.2 million in aggregate, despite debuting in 4,000 theaters across the country. The odds of Fox not having to write the film off at a loss are almost nil.
But back to the riddle. How come Disney didn’t have to fall on the sword with this bust (besides the fact that they probably wouldn’t have made it), considering they own the Four’s creator, Marvel? It seems that back in 2009, when Disney bought the floundering company for about $4 billion, Marvel had already sold off a number of marquee names, including the Fantastic Four, The X-Men, Spider Man, Iron Man, Thor, The Hulk, and Captain America. While Disney was able to buy back Iron Man, Captain America, and Thor from Viacom, Fox has shown no interest in selling back X-Men and Fantastic Four.
Although Fox owns the MCU (Marvel Cinematic Universe) for the Fantastic Four, Marvel (under Disney) still has the ability to produce and monetize comic books on the group. However, not wishing to help promote any future Fox movies, they have axed any new comics (or new characters) from being created. Petty? Perhaps. But the tactic has been to force Fox back to the bargaining table for Disney to return these franchise characters to their rightful home. If the lack of new comic books and characters wasn’t enough, perhaps the embarrassingly bad reboot will provide the leverage needed.
Fox isn’t the only media giant holding Marvel characters hostage. Sony Entertainment owns the film rights to the Spider Man series. (Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 32.)
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Taylor Swift Forces Apple’s Hand
“We don’t ask you for free iPhones. Please don’t ask us to provide you with our music for no compensation.”
(22 Jun 15) Anyone doubting Taylor Swift’s power within the entertainment industry need look no further than Apple’s reversal on their new Apple Music streaming service. On Monday, following a Tweet excoriating them for their decision to withhold any royalty payments to artists whose songs appear on Apple Music during the 90-day free trial period, the company did an about-face. It announced that Apple will, indeed, pay full royalty rates to artists for their music during the free trial period.
“We don’t ask you for free iPhones,” the artist quipped, “Please don’t ask us to provide you with our music for no compensation.”
Within 24 hours, Eddy Cue, a senior Apple vice president, had the necessary changes made. Apple’s original policy of not paying artists during the period Apple would not be paid by customers actually came with a trade-off: artists would be paid slightly above the industry average following the 90 days.
Swift made news recently when she pulled her music from Spotify in another royalty dispute. She also admonished the band U2 for making their last CD available as a free download to all Apple iTunes users. Bono quickly issued an apology for the move. More evidence of the power this 25-year-old superstar wields.
(Reprinted from this coming Sunday’s Journal of Wealth & Success, Vol. 3, Issue 25.)
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