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.

DIS $86

21 Aug 2023

Iger’s tone-deaf response to falling subs: raise prices across the board
We had high hopes for entertainment powerhouse Disney (DIS $86) when the board finally gave Chapek the boot (shortly after extending his contract) and brought back former CEO Iger. We should have remembered our first thought after reading his autobiography: what an arrogant SOB. Indeed, Iger’s “I’m the greatest,” bull in a china shop approach has only wreaked more havoc on the company. His latest misstep, fresh off the heels of ticking off Hollywood during a CNBC interview with David Faber, comes in his response to floundering Disney+ subscriptions. After giving mixed quarterly results for Q2, which included flatlining subscriber growth for the company’s streaming service, Iger announced that the ad-free version of Disney+ would now cost faithful subscribers 27% more. In addition to the $13.99 per month fee (up from $10.99), the company’s no-ad Hulu streaming service would jump 20%, from $14.99 to $17.99. Disney’s ad-supported service will remain $7.99 per month, but Iger even stepped in it with regards to that option. When pressed on the rate hikes, he flippantly indicated he would be just fine with subscribers dumping the ad model for the lower priced alternative, as the company would “make more via the ads.” Tone deaf. An appropriate answer for slowing growth is never “let’s milk our faithful customers more for their current products and services,” but Iger doesn’t get it. While Disney’s streaming service has been a gamble from the start, the company always had its money-printing parks to serve as the cash cow, but even that is changing. Over the Independence Day weekend, wait times for rides at Disney’s US parks were the lowest they have been in over a decade—and no, that is not due to improvements in efficiency. It may, however, have something to do with the multiple price hikes implemented at the parks this year. Try this on for size: A one-person, one-day Park Hopper ticket for an adult (ten years or older) now costs up to $268.38. Happy sticking to one park for the day? Look to pay as much as $189. We will always love the Disney experience, but something tells us Walt would clean house in the C-suite were he alive today. And who can blame him? The first step to solving a problem is admitting you have one in the first place, and then accepting responsibility for it. Iger may say the right things (well, actually, not lately), but his arrogance will keep him from doing the right things. Until there are massive changes at the top, we don’t see owning this company in any of the Penn strategies.

NFLX $322

21 Apr 2023

Netflix is ending its DVD-by-mail business; we didn’t know it was still around

Wow does time ever fly. We were early adopters of Netflix’s (NFLX $322) DVD-by-mail business back in the day, getting rather excited when we opened the mailbox to discover one of little red and white envelopes waiting for us. Could that really have been back in the late 1990s? In this new world of streaming, we just assumed that the service had already been abandoned, but that was not the case—at least until now. During its most recent earnings call, Netflix’s management team announced that it would be mothballing the business that forced Blockbuster—except that one in Bend, Oregon—to shut its doors. Over the past decade, as streaming has taken off, Netflix’s DVD revenue has been steadily declining, from nearly $1 billion a decade ago to under $150 million last year. Those 2022 figures accounted for just 4.5% of the company’s revenue for the year.

While Netflix arguably ushered in the era of streaming, it didn’t get off to a pretty start. We recall being outraged—along with millions of other Americans—back in 2011 when the company split its DVD and streaming services into two separate units, effectively doubling the cost of a subscription from $8 to $16 per month. Investors showed their disdain for the move, driving the share price of NFLX stock down some 80% between summer and the end of the year. In hindsight, that obviously would have been a great time to jump in, as the shares ultimately rose from $9 to $700 between winter of 2011 and winter of 2021—a 7,700% increase if we did our quick math correctly.

Of course, timing is everything. Anyone not selling in December of 2021 at $700 watched as their shares fell to $162 over the ensuing six-month period. And Q1’s earnings report offered investors a mixed bag, at best. Revenue rose a paltry 4% from last year, while Q2’s guidance was weaker than expected. The Street did like two new initiatives, an ad-supported subscription model and a promise to crack down on password sharing, but we are waiting to see subscriber reaction when their kids away at college are no longer able to login (without another subscription). Considering the seemingly perennial rate hikes ($15.49 is the current price of a standard plan), we do like the ad-based $6.99 per month plan, which should widen the company’s subscriber net. According to the company, about 5% of shows available on the standard plan won’t be available on the ad-supported subscription for contractual reasons.

A few more reasons we are steering clear right now are the economic environment and increased competition in the streaming space. Americans don’t want to lose access to their favorite shows, but when household discretionary funds get constricted, turning off the subscription is an easy way to cut down on costs. Especially when nothing would be lost (e.g., recorded programs) like when we change providers.

At $327 per share and with a forward P/E of 30, we believe Netflix shares are fairly valued. Additionally, we see two potential headwinds (as mentioned above) on the immediate horizon: backlash over the password crackdown and a possible recession (job losses are a lagging indicator). While we don’t see a 2011-type meltdown in the share price, we could envision them falling by one-third at some point this year. That would put them in the $220 range, at which time we might be tempted to jump back in. Management has made plenty of missteps over the past quarter century, but the shares have been nothing if not resilient.

AMC $5

APE $1.50

07 Apr 2023

A judge is stopping AMC’s chief financial engineer from performing his latest magic act
As much as we write about AMC Entertainment (AMC $5), it may seem as though we have it out for the Leawood, Kansas-based firm. Not at all. We have it out for the financial engineer posing as a CEO, Adam Aron. Let’s first consider the financials of the theater chain. Take a look at the blue line on the graph below; that line represents shareholder equity, or all of the firm’s assets minus its liabilities. That blue line should never, ever, ever be below zero. AMC has a negative shareholder equity of $2.624 billion and a market cap of $2 billion. For some perspective, the money-losing car company Nikola (NKLA $1.22), which has produced something like 100 vehicles in total, has positive shareholder equity. This leads us to the current scheme of chief Snake Oil Salesman Adam Aron. Last year we wrote of AMC’s fiendish idea to keep cold, hard cash from entering shareholders’ pockets by issuing preferred shares in lieu of cash for the payment of dividends. These new instruments began trading around the $7 range last summer. As a refresher on preferred stock: it usually comes with a par price of $25 per share and serves up a fat dividend—not used as one. Aron used these preferreds as sweeteners to keep shareholders happy, as they would ultimately be able to convert them to common stock. Not so fast, says a Delaware judge. In addition to the conversion issue, Aron also wanted a 10-to-1 reverse stock split, which would price AMC common around $50 per share. Delaware Chancery Court Vice Chancellor Morgan Zurn wrote in a letter this week that “the parties offer no good cause to lift the status quo order.” Allowing this plan to proceed, wrote Zurn, would prevent the court from effectively overseeing a class action suit brought about against the chain by the Allegheny County Employees’ Retirement System, which claimed this has all been part of a strategy to dilute the voting power of AMC’s Class A stockholders. You think? The bigger question is why a county pension system would invest in such a speculative stock in the first place? When the judge’s ruling hit the wires, AMC shares rose double digits while APE shares dropped double digits. APE trades for $1.50 as we write this. Living up to its moniker, shouldn’t this be the catalyst for a new wave of Apesters to jump in? After all, if the judge were to reverse his ruling today, they would be sitting on a 333% gain. Sure, AMC common would immediately drop in price, but it seems fitting to use a little fuzzy math when talking about APE shares. One of these days, the cult of AMC will end and it will become a normal company once more. Until then, go to the craps table to gamble. Actually, that’s not really a fair comparison—there is a good deal of strategy involved in craps.

AMC $5

APE $1

22 Dec 2022

The chicanery rolls on at AMC, with an APE conversion and a reverse stock split
AMC Entertainment (AMC $5) is the gift that keeps on giving; well, unless you are an investor in the small-cap theater chain. Remember when Adam Aron’s company issued preferred shares under the apropos symbol APE this past August (at $6.95) and began handing them out to shareholders as dividends? How about when the company toyed with the idea of handing out NFTs as dividends? We sit about twenty minutes away from AMC’s international headquarters, yet Adam Aron, CEO and financial engineer extraordinaire, sits in his office some 1,100 miles away as the crow flies. That about sums it up. Now, with APE trading at $1.20 (a 75% gain from the prior day) and AMC sitting at $4.50 per share (down 13% on the news), the company announced yet another capital raise ($110 million this time) and a one-for-ten reverse split proposal. Aron tweeted something to the effect of needing to attack the Wall Street haters who are determined to turn AMC into a penny stock. Um, that’s all you, buddy. Such a joke. Aron wanted to attract Apesters by offering a low stock price; now he supposedly wants to attract institutional investors by making the shares worth $50? What institutional investor in their right mind would buy into this horror show? He has turned AMC into his own personal Rube Goldberg machine. He ended his tweet with the sentence, “Simple arithmetic, if approved, the share count goes down so share price goes up.” Gee, thanks for that wonderful lesson in investment finance. We have always wanted AMC to succeed, but this huckster needs to go. Investors simply need to look at the company’s financials to realize this fact. Stop the games and focus on new and creative ways to fill your theaters.

DIS $98

21 Nov 2022

Disney shocker: Hapless Chapek fired as Iger returns to lead the company
Update Aug 2023: Forget what we wrote below: Iger's massive ego has blown a hole in our thesis
It was the move we have been waiting for, but one we thought wouldn’t happen for at least another year. Despite foolishly extending CEO Bob Chapek’s contract by three years, the Walt Disney Company (DIS $100) board did an abrupt about face and fired him. Chapek was clearly in over his head, but the board was stubbornly defiant on the matter. So, why the sudden change of heart? The most recent earnings report, which we wrote about in our last After Hours, was almost certainly the final straw. A revenue miss, an earnings miss, and massive streaming losses pushed Chapek out the door—with no doubt some help from a few Iger phone calls we will never know about. Yes, Iger’s ego is enormous, but who cares? He is probably the one person who can choreograph a quick turnaround. The move was music to our ears. Investors didn’t mind, either: shares were trading up nearly 10% in the pre-market following the announcement. After leading the company for fifteen years, Bob Iger has “agreed” (more like demanded) to come back for another two years, effective immediately. Despite hand-selecting Chapek to succeed him, one could sense the disdain between the two as of late. Under Iger’s tenure, Disney grew from a theme park juggernaut into a media empire, thanks to four astute acquisitions and the launch of the Disney+ streaming service. Now, instead of resuming his acquisition strategy, he will set about mending the fences in Hollywood which Chapek tore down and maximizing the post-pandemic comeback in his parks and resorts. There are no systemic reasons why Disney cannot stage an impressive comeback with the right leadership. Streaming may be mega-competitive, but that should worry Netflix (NFLX $291) more than Disney, as the former is a one-trick pony. Despite hefty price increases at the parks, we expect visitors to continue flooding back; and with the company’s impressive media franchises (Pixar, Marvel, Lucasfilm, and 21st Century Fox), the content possibilities seem endless. It is simply time for Iger to perform damage control using a tool Chapek didn’t have: charisma. We have said repeatedly that we would never re-add Disney to any Penn portfolio while Chapek was CEO. Well, now he is gone. Let the comeback begin.

DIS $88

Disney falls another 11% after dismal earnings report
We wrote a scathing indictment of Disney’s (DIS $88) management team this past spring, stating that CEO Bob Chapek must go. At the time, Disney shares had plunged to $138, down from $203. The latest drop—11% at the open—came in response to another bad earnings report. Revenues were a miss; earnings were a miss; streaming losses widened. While Disney+ added 12.1 million new accounts in the quarter, that business lost a whopping $1.47 billion. Since it launched back in 2019, the streaming service has now lost some $8 billion in aggregate. The parks have been doing great, but that is a huge deficit to keep covering. After spending $30 billion on content over the past twelve months alone, management announced cuts were coming to the content and marketing budgets but gave no specifics. Disney’s bottom-line numbers for the quarter say it all: Against expectations for $788 million in net income, the company made just $162 million. At least they remained in the black. Analysts have overwhelmingly been bullish on this stock all year, projecting a big comeback in the share price. Considering Chapek just received a three-year contract extension, even $88 per share does not look attractive to us. What was the board thinking?

GETY $31

15 Aug 2022

Clown company: You couldn’t give us shares of Getty Images Holdings
How fitting that Getty Images Holdings (GETY $31) went public via a SPAC—it certainly would have been a humorous roadshow full of fanciful tales of projected growth had they been forced to use the traditional process. It is also fitting—and sad—that “investors” pumped the value of the shares up from $10 to $31 since this joke of a company went public late last month. Getty, whose shares are worth—in our opinion—about $1 apiece, now has a market cap of $11 billion. Do people literally have money to burn? As the name implies, Getty Images sells stock images to creative professionals, the media, and corporations. Protecting copyright infringement is serious business, but Getty has turned it into a nefarious source of revenue. Examples of the firm’s abuse of power are too numerous to mention, but here is a rather typical scenario: A photographer uses one of their own digital photographs on a website. Not long after, the photographer receives a demand of payment from Getty for using the photograph; the demand comes with a threat of legal action unless the confiscatory amount requested is paid immediately. The photographer takes legal action to get the threats stopped, as they created the very image in question! The company also uses embedded technology within images to “go fishing” for people who might use the images, thus initiating the demands for payment. The last thing Getty wants is for people to call their bluff and demand that a court decide an outcome—the company has lost a string of cases, drawing rebukes from the courts. Getty also has a well-documented history of taking images in the public domain (“free use”) and leasing them to unsuspecting customers for up to $5,000 for a six-month term. For any investors believing they will own a piece of a growing enterprise, consider the fact that this is not the first time Getty has been publicly traded, and that only twelve shareholders own nearly 80% of the company. It may be legal, but it is a scam in our books. Getty is the sort of company that would love to sue anyone with a disparaging view of their operations. The New York Stock Exchange should have steered clear of this listing, and investors should run the other way.

WBD $20

T $20

The rise and demise of CNN+ (a 30-day tale)
(25 Apr 2022) When we first heard that CNN was going to package a standalone streaming subscription service, our immediate thought was, "subscription overload time." We figured the effort would ultimately fail; we had no idea it would do so in under a month. The Warner Bros. Discovery (WBD $20) creation seemed doomed from the start, based on the fanciful wishes of WarnerMedia's management team to build CNN+ into a digital version of the New York Times. The faulty premise was the (arrogant) notion that millions of cord cutters who had previously viewed CNN as part of their respective cable package would suddenly be willing to subscribe to a standalone CNN news network. They threw out a "conservative" estimate of two million new subscribers by the end of the operation's first year. After all, that was a mere one-third of the six million subscriptions that the Times boasts. (The New York Times actually claims it just passed the ten million paid subscribers mark with its acquisition of The Athletic, but that involves some seriously creative math.) The management team even considered putting a paywall around the entire cnn.com site; as we say, arrogance. When AT&T (T $20) completed its WarnerMedia spin-off more quickly than expected, placing industry veteran David Zaslav at the helm, the end was at hand. We have a lot of respect for Zaslav, who has little tolerance for BS. The dream of milking off of AT&T and its deep pockets (and lack of good financial decision making based on past acquisitions) turned into a nightmare. Immediately after WBD began trading as a standalone, CNN+'s marketing budget was adjusted to zero. Chris Licht, former executive producer of Stephen Colbert's show, had just been brought in to run the new operation. One of his first duties was to tell the staff that the unit was defunct, and that they could try and get reassigned to other departments, but that most would be losing their jobs. Licht, himself, will be looking for other work soon. "This is a uniquely shitty situation," Licht told his stunned audience. Is AT&T a worthy investment now that they have spun off WarnerMedia? No. Is Warner Bros. Discovery a good investment now that they are a standalone? No.

NFLX $218

The Netflix nightmare continues: shares plunged 35% in one day
(21 Apr 2022) Admittedly, we have never been fans of Netflix (NFLX $218) the stock, which means we have missed out on some stunning growth in the past. It also means, however, that we avoided the 69% plunge in the shares between last November and this week. Unlike activist investor (and someone we like about as much as Netflix stock) Bill Ackman, who made an enormous bet on the company three months ago, buying some 3.1 million shares. A full 35% of the stock's decline occurred on Wednesday, following the release of an awful quarterly earnings report. Instead of gaining subscribers, as the company has done every quarter going back to 2011, Netflix actually lost 200,000 subscribers over the three month period. In guidance which stunned analysts even more than Q1's figures, the company said it now expects to lose two million more subscribers in the second quarter. Analysts had been predicting a pick-up of two million subs in the current quarter. While management pointed to the company's retreat from Russia as one explanation for the drop, we would argue that yet another increase in the subscription rate—to $15.49 per month—certainly drove some customers away. Tesla CEO Elon Musk tweeted his own rationale for the streaming service's troubles: "The woke mind virus is making Netflix unwatchable." As for Ackman, he just sold his 3.1 million shares for a huge short-term loss. At least that should help him at tax time next year. Following the abysmal results, analysts began lowering their price targets for NFLX shares at breakneck speed. Even after their 69% drop, we still wouldn't touch the shares.

DIS $138

Trouble in the House of Mouse: Steer clear of Disney due to Iger's ego, Chapek's inability, workers' activism
(24 Mar 2022) So many companies we thought would always have a role in the Penn portfolios, so many disappointments. General Electric, Boeing, Starbucks...Disney. The latter, The Walt Disney Company (DIS $138), is now facing a serious crisis of confidence swirling around its leadership team. First we have Bob Iger, the golden CEO who spent fifteen years running the company. Iger was the central figure in the transformation of Disney into the world's largest media company. Unfortunately, the only thing greater than his ability was—and is—his stratospheric ego. After reading his autobiography, The Ride of a Lifetime, the first thing that came to mind was, "Strong leader, complete a**." Perhaps it was Iger's ego—his desire to go out on top—that led him to resign his role as CEO at the worst possible time: just as businesses were shutting down due to the pandemic. It was bad enough that his hand-picked successor, Disney Parks President Bob Chapek, had to receive a baptism by fire, but Iger's refusal to ride off into the sunset compounded the problem. Just a few months after Chapek took the helm, Iger was loudly announcing his plans to help lead Disney through this troubled period. What a punk move. As could be expected, Chapek was furious. That incident caused the couple to become estranged. To be clear, we were never happy with Iger's pick of Chapek. We felt he was a capable manager, but not the leader Disney would need for its next two decades of growth. That is becoming clear in his handling of what should be a non-issue for the company. As is increasingly the case in America, employees are demanding their companies, the entities which place money in these employees' respective bank accounts, make political stands. Companies should be, by nature, apolitical. That level of corporate maturity doesn't fit into the zeitgeist of today's "pay attention to me!" society, apparently. When the Florida legislature took up a bill which would disallow schools from discussing sexual orientation in grades kindergarten through third, there was a call to arms by certain groups. The fact that Disney would not immediately denounce the bill put them in the crosshairs. In no way, shape, or form did the company come out in support of the bill, it should be noted. Employees were called upon to walk off the job and protest in front of Disney headquarters—iPhone cameras at the ready, no doubt. Chapek quickly did a mea culpa and came out against the bill. The obligatory "listening tour" and "equality task force" quickly manifested. Before this latest "incident" (which never should have been an incident at all), Chapek made some questionable moves. By picking a fight with Black Widow star Scarlett Johansson—a fight he ultimately lost—he risked alienating the Hollywood community. By centralizing budget control (P&L power) for all movie and TV deals to a key ally, he alienated high level managers in the field who previously held a good deal of such authority. By snubbing Iger instead of stroking his giant ego until he was ultimately out the door, he forced company executives to choose sides. (Iger had remained on as chairman of the board after stepping down as CEO.) None of these were wise moves by a CEO whose contract is up for renewal in eleven months. Disney will weather this latest storm, but something tells us many more are to follow. In a way we almost feel bad for Chapek, who clearly does not have Iger's charm-on-demand. Furthermore, his strategic vision for the company and its digital future make a lot of sense, but he cannot seem to make the personal connections needed to drive that point home. When Chapek was first announced by Iger as his hand-picked replacement, we sold our Disney stake. That was a wise move, and one we don't plan on reversing until the storm clouds hovering above the Magic Kingdom show signs of subsiding.

AMC $16

HYMC $1

AMC, the movie we can't pull ourselves away from, just took another odd twist: it bought a debt-laden, floundering gold mine
(18 Mar 2022) We have always rooted for underdog AMC Entertainment (AMC $16), although our support began to erode when China's Dalian Wanda Group became controlling owner, and further when CEO Adam Aron remained in his hometown of Philly to run the Leawood, Kansas-based theater chain. We can almost picture the images that popped into the head of the Harvard grad when he found out where it was headquartered. Probably cornfields and rolling tumbleweeds. But, as the likes of Radio Shack, Toys R Us, and Borders (books) began succumbing to the march of time, we really wanted AMC to survive. Of course, we all know what happened next. When the AMC apes first began moving the share price of the stock from $2 to $73, Aron had that deer-in-the-headlights look—he wasn't quite sure what to make of it. As his personal wealth began to grow exponentially thanks to this odd phenomenon, he suddenly got on the bandwagon. Imagine that. Now, he is exhibiting an ape behavior of his very own: his company just took a 22% stake in a floundering, debt-laden gold mining firm. In spite of the obvious connection between a theater chain and a gold mining company, who did the due diligence on this purchase? Shares of the company in question, Hycroft Mining Holding Corp (HYMC), were selling for about $0.30 apiece going into March, which certainly tracks the ape mentality. AMC purchased 23.4 million units, with each unit consisting of one common share of HYMC and one purchase warrant. The units were priced at $1.19 per share, and the warrants are priced around $1.07 and carry a five-year term. Certainly a good deal for Hycroft. If we can say one nice thing about the purchase, it is this: at least the mining company isn't headquartered in the metaverse. We are ambivalent about virtually every aspect of this story. On the one hand, we want AMC to thrive, as we are not fans of the short sellers, and the Dalian Wanda Group is now out of the picture. On the other hand, the company was never worth anywhere near where the shares were pushed (we still argue they are worth $5 to $10). Likewise, we would like to see Hycroft make it; but Aron is not running a special purpose acquisition company, he is supposed to be running a theater chain. The whole thing seems, as so many analysts have rightly put it, bizarre.

ROKU $112

Roku didn't miss revenue expectations by all that much, but investors fled; we've seen this movie before
(18 Feb 2022) Back in September of 2019, we wrote of streaming device maker Roku's (ROKU $112) really bad day. Shares had just fallen 20%, to $108, on the back of a scathing analyst call arguing that the company wouldn't be able to stand up to new competition from the likes of Apple, Comcast, Facebook (Portal), and the slew of new smart TVs; the latter of which which would ultimately make its device obsolete. Eighteen months after that drop, the pandemic came along and helped Roku shares skyrocket, topping out at $491. We have missed out on every one of the company's meteoric price spikes because we simply can't explain its long-term growth story. It was September of 2019 all over again this week, as Roku shares fell 22.3% in one day—closing the week at $112—after a slight revenue miss led to a slew of price target downgrades. Shares have now fallen 76.55% since the summer of 2021. There is some comedy to inject in this story. Our 2019 commentary mentioned that a major catalyst for the price drop (to $108) was Pivotal Research initiating coverage with a "Sell" rating and a $60 per share price target. What makes this so humorous is that Pivotal, following this past Friday's drop, once again lowered their rating to "Sell." This time they moved their price target on Roku shares down from $350 to $95. Now that's funny. Wouldn't it have been better to just not say anything after their 2019 commentary? Yet another reason we have never pulled the trigger on adding this company to one of our strategies—its price gyrations tend to make analysts look silly. As for the earnings report which sparked this latest price drop, Roku reported Q4 revenues of $865 million (+33% YoY), which fell short of analysts' expectations for $894 million in sales. On the bright side, the company reported net earnings of $23.7 million, representing its sixth-straight quarter of profitability. Bulls argue that Roku is no longer just a one-trick (the Roku Stick) pony. The company now has its own ad-sponsored channel to supplement a service-neutral platform which allows customers to access Netflix, Disney+, Hulu, and a host of others providers. They also argue that enormous growth potential outside of a saturated US market should provide 30%+ annual revenue growth for years to come. We remain skeptical, just as we did the last time it sat near $100 per share.

MSFT $295

Microsoft is making an enormous bet on the future of gaming, and it aims to be the dominant player
(24 Jan 2022) We are not sure how many times the world’s second largest company (by market cap), Microsoft (MSFT $295), can successfully reinvent itself, but all we can say is thank goodness Satya Nadella is at the helm rather than the “scholarly” Bill Gates. Not one to rest on its laurels or legacy products and services, the $2.3 trillion company just made its biggest purchase ever, and signaled its intent to embrace the future of gaming and the metaverse. With its $95 per share ($68.7B) purchase of Activision Blizzard (ATVI $81), Microsoft will leapfrog over a number of players to become the third-largest gaming company in the world by revenue, behind only Tencent Holdings and Sony (SONY $112). Once the deal is complete, Microsoft plans to fold as many of Activision's hugely-popular games into its Game Pass subscription, which boasts some 25 million paying subscribers. These include: World of Warcraft, Call of Duty, and Candy Crush. While the Game Pass numbers are impressive, they pale in comparison to Activision Blizzard's 400 million monthly active users; talk about a lucrative prospect list. Yes, the deal is going to face headwinds via a suddenly hostile FTC and DoJ, not to mention the always-hostile (against US firms) EU regulators, but we expect it to ultimately be approved. Sony may end up being the odd player out, as the company's main console competitor will take ownership of Playstation's most popular content, like Call of Duty. Accordingly, Sony shares plunged double digits following the announcement. Microsoft is a longstanding member of the Penn Global Leaders Club.

TTWO $143

Take-Two Interactive Software to buy Zynga in a $12.7 billion deal
(11 Jan 2022) Take-Two Interactive Software (TTWO $143), the $16 billion maker of such online games as "Grand Theft Auto" and "Red Dead Redemption," announced plans to buy mobile gaming developer Zynga (ZNGA $8) in a $12.7 billion deal. Zynga shareholders will receive $3.50 in cash and $6.36 in stock, or just shy of $10 per share. Not bad, considering Zynga shares were trading at $6 prior to the deal's announcement. The acquisition is part of a major push by Take-Two's outstanding CEO, Strauss Zelnick, to increase the company's footprint in the lucrative world of mobile gaming. According to WedBush analyst Michael Pachter, the deal should move the company's product mix from 10% mobile (gaming) to over 50% mobile, making it a major player in the space for the first time. Zynga generated $2 billion in revenue in 2020 and $2.7 billion in revenue over the trailing twelve months, yet it recorded a net loss of $90 million TTM. With the deal, Take-Two should find itself in a better position to compete with larger rivals Activision Blizzard (ATVI $63) and Electronic Arts (EA 129). While we like the move, opinions on the Street are quite mixed. We would value TTWO shares at $200, or 40% higher from here, while our favorite player in the space remains Activision Blizzard, which is probably worth $90 per share (a 43% premium). ATVI also has the most reasonable multiple, at 19.

SONY $121

DIS $151

"Spider-Man: No Way Home" just had a blockbuster weekend; now, who will take home the profits?
(21 Dec 2021) When the dust settled, it was the second-largest opening weekend for a movie in cinematic history: "Spider-Man: Now Way Home" brought in $260 million in North American ticket sales alone, placing it behind only "Avengers: Endgame" in the record books. Globally, the news was equally good, with the film grossing $601 million in ticket sales around the world. Industry experts are now expecting the film to hit the $1 billion mark by the end of Christmas weekend. As for who gets the profits, recall that Sony (SONY $121) struck a deal with Marvel back in 1998 to buy the rights to the Spider-Man character, over a decade before Disney (DIS $151) paid $4 billion for the Marvel Cinematic Universe. Through a contorted series of moves since that deal, Sony and Disney came to the agreement—at least for this film—that the latter would provide 25% of the financing in return for 25% of the film's profits, in addition to the merchandising rights. To further muddy the waters, Sony has a previous deal with Netflix (NFLX $606) still in effect, meaning "No Way Home"—or any other Spider-Man movie—probably won't be coming to Disney+ until 2023. Nonetheless, both Sony and Disney should be pleased with their respective share of the profits on this third installment of the latest trilogy. And despite the word "trilogy," a fourth "Spider-Man" is already being planned. Trying to sift through all of the legal wrangling between Sony and Disney over the years is enough to bring on a headache. Sadly, Disney is now being led by a CEO who is not, shall we say, a world-class negotiator. From an investment standpoint, we would rather own Sony, with its 18 P/E. As lovers of all things Disney, we await regime change at the firm.

DIS $162

Disney shares hit a ten-month low following an unexpectedly-rough quarter
(11 Nov 2021) Our lack of confidence in Disney's (DIS $162) new management team has been well articulated. It has been clear in our writings that we have little confidence in the company's new CEO, former parks head Bob Chapek, to lead the American icon going forward. Perhaps we received the first hard evidence of that view via the company's fiscal Q4 earnings report. The company missed on both the top and bottom lines, and it was downhill from there. While revenues grew 26% y/y for the quarter, to $18.5 billion, analysts were expecting more, especially considering the park restrictions due to covid in the same quarter of last year. Earnings per share came in a whopping 73% below estimates, at $0.37 adjusted. But the worst news, perhaps, came in the subs figure for the Disney+ streaming service. After adding 12 million new subscribers in the previous quarter, the company added just 2.1 million new subs in fiscal Q4. That is around 9.4 million fewer than analysts were expecting. The average monthly revenue per subscriber (ARPS) for Disney+ also dropped year-on-year, to $4.12, thanks to special bundle pricing for the Indonesia and India markets. Certainly, the return to the office for millions of Americans had an impact on the muted numbers, and park activity will continue to pick up, but investors gave a thumbs-down to the earnings report: Disney shares fell 7% in the following session, hitting a new ten-month low. Disney was a company we never wanted to remove from the Penn Global Leaders Club; but, like Boeing, General Electric, and McDonald's, concerns over management forced us to make the move. After the big drop, are the shares undervalued? We don't believe so. Perhaps we will take another look if they get down below their 52-week low of $134.

GME $214

Joke of the Week: GameStop headed back to the S&P 500?
(03 Sep 2021) It doesn't take much news, if any, to make a meme stock gyrate wildly in price, but the reason behind the most recent leg up in shares of GameStop (GME $214) is rather humorous. It seems a rumor began circulating that the reddit darling may be headed back to the S&P 500, the index which gave the company the boot back in 2016 due to deteriorating fundamentals. Granted, five years ago the videogame consumer retailer had dropped in size to $2.5 billion (it is now comically valued at $15 billion), but it was also generating over $9 billion in revenue and was operating in the black. Now, the company's sales are about half that amount and it hasn't turned a profit in over three years. That in itself should keep it out of the index, which requires an entrant to have positive earnings for not only the most recent quarter (GME lost $67 million), but also for the most recent four quarters in aggregate (GME lost $116 million TTM). Membership into the S&P 500 is not a matter of quant calculations; ultimately, an index committee made up of staffers at S&P Dow Jones Indices decide a company's fate. Bloggers and reddit users can speculate all they want, generally driving the price up as they do, but the odds of seeing ticker GME in the S&P 500 ever again are slim to none. Forget the term "new paradigm" or the theory that new, young investors will keep the meme stocks supported; we heard the same false narratives back in 1999. Fundamentals always matter in the long run, and the correction to these money-burning companies will eventually arrive. Diamonds may be forged by fire and high pressure, but it will be entertaining to watch how "diamond hands" hold up when these two conditions come calling.

MSFT $259

GME $235

Yet another reason to avoid GameStop shares: Microsoft is about to make a major gaming push
(14 Jun 2021) Not that true investors needed yet another reason to avoid a stock that is overvalued by 90%, but Microsoft's (MSFT $259) announcement that it will bring its Xbox games directly to smart TVs reveals just how antiquated bricks and mortar video game retailers—namely, GameStop (GME $235)—are becoming. Microsoft CEO Satya Nadella's strategy is straightforward: he wants gamers to be able to go from device to device and enjoy an incredible gaming experience, without the need to buy the latest—often outrageously-priced and sold out—gaming equipment. That means developing the cloud-based infrastructure required to efficiently stream Xbox games on computers, hand-held devices, and TVs. The company is already in talks with smart TV makers and streaming device providers like Roku (ROKU $347) to bring the strategy to fruition. The ultimate goal for Microsoft is to increase its Game Pass subscription business, which currently has about 23 million users, giving the company another steady stream of monthly income. If Nadella can replicate the incredible success of Microsoft 365, a subscription-based service for the company's software suite, it will continue to gobble up market share in the world of online gaming. And that spells trouble for an old video game retailer trying to transform itself into a digital player. We may be dedicated Apple users, but Microsoft remains one of our strongest conviction holdings in the Penn Global Leaders Club. We also happen to be one of the 240 million or so users of Microsoft Office 365, paying the company a steady stream of recurring monthly income so we can operate Microsoft software on our MacBook Pros. We may curse our lonely PC on a weekly basis (some software still doesn't play nice with macOS), but Satya Nadella is one of the best CEOs in corporate America. As for GameStop, we are still waiting for incoming chairman Ryan Cohen's great strategic turnaround plan for GameStop (not).

AMZN $3,245

Amazon poised to make its second-largest acquisition ever: a storied movie studio
(25 May 2021) Formed in 1924, MGM dominated Hollywood for over a generation. While the studio has had a number of interesting owners over the past century, none have been quite like its next probable owner: Internet retailer Amazon (AMZN $3,245). Back in 2017, when reports surfaced that Amazon was about to buy food retailer Whole Foods for $13.7 billion, there were many of doubters. We believed the move was brilliant, and that opinion has been borne out in an impressively short period of time (Whole Foods now delivers food to the doorstep of Prime members with Amazon-like efficiency). The Whole Foods acquisition remains the company's largest to date; but, with its reported $9 billion price tag, MGM will easily hold the second position. Amazon has been investing heavily in its streaming service, recently inking a deal with the NFL to stream Thursday night games for around $1.2 billion per year. The recent merger of AT&T's Warner Media with Discovery may well have been the catalyst for MGM and the retailer to get this deal inked. It is interesting to note that MGM's former CEO, Gary Barber, was fired by the board after he reportedly engaged in talks with Apple surrounding a possible $6 billion deal. So, with a cost 50% higher than the purported range during the Apple talks, is Amazon overpaying for this asset? Probably. But in the end, they will make the premium look like chump change. Amazon is a long-standing member of the Penn Global Leaders Club, and we have a fair value on the shares of around $4,250. The most concerning aspect of the company's growth trajectory revolves around government intervention. The company already had a target on its back from an antitrust standpoint; this will only add fuel to the fire of those who wish to see it forcibly broken up.

T $33

DISCA $38

AT&T and Discovery to combine media assets, creating a new entertainment behemoth (i.e., AT&T admits defeat)
(17 May 2021) While we have owned telecom services giant AT&T (T $33) for years, either in the Penn Global Leaders Club or—most recently—in the Strategic Income Portfolio (it carries a 6.5% dividend yield), we've had a strong sense as of late that the company is not quite sure of its own strategic vision. After all, T bought DirecTV in 2015 for $67 billion (with debt) only to spin it off six years later for one-fourth of that value; and it paid $85 billion to acquire Time Warner a few years after the DirecTV deal only, now, to spin that company off for $43 billion. Someone needs to explain the concept of "buy low and sell high" to the AT&T board. With respect to the latter, AT&T and Discovery (DISCA $38) have announced plans to combine their media assets, which include the likes of HBO Max, CNN, TBS, Warner Brothers, TLC, and HGTV, into a new publicly-traded company—name to be determined. T shareholders will own 71% of the new entity, with Discovery shareholders getting the remaining 29%. Well-known media executive David Zaslav, current CEO of Discovery, will lead the new business. While Zaslav envisions the new firm becoming the dominant streaming service in the world (Netflix might disagree with that boast), here's what won't be said: this move represents a 180-degree turn for AT&T, which is now throwing in the towel on its lofty media aspirations. Going forward, the company will focus on its 5G buildout and its broadband service. The $43 billion will certainly help the firm pay for the $23 billion worth of 5G spectrum it committed to buying in its bidding war with Verizon (VZ $59). As for that 6.5% dividend yield which has kept many investors around, it will almost certainly be cut when this deal closes. AT&T popped over 4% on news of this spinoff, jumping to over $33 per share. We know the dividend is going to get cut, and we question how much growth can be squeezed out of the wireless and broadband businesses—considering the fierce competition—over the coming years. We also feel like we got suckered into believing the company's line about creating a new media empire. We are placing a stop on our T position at $32. In short, we have lost almost all confidence in T's management team. (Update: T changed directions intra-day, went below $32, and we jettisoned from the SIP.)

HAS

RBLX

Physical games meet digital gaming as Roblox and Hasbro team up
(13 Apr 2021) Last month we wrote about the exciting new (to the markets) online entertainment platform Roblox (RBLX $83), which allows users to code their own games and share them for other gamers to play—often earning a little profit in the process. One 98-year-old gaming company which few associate with technology, Hasbro (HAS $99), is hoping to breathe some new life into its lineup by joining forces with the online platform. Specifically, the toy and game company's Nerf and Monopoly lines will soon include codes for Roblox players to redeem for virtual items. Additionally, a number of Roblox games will be created around the iconic products. For example, buy a Nerf Blaster and receive a code to score an online Nerf Blaster to use in games such as Jailbreak and Arsenal. A new version of Monopoly, to be available later this year, will include Roblox characters and come with codes to acquire other online items. We're not sure which company came up with the brainstorm, but if it was Hasbro's idea, it is the latest in a series of smart moves. Recall that five years ago the company scored a major coup in taking the Disney line away from Mattel (MAT $20) after a sixty year relationship was fractured. For an old-school toy company living in a digital world, Hasbro continues to impress. The ten-year chart of Hasbro vs Mattel highlights the great struggle between the two iconic brands. Some analysts still believe that $14 billion Hasbro should acquire Mattel, half its size. There is little doubt that the former is leading the latter in digital acumen; plus, who wouldn't want to own the coveted Barbie and American Girl lines?

RBLX

Roblox is not just another gaming stock, but should you invest?
(18 Mar 2021) Admittedly, online gaming stocks don't typically get us very excited from an investment standpoint. Roblox (RBLX $67), however, may just prove to be the exception. Granted, the company came out of the gate with a crazy valuation—it lost $253M on a paltry $924M in revenues in 2020, yet the GameStop crowd made it a $40 billion company by the end of its first day of trading. Want some perspective on that? Ford (F) has a market cap of $49 billion. This particular online entertainment platform, however, has a very unique story. More than just a place to play around (over half of the company's 33 million daily users are 13 or younger), users actually program games and play games created by other users. And it doesn't take a degree in programming to participate: Roblox offers even the youngest of users online tutorials to teach them how to create. "We offer free resources to teach students of all ages real coding, game design, digital civility, and entrepreneurial skills," reads a lead-in to one of the firm's education pages. Game developers on the platform earn "robux," digital currency which can be converted to cold, hard cash. Over 1,250 developers/gamers earned at least $10,000 in robux last year, with several hundred earning over $100,000. Two British teens, who produced their first Roblox game when they were just 13, made a splash in the BBC when it was reported that they paid off their parents mortgage using converted robux. It doesn't take much to get a large percentage of the younger generation hooked on gaming; imagine what happens when the potential to make money is added to the mix. We also appreciate the fact that these young developers are actually learning analytical skills along the way. The shares may seem pricey now (they have dropped back from a high of $79.10), but the company is for real, and it comes with a unique value proposition for investors—unlike GameStop. There is going to be a substantial tech pullback this year, and we can expect the gaming stocks which are not generating a profit to get hit hard. Where would a decent buy point for RBLX shares reside? If they drop back to $60 or lower, and they fit the respective portfolio mix, it would be wise to take a deeper dive and considering picking some up. In the meantime, why not "sign up and start having fun?" You might even earn some robux while waiting for the shares to become more attractive.

"Wonder Woman 1984" had an abysmal opening weekend, but all the news was not bad
(28 Dec 2020) Three years ago, the first new installment of the "Wonder Woman" franchise brought in over $400 million domestically, with one-quarter of that amount coming from its opening weekend. Add another $400 million in international ticket sales, and one could proclaim the $150 million film a rousing financial success. Based on those metrics, the second installment's $16.7 US draw in its opening weekend does not portend good things ahead. True, another $36 million was pulled in from around the world, but odds are strong that the film—with its $200 million budget—will struggle to become cash flow positive. But all of the news is not bad. The pandemic has forced movie studios to get creative with distribution, which is exactly what AT&T's (T $29) Warner Bros. Pictures did with this film. Expecting light theater attendance from a germ-wary public, the studio also debuted the movie on Christmas Day through its HBO Max streaming platform. Viewership was record-shattering. Granted, subscribers did not have to pay an extra fee to watch the flick, but the move thrilled current members and led to increased December subs—there were over 550,000 downloads of the HBO app over the weekend. The tactic worked so well that Warner has already decided to rapidly develop the third "Wonder Woman" installment. Vaccine or not, any guess as to whether or not that one will be simultaneously streamed as well? Despite its fat dividend yield, AT&T has certainly been a disappointment in the Penn Strategic Income Portfolio. However, we remain bullish on its filmmaking and distribution channels—to include HBO Max. Unfortunately, our bullishness does not extend to the big movie theater chains, such as AMC Entertainment (AMC $2) and Cinemark Holdings (CNK $17). To be sure, home-bound Americans will rush back to the theaters once vaccines are readily available, but these cash-strapped chains will find themselves even more beholden to the parent companies of the production studios who are betting a lot on their competing streaming services.

Theater chains get pummeled after surprise Warner Brothers announcement
(04 Dec 2020) AMC Entertainment (AMC $4) was off 20%, as was Cinemark Holdings (CNK $13). Imax (IMAX $14) fared a little bit better, dropping just 7%. After the nightmare of having their theaters closed due to the pandemic, the news from AT&T's (T $29) Warner Brothers unit was quite unwelcome: the filmmaker would release all of its 2021 movies simultaneously on both the big screen and via streaming through WarnerMedia's HBO Max. In other words, zero exclusivity for the big movie chains. The relationship between the movie houses and the film studios was already strained. Back in April we reported on AMC's ban of Comcast's (CMCSA $52) Universal Pictures' films after the latter announced it would also pull the simultaneous release stunt. This "breaking of the theatrical window" is terrible news for an industry already struggling to stay afloat. WarnerMedia CEO Jason Kilar made the rather cocky comment that the theater chains need to "take a breather," adding that the new releases will be pulled from HBO Max after thirty days. His comments only added fuel to the fire. The movie chains are in somewhat the same position as many shopping malls throughout America. Dealing with decreased foot traffic due to the online shopping renaissance, these malls were forced to reinvent themselves as "experience destinations." The theaters are slowly adopting this philosophy, with AMC experimenting with NFL games on the big screen to attract fans. At $4 per share, AMC may look attractive, but we wouldn't be in a hurry to invest—there is still scant evidence that the darkest days are behind these companies.

Quibi

In blow to Katzenberg and Whitman, Quibi is already being shut down
(20 Oct 2020) Based on some of their questionable business decisions in the past, our respect for Jeffrey Katzenberg and Meg Whitman was already pretty low coming into this most recent foray; now it is virtually nonexistent. It was just this past April when Whitman, the former CEO of eBay and HP, came on-air to brag about her and Katzenberg's new streaming service known as Quibi. Not only wouldn't the pandemic hurt the new service, it may even enhance its value, claimed Whitman. Now, six months and billions of dollars later, Quibi is shutting down. Katzenberg cited the pandemic as one of the major factors in its demise. Wow. All of the great ideas out there waiting to be funded, and this duo was actually able to attract $2 billion for a questionable business proposition (Quibi's unique value proposition was that it would feature short-form news and entertainment videos of ten minutes or less—yawn). The power of name recognition. We've said it before and we'll say it again: There are so many mediocre to downright bad CEOs out there that it boggles the mind. Before buying shares in a company, investors need to perform some level of due diligence on that company's management team.

DIS

Disney's restructuring plans do not assuage our concerns

(14 Oct 2020) There really are no "buy and forget" companies out there anymore. The idea of owning a static group of blue chip stocks to hold for the long term is a relic of the past. Take three of our historic favorites: General Electric (GE), Boeing (BA), and Walt Disney (DIS). There was a time not that long ago when we couldn't imagine not owning these three juggernauts in our core portfolio. It's amazing how complacency and poor management can ravage a company virtually overnight.

While that condition has certainly gripped the former two names, what about Disney? We wrote disparagingly about Bob Iger's decision to step down after he assured investors he would remain on as CEO at least until 2021. Then we found out that Disney employees (who are now 28,000 fewer in number) had to hear the news from an interview Iger gave to a business network. Not cool, Bob. Taking over Iger's role would be Bob Chapek, the former head of Disney's parks. Based on our underwhelming early view of Chapek and Iger's cavalier attitude toward employees, we took our huge DIS profits earlier this year when we closed our position.

Now comes word that Disney will make a major structural shift in its operations. With an eye on direct-to-consumer, the $235 billion firm will create a new unit focused on the marketing and distribution of content, separating that function from the content creation unit. It is clear that the move is designed to foster migration away from the company's 100-year-old relationship with movie theaters and toward the direct-to-consumer model. Perhaps the first test of this new unit was the decision to charge Disney+ users $30 to stream the production of Mulan. Not a great first step. There is no doubt that Disney+ was a brilliant move; one that helped the company maintain critical revenue while the parks were being shuttered due to the pandemic. That being said, we are still not sold on the new leadership team and still question the strategic vision of the company going forward.

In fairness, it isn't the company's fault that Disneyland in California remains closed—that condition is the result of an inept government in Sacramento. We continue to watch DIS stock closely, as there will come a time, hopefully by the end of 2021, when the company's major revenue drivers—the parks—are back at full capacity.

DIS

A&E Network loses half its viewers after dropping Live PD
(01 Aug 2020) The year started off on a strong note for cable TV network A&E Entertainment, a Walt Disney (DIS $117) unit. Viewership for Q1 was up 4% from the prior year, a metric built almost solely on the success of hit reality show "Live PD." Then came the renewed racial strife and a decision by A&E to cancel not only that show, but several ancillary programs such as "The First 48" and "Court Cam." From a ratings standpoint, that decision was disastrous: prime-time viewership dropped 49%. And the pain will carry over to the company's financials, as the shows brought in roughly $300 million in advertising dollars in 2019, and had already generated nearly $100 million in ad spends in Q1. The "Live PD Nation" fan base is up in arms over the cancellation and is demanding the network revive the series', but it is highly probable that Disney won't do the admirable thing and stand up to the heat that move would bring. We closed out our Disney position in the Penn Global Leaders Club in mid-July at $119.43.

AMC

CMCSA

AMC, in fight for its life, battles Universal over streaming spat
(29 Apr 2020) Leawood, Kansas-based AMC Entertainment (AMC $2-$4-$15), with its 1,004 theaters and 11,041 screens, has a message for Universal Pictures: your movies are no longer welcome at our establishment. What led to the all-out war against the motion picture division of Comcast (CMCSA)? The studio's decision to simultaneously release movies in the theaters and to streaming services alike. This so-called breaking of the "theatrical window" came to a head when Universal, armed with its new Trolls World Tour movie and no screens to show it on thanks to the pandemic, decided to break custom and release the movie directly to the streaming services. The icing on the cake was when studio executives made it clear that this would be the practice going forward. Enraged, AMC CEO Adam Aron called the move categorically unacceptable, and announced the ban of all Universal movies until the new policy is changed. AMC, meanwhile, is a shell of its former self. The company, now controlled by China's Dalian Wanda Group, has seen its share price drop from $35 three years ago to under $5 today. With its $450M market cap, we still believe the company is a good takeover candidate.

DIS

A shocking change in the Disney C-suite: Iger is leaving the CEO role. (26 Feb 2020) We were relieved to hear Walt Disney (DIS $107-$123-$153) CEO Bob Iger state, late last year, that he wouldn't be retiring until 2021. We are up massively in our Disney position within the Penn Global Leaders Club, and Iger can take responsibility for the lion's share of the stock's move. That is why we were shocked to hear that Iger is actually stepping out of the CEO role, effective immediately. Technically, he is not leaving the company until 2021, but if he knew he would be stepping aside, he should have made that clear. There are reports that Iger recently told a journalist that he "didn't want to run the company anymore." Well and good, but give us some advance notice. We were not alone in our surprise—senior executives at the media and entertainment giant were apparently caught off guard as well. With Iger moving into the executive chairman role, we can envision one of two not-very-positive scenarios: either he will overshadow the new CEO—at least within the C-suite—and their relationship will become strained, or he will simply be a figurehead. Neither alternative seems very palatable. The new CEO, Bob Chapek, will report to both Iger and the board of directors. Uh oh. Hello, scenario one? As the recent head of parks and resorts, Chapek undoubtedly knows that side of the business, but what about the company's enormous strategic move into the streaming business? Chapek beat out, in fact, Disney's head of that up-and-coming service, Kevin Mayer. Disney employees throughout the company didn't get a memo about the change until after Iger and Chapek gave a joint conference call to analysts and an interview on a major business network. We have to wonder how that went over within the walls of the company. All of this is very uncharacteristic for the Disney we revered under the control of the skilled Iger. We will have to wait and see how the story unfolds going forward. While we have no plans to sell our Disney shares from the Global Leaders Club, we have put the company on our watch list for possible action. Management matters, and we just don't yet know enough about Chapek, or what internal struggles might ensue over the coming year or two.

DIS

Users have already downloaded Disney+ on their mobile devices an incredible 22 million times. (11 Dec 2019) We knew it was going to be an enormous success, but The Walt Disney Company's (DIS $100-$148-$153) new Disney+ streaming service has already surpassed the rosiest of expectations. Apptopia, a mobile app research firm, reported that the Disney+ app has already been downloaded 22 million times on mobile devices, making it—easily—the most popular app in both the Apple and Google app stores. Keep in mind that Apptopia does not monitor downloads on smart TVs, devices by the likes of Roku and Apple, or desktop browsers. Disney announced that it had 22 million such signups on day one, crashing the system. While Verizon (VZ) is giving its customers a one-year free membership to the streaming service, and those who download the app have seven days of free viewing, Apptopia noted that Disney has already made $20 million in revenue from its app—which does not even include the cut given to app stores. The icing on the cake? Google's annual search trend report, which came out this week, listed "Disney+" as the top trending search of 2019. (Disney holds position #12/40 within the Penn Global Leaders Club.) Netflix (NFLX) has been the company we love to hate for the past several years. We expect the company's 95 P/E ratio isn't going to cut it going forward, based on the impressive new entrants.

DIS

Penn member Disney jumps 8% after record-breaking first day for new streaming service. (14 Nov 2019) A lot of pundits had doubts about Walt Disney's (DIS $100-$148-$150) ability to become a viable combatant in the streaming wars, taking on the likes of well-established Netflix (NFLX). We didn't. Now, the facts are in: despite an overwhelmed system, the company announced that ten million new subscribers signed up for Disney+ on day one. Let's put that into context: Netflix, the undisputed leader in streaming, which has been around for two decades (how time flies), has about 60 million US subscribers. So, on day one, Disney+ is about one-sixth the size of Netflix, at least domestically. And let's not forget that Netflix is a one-trick pony, while Disney had $70 billion in revenue last year from its theme parks, media network (like its ABC unit), studio units (Lucasfilm, Pixar, Marvel), and character licenses. Disney CEO Bob Iger expects the new streaming service to have between 60 million and 90 million subs by the end of its fiscal 2024. Considering this week's launch was only in the US, Canada, and the Netherlands, that shouldn't be a problem. Netflix shares fell 2.95% on the day. With the host of new entrants, owners of Netflix shares should consider taking their profits off the table. Meanwhile, we see green pastures ahead for Disney, which holds position #12 (of 40) within the Penn Global Leaders Club.

DIS

Disney jumps another 6% after yet another great earnings report. (08 Nov 2019) Shares of Penn member Walt Disney (DIS $100-$141-$147) were trading up over 6% following an earnings beat for the company's fiscal fourth quarter. Revenues came in at $19.1 billion and the company had adjusted earnings per share of $1.07—both better than what analysts had projected. Studio Entertainment revenues, which now include the acquired 21st Century Fox assets, were up an impressive 52% from the same quarter last year, helped by such blockbusters as The Lion King, Aladdin, and Toy Story 4. That growth pales in comparison, however, to quarterly YoY revenue generated by the streaming segment (which now includes Hulu), which rose from $825 million to $3.4 billion. And these impressive numbers serve as a beautiful backdrop to the launch of Disney+, the company's streaming service which will ramp up in the US next Tuesday. As if Disney+ will need any help to garner subscribers at its $6.99 per month rate, the company announced a new deal with Amazon (AMZN) to carry the service on its Fire TV devices. Disney holds Position #12 in the Penn Global Leaders Club. Shares bottomed out on Christmas Eve last year, at $100.35, and have climbed 41% since.

South
Park

South Park is closing in on half-a-billion dollar streaming deal. (21 Oct 2019) $500 million seems to be the going rate for the purchase of hit TV reruns by streaming services. Friends, The Office, Seinfeld, and now South Park are all very close to that range of what the highest bidders in the frenetic streaming wars are willing to pay to win exclusive airing rights. As for the long-running South Park, which first aired in 1997, Disney-owned Hulu paid $192 million to Viacom (VIA) and the show's creators, Trey Parker and Matt Stone, just four years ago in what now appears to be a bargain-basement price for the episodes. Now that Hulu's deal is close to its expiration date, up to six media outlets are set to put bids in for the show, which recently aired its 300th episode. Half of the final amount will go to Comedy Central parent Viacom, with the other half going to Parker and Stone. The one major new entrant which probably won't be putting in a bid? Apple (AAPL) is expected to pass, as South Park has been banned in China after poking fun at the communist regime (pretty much proving the point of the episode). Apple doesn't want to anger the dictatorial regime of one of its largest iPhone markets. If anyone in the media and entertainment industry deserves this kind of jack it is Trey Parker and Matt Stone. The two have thumbed their noses at political correctness and the Hollywood elite from the start. Bravo.

DIS

NFLX

Streaming wars update: Disney will ban Netflix ads from all channels except ESPN. (07 Oct 2019) With The Walt Disney Co (DIS $100-$130-$147) gearing up for the launch of its Disney+ streaming service next month, reports are swirling that the media giant will no longer allow Netflix (NFLX) ads to be aired on any of its TV networks except ESPN. That means you won't be seeing any ads for the top streaming service on ABC or Freform, two Disney-owned entities. In an effort to get ahead of the slew of new streaming services coming online soon, Netflix spent nearly $2 billion on advertising over the trailing twelve months. In a separate but related move, Disney CEO Bob Iger resigned from Apple's (AAPL) board of directors last month on the very day that Apple TV+ was announced. Disney+ will cost consumers $6.99 per month, while Apple low-balled the field with a $5 per month subscription fee for its new service, which is set to debut the 1st of November. Here's what we see happening: All three of these companies will own fat slices of the subscriber pie, while Comcast's (CMCSA) "Peacock" and AT&T's (T) HBO Max will struggle to gain traction. Considering AT&T's DirecTV problems, that company can ill-afford another major flop. While we own both Disney and Apple, we have steered clear of Netflix since the competition began flooding into the space. This past July, NFLX shares were selling for $386; they now sit at $273. While we own AT&T in the Strategic Income Portfolio (and it has performed well since added), we are placing it on the watch list due to its growing list of potential problems, to include a pending management shakeup.

ROKU

Roku falls nearly 20% in one day after scathing analyst call. (23 Sep 2019) It would take more than one hand to count the number of times we questioned not owning streaming device-maker Roku (ROKU $26-$108-$177) in any of our strategies following double-digit pops in its share price. Last Friday was not one of those days. Shares of Roku fell nearly 20% after Pivotal Research initiated coverage on the $12 billion company with a Sell rating and a $60/share target price—a 45% downside from where it now trades. The analyst makes the argument that, with all the new entrants, similar streaming devices or capabilities will be offered free to customers. Comcast (CMCSA), for example, will give Peacock (its new streaming service) subscribers a free device, while Facebook (FB) announced a new Portal box which will allow direct streaming from TV sets. While there are still plenty of Roku bulls who point to the company's overseas growth potential, we still see a company which has never turned an annual profit. The gravy train for investors may be coming to an end. There is no arguing the fact that early Roku investors have made a lot of money by owning the stock, but without any positive earnings metrics, an investor needs to be able to make the case for a company's unique value proposition moving forward. Otherwise, the investment breaks down into a simple gamble, and we would rather be sipping a drink at the craps table.

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.

CMCSA

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.

NFLX

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.

DIS

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.

DIS

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.

DIS

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.

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).

DIS

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.

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.

NFLX

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.

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.

DIS

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.

AAPL

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.

DIS

CMCSA

FOX

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.

SIRI

P

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.

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.

NFLX

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.

DIS

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.

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.

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.

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.

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.

FIFA

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).

NFL

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?

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.)

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.

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.

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.

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.

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.

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.

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.

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.)

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

(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.

(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.

(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.

(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.

(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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