The Government Accountability Office dinged the FCC in report released today for failing to collect enough information to judge TV station joint-operation deals. The FCC wants to tighten restrictions to keep stations from combining ad sales or newsgathering resources. Critics of the deals say that broadcasters often use them to do an end-run around rules that bar a company from owning multiple stations in a market, thereby weakening competition and narrowing the range of local voices. Station owners counter that deals help by making it possible for financially weak stations to stay in business.
But the FCC has “not collected data or completed a review to understand how broadcaster agreements are being used and the potential impacts with respect to its media ownership rules and the corresponding policy goals of competition, localism, and diversity,” the GAO says. Read More »
The studio just announced the changes one day ahead of its Q2 earnings — and after watching its shares lose 35.4% of their value since the beginning of the year. “As DreamWorks [Animation] grows, we are focusing on creating a strong management structure that has the expertise and capacity to best serve the changing needs of our company,” CEO Jeffrey Katzenberg says. Mark Zoradi was president of Disney’s Motion Picture Group overseeing marketing and distribution until 2010. He also helped to launch Walt Disney Home Entertainment and The Disney Channel and served as General Manager of Buena Vista Television. He says that he’s “enthusiastic about the opportunity to join the talented DreamWorks team at a time of remarkable expansion and growth for the company” and plans to help “build and expand their reach with new businesses and venues.”
Related: Where The Growth Business Is For Jeffrey Katzenberg: Online Video
In the process, DWA elevated Ann Daly — who had been COO since it went public in 2004 — to president. Lew Coleman, who had been president, now becomes Vice-Chairman, and holds on to his other titles as Chief Financial Officer and Acting Chief Accounting Officer.
Related: DreamWorks Animation Shares Fall Again On ‘Dragon 2′ Box Office
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Time Warner CEO Jeff Bewkes just won an indirect endorsement for his argument that his shareholders would be better off letting him lead the company instead of accepting a cash and stock offer from Rupert Murdoch. Without a deal, Time Warner shares should hit $95 within a year, and there’s “a credible stand-alone bull case valuation of $105,” Morgan Stanley Research’s Benjamin Swinburne says today. The numbers are important: Time Warner rejected Murdoch’s $85 a share bid, and many analysts say that he could go as high as $105 before choking on the cost. That probably wouldn’t impress shareholders if they believe that they’ll see that price without the risk that would come with such a big deal.
Swinburne’s analysis begins by accepting Bewkes’ forecast that cable and satellite company payments to Time Warner’s Turner networks will grow at double digit rates each year over the next five years. “Given 7 out of the top 10 distributors have already renewed (as of early ’14), we see limited downside risk to [the] guidance,” the analyst says. Those payments now account for 20% of Time Warner revenues.
HBO also could grow subscriptions and revenues by tinkering with its pricing and deals with pay TV distributors. It has about 30M domestic subscribers, but the below-average penetration rates at Time Warner Cable and Dish Network suggest that there are “key opportunities for HBO to drive further revenue-generating subscriber growth.” Along that line, Bloomberg reported today that HBO is considering expanding a test with Comcast, introduced last year, that offers broadband service, basic TV, and HBO … Read More »
The risks of a deal are becoming more apparent as 21st Century Fox CEO Rupert Murdoch prepares to sweeten the $80B offer that Time Warner rejected, MoffettNathanson Research’s Michael Nathanson observes in a thought-provoking report this morning. With memories of the AOL Time Warner debacle still fresh in their minds, Time Warner execs won’t accept a non-cash bid “unless it is wildly generous,” the analyst says. He hopes Fox draws the line at $100 a share, up from $85, but notes that Murdoch could go to $105 without losing his company’s investment-grade debt rating. Yet if he prevails at that price, then Fox would have little margin for error. And Nathanson warns that mega-mergers “are more complicated than the simplicity of adding two Excel spreadsheet models together.”
The bottom line is that Fox’s stock “is in purgatory”as long as Murdoch’s interest in Time Warner remains alive. And the legendary dealmaker may not be able to pull it off. “After initially believing that this deal gets done at $100 per share, we have our doubts that it will be done at all,” Nathanson says. Among his concerns:
What’s up with Chase Carey? The Fox COO is highly regarded on the Street, but his contract expires in mid-2016. Some shareholders “are nervous that this deal — and the value of [Fox's] stock — will fall short of expectations if Chase was to leave.” Read More »
UPDATED 2:55PM: On the day its first smartphone hit the market, Amazon is smarting from a hit it took from investors. The company’s shares plunged a wince-inducing 9.7% today in the wake of Thursday’s disappointing Q2 earning report — losing about $15 billion in net worth in just a few hours. It was the worst performer on the S&P 500, which fell 9.6% today, and Amazon’s worst stock day since October 2011. Shares closed at 324.01, rebounding from an intraday low of 314.76, but continued lower in after-hours trading. UBS analyst Eric Sheridan told CNBC that investors going forward will be looking for a “continuation of growth in [Amazon's] media business and stickiness of its Prime base.” Bank of America Merrill Lynch analyst Justin Pope said in a research note: “With growth not accelerating, Amazon could become a show-me stock.”
PREVIOUSLY July 24: Shares are down 10.2% in post market trading after the e-retailer reported a far bigger Q2 loss than investors expected. Amazon lost $126M, up from a $7M loss in the period last year, on revenues of $19.3B, +23.2%. The top line was right on target with analysts’ consensus forecast. But the loss at 27 cents a share far exceeded the 15 cent loss the Street anticipated. What’s more, Amazon warns that it could lose as much as $810M on an operating basis in Q3, up from last year’s $25M loss.
The shortfall comes from Amazon’s big investments in new products and services, including video. The company says … Read More »
Time Warner CEO Jeff Bewkes has a problem. Fox CEO Rupert Murdoch is preparing to sweeten his offer for the owner of Warner Bros, CNN, and HBO after it rejected an $80B cash-and-stock proposal last month. And Bewkes, who says he wants to keep Time Warner independent, has few takeover defenses. What can he do? Here are a few of the leading options that Time Warner execs and their advisors at Citigroup are weighing.
Combine with CBS: This would make Time Warner toxic for Fox: The FCC would not allow Murdoch to control two of the four biggest networks, and two of the largest TV station groups with overlaps in the nation’s largest markets.
And the business logic of a Time Warner-CBS combination is compelling. CBS chief Les Moonves would like to diversify his company to make it less dependent on domestic TV advertising. (He has already said that he’d like to buy CNN if Fox prevails with Time Warner and puts the news channel on the block.) Moonves also has made it clear that he’d like to play a bigger role in movies — his CBS Films appears to be struggling to figure out its identity. CBS could address these concerns by blending with Time Warner’s cable channels and movie studio.
The chief obstacle is that CBS is controlled by Sumner Redstone, who also owns Viacom. He hasn’t wanted to give up either property, and some bankers believe he’d prefer to … Read More »
Coca-Cola and merchandisers have been appropriating Santa Claus for years. Now DreamWorks Animation hopes to put its stamp on the (SPOILER ALERT) myth by having Shrek introduce kids to St. Nick when they visit him at shopping malls featuring the studio’s DreamPlace location based experience. DWA just disclosed some details about the attraction to begin this holiday season — part of its effort to boost sales of character-related toys, clothing, and other licensed merchandise — which CEO Jeffrey Katzenberg unveiled last month at the industry’s Licensing Expo.
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Mark Zuckerberg opens Facebook‘s Q2 earnings release with the most generic comment I’ve ever seen from a CEO in a document that companies typically use to hype themselves. “We had a good second quarter,” he says. “Our community has continued to grow, and we see a lot of opportunity ahead as we connect the rest of the world.” The numbers speak louder, I guess: Facebook’s net income of $788M is up 138% vs the period last year on revenues of $2.91B, +60.5%. That beat the $2.81B that analysts expected. Adjusted earnings at 42 cents a share also topped expectations for 32 cents.
The results sent Facebook shares on a ride in post-market trading, up 4%+ after an initial drop. The stock would hit a new high if the increase holds up tomorrow during the trading day. Read More »
Cowen and Co’s Doug Creutz advises investors today to “call a ‘time out’” on Big Media stocks in a break with the prevailing view on Wall Street that an upcoming round of mergers could help companies, or at least not hurt them. He fears that Fox’s bid for Time Warner will lead to “a land grab for content assets.” And companies that need cash for acquisitions probably won’t continue to repurchase shares and pay big dividends — strategies that have helped to keep investors interested in traditional media. The analyst says he now takes a ”more negative view” of Big Media, and downgraded Fox (to underperform from outperform), Viacom, and Time Warner (both to market perform from outperform). “Historically, this group has been uninvestable when M&A activity has been significant.”
Creutz observes that when Fox CEO Rupert Murdoch has had dealmaking on his mind “the shares of his company have underperformed the market.” And the analyst says he’s “not a believer that a combination with Time Warner would create significant value.”
It’s too risky to bet on traditional media, Creutz says, especially at a time when their stock prices are “near multi-year highs.” The advertising slow down in Q2 “feels like it was a little worse” than previous soft patches. It could become “a more significant negative” if the economy weakens. The pay TV cash cow could be threatened as “new over the top [Internet] distribution appears to be opening the door for insurgent content providers to potentially take market share.” And Creutz notes that the “dismal” … Read More »
The results should keep investors busy until Apple holds its quarterly conference call where it might drop a hint about its new product plans. Apple appears to have done well in the three months ending in June with net income of $7.75B, + 12.3% vs the period last year, on revenues of $37.43B, +6%. The top line was a tad shy of the $37.99B that analysts expected. But earnings at $1.28 a share beat forecasts for $1.23.
The company sold 35.2M iPhones in the quarter, +12.7% from last year. BGC analyst Colin Gillis anticipated just 31.8M. But iPads were down 9.2% to 13.3M. The number of Mac sales increased 17.6% to 4.4M. iPod sales fell nearly 36% to 2.9M.
“Our record June quarter revenue was fueled by strong sales of iPhone and Mac and the continued growth of revenue from the Apple ecosystem, driving our highest EPS growth rate in seven quarters,” CEO Tim Cooks says. “We are incredibly excited about the upcoming releases of iOS 8 and OS X Yosemite, as well as other new products and services that we can’t wait to introduce.”
The stock price fell 4.6% to $431.09 even though the Q2 earnings reported last night were largely in line with analyst expectations, subscriptions were up impressively, and management forecasts were upbeat. What gives?
The simplest explanation is that Netflix always is susceptible to downturns because its shares are so expensive, reflecting investor optimism about its prospects. They trade for about 128 times the company’s earnings — a stark contrast to more stable media giants such as Fox, Comcast, Time Warner and CBS whose stock prices equal about 20 times earnings.
Related: Netflix Says It Sees Little Change If Fox Acquires Time Warner
And Netflix bears found some reasons to be skittish. The company will have to boost spending to secure the content it will need to serve new markets including Germany, France, Austria, Switzerland, Belgium, and Luxembourg — and that could put pressure on earnings “as soon as next year,” says Wedbush Securities’ Michael Pachter. He’s concerned about the decline in DVD-by-mail rental subscribers; they account for “half of all operating profit for the company.” The analyst also says that Amazon’s recent streaming deal with HBO suggests that “a stand-alone subscription plan is coming” that would make the e-retailer a more potent video competitor.
Related: Wall Street Wonders: Will HBO’s Deal With Amazon Change The Online Video Game?
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The average consumer outlay for tickets, from the National Association of Theatre Owners, is down 0.6% vs the same three-month period in 2013 — mostly due to a drop in attendance for premium-priced 3D and large-screen films. Box office for the quarter was down 6.6% as tentpole films including The Amazing Spider-Man 2, A Million Ways To Die In the West, and Captain America: The Winter Solider fell short of some analysts’ expectations. Janney Capital Markets’ Tony Wible, for one, noted that in Q2 “64% of tentpoles underperformed [his forecasts] and offset stronger performance by Maleficent, Transformers, 22 Jump Street and Godzilla.” The $8.33 average price in Q2 was up 4.6% vs the first three months of the year, a period when studios typically release few 3D films. Consumers paid an average of $8.13 for a movie ticket in 2013.
NBC and cable networks led by USA “were trading at a 20% discount to our competition” in the cost-per-viewer of ad sales before the recent upfront market, NBCU chief Steve Burke told analysts this morning. “We’re now at about a 10% discount.” Comcast‘s entertainment arm says it bucked a trend in the upfront — seen as generally down 5% vs last year — as it benefits from the growing popularity of its shows, and a decision to sell broadcast and cable ad inventory together. “If the industry was down 5% and we were up 10%, that’s a 15% difference vs what we would have done” if NBCU had sold broadcast and cable separately. “It’s a swing of $750M” that will go “a long way toward closing monetization gap.”
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Comcast has become so big and complex that its earnings are almost always mixed — and Q2 was no exception, although the combination of soft revenue growth with strong profits sent shares up 2.1% in pre-market trading. The cable giant reported net income of $2.03B, +16.1% vs the period last year, on revenues of $16.84B, +3.5%. Analysts expected the top line to come in a little higher, at $16.95B. But earnings at 76 cents a share handily beat the consensus forecast of 72 cents.
NBCUniversal also seemed to have a split personality with operating cash flow +20.4% to $1.43B while revenues were +0.3% to $6.02B. The main Cable Networks operation saw sales grow 2.6% to $2.48B with affiliate fees +4.2% while ad sales fell 2.2%. Still, by controlling costs, the unit’s operating cash flow rose 6.3% to $914M. The Broadcast Television unit told a similar story: With rising retransmission consent fees, its revenues increased 4.9% to $1.8B. But ad sales fell 1.7%, which the network partly attributes to having fewer hours of The Voice than it had last year. Still, broadcast operating cash flow increased 16.2% to $240M reflecting, the company says, “a slight increase in operating costs and expenses.” Theme Parks proved to be NBCU’s most consistent performer despite the increased costs for Orlando’s The Wizarding World Of Harry Potter-Diagon Alley attraction which opened this month. Attendance and spending were both up, resulting in a 12.8% increase in revenues to $615M with … Read More »
“Fox and Warner are both pretty powerful companies today. … I don’t know how it changes much if they come together,” Netflix Chief Content Officer Ted Sarandos told analysts today when asked about Rupert Murdoch’s bid for the entertainment giant. The effort probably has “more to do with cable negotiations with sports.” CEO Reed Hastings added that he would offer “no speculation” about what Netflix might do if Fox and Time Warner agreed to merge. “The more we work directly with producers, the less we have to worry with aggregation and big content suppliers.”
Media Merger Mania: Fox’s Bid For Time Warner Is Just The Beginning
Time Warner Shares Soar On Reports Of $80B Offer By Rupert Murdoch
On other matters: Sarandos talked up Chelsea Handler’s upcoming late-night talk show, saying her focus on entertainment and pop culture will make it “a great representative of the kind of programming on Netflix.” A nightly show makes sense for a company known for binge viewing because viewers are “not watching late-night talk shows the way they used to. They’re watching days weeks and sometimes months later.” The show ”is not instantly perishable content. It’s more perishable, but the economics level that out for us.”
Related: Netflix Touts ‘Orange Is The New Black’ As Q2 Earnings Meet Expectations
Sarandos also says that Netflix will premiere the upcoming AMC series Better Call Saul outside of North America. He talked up the … Read More »
This is the first concrete sign that Time Warner is determined to fight Fox CEO Rupert Murdoch if he decides to do an end run around the board in an effort to acquire the company. Directors adopted an amendment to TW’s by-laws, which took effect immediately, that makes it harder for a small group of shareholders to call a special meeting, Time Warner says in an SEC filing. Previously investors holding at least 15% of the total votes could demand a meeting. The change limits that right to “the Chief Executive Officer or a majority of the entire Board.” The fear was that Murdoch — or anyone — could have tried to stampede short-term investors into accepting a deal even if the board concluded that it would not serve their long-term interests.
Related: Bart & Fleming: Fox-TW Mania Means Banker Fees And Layoffs, Not Quality
Time Warner shares are down 1.6% in post-market trading following disclosure of the change. The company says that it intends to restore the 15% threshold at the 2015 annual meeting.
Related: Will Anyone Besides Rupert Murdoch Take A Run At TW?
Shares are up about 2% in early post-market trading, though probably mostly due to subscriber gains — topping 50M streaming customers worldwide for the first time — rather than the financial results for Q2. Netflix generated $71M in net income, up from $29.5M in the period last year, on revenues of $1.34B, +25.4%. While the growth is impressive, it was also expected: Revenues came in just a little ahead of the $1.33B that analysts anticipated. Earnings at $1.15 a share were a penny shy of the consensus forecast.
Related: CBS Drama ‘The Zoo’ To Be Available On Netflix In 2015
But the company says it had 36.24M domestic streaming customers at the end of the quarter, up 570,000 from March, which it attributes to “our ever-improving content offering, including Orange Is The New Black Season 2.” Netflix expects an additional 1.33M in Q3. On the international side, streaming customers increased by 1.12M over the three-month period to 13.8M. But the company lost 342,000 DVD-by-mail customers, ending the quarter with 6.17M.
Related: Oscar-Nominated Film Now Aiming To WIN An Emmy For Netflix – How Is It Eligible For Both?
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Matthew Strauss isn’t a household name in Hollywood yet. But he should be, and possibly will be soon. As Comcast Cable’s GM of Video Services, Strauss oversees the cable colossus’ Xfinity cloud-based X1 platform, video on demand, TV Everywhere, and — starting last year — sales of digitally downloadable movies and TV shows (known as Electronic Sell Through). In other words, he leads the cable industry’s counter-offensive as digital services led by Netflix and ad-zapping DVRs make inroads with pay TV consumers.
Studios and networks are taking notice, and striking deals with Strauss that push the boundaries of technology, and traditional business practices. For example, Comcast and FX have just begun to let VOD customers watch episodes of The Bridge a week before they appear on the channel itself. Deadline caught up with Strauss to find out the latest about that experiment and others that could reshape the medium. Here are his thoughts, edited for length and clarity.
DEADLINE: VOD has been one of Comcast’s top initiatives. Where do things stand?
STRAUSS: I have a long history with VOD. I’ve been working on this for almost 13 years now. About 70% of our digital subscribers use on demand every single month, and by the end of this year we’ll have 200,000 hours of on-demand content available. We surpassed our 30 billionth program viewed on demand last year. So this is something that has gone from almost an infancy, novelty kind of product and now is deeply entrenched. For the first time we now have the top 100 rated Nielsen shows … Read More »
The publication will continue to produce its famous scorecards of the rich and powerful, but without the backing of U2′s Bono. A new entity, called Integrated Whale Media Investments, just bought a majority stake in Forbes Media — including the preferred shares owned by Elevation Partners, the private equity firm the singer co-founded. The new ownership group pledges to “provide capital, as well as financial and operational expertise, and intends to leverage its international relationships to strategically enlarge Forbes Media’s reach on a global scale,” it says this morning.
Forbes Media Chairman Steve Forbes hung out the for-sale sign late last year, seeking at least $400M. Today’s announcement does not disclose terms of the deal, but The New York Times reports that “a person close to the deal” says the purchase valued Forbes Media at $475M.
Elevation paid $264M in 2006 for its minority interest. The Forbes family will “retain a significant ownership stake, will stay actively involved,” the announcement says.
Steve Forbes calls the transaction “a major milestone for the company and our family.” The new owners “support our longstanding mission of championing entrepreneurship and free market capitalism.”