Wall Street analysts warned cable operators on Tuesday that they’d better fix their clunky user interfaces and lousy consumer service if they want to avoid a showdown with Internet and technology powers such as Google and Apple. The big threat “isn’t really Netflix. It’s something we haven’t seen yet,” Citigroup Investment Research’s Jason Bazinet said in a panel discussion about the industry’s financial prospects at the National Cable Show in Chicago. He raised one possibility that has grabbed many people’s imaginations recently — that Apple might design a TV set that would work with programming from a pay TV rival such as DirecTV. “That plays to Apple’s strength, which is not your strength, which is the operating system,” Bazinet said, calling cable’s user experience “a Rube Goldberg contraption.” Morgan Stanley’s Benjamin Swinburne says that although the Street is less concerned than it was a few months ago about Netflix becoming a major competitor, “that doesn’t mean what Netflix has done couldn’t be done by someone with a much bigger check book.” Deutsche Bank Securities’ Douglas Mitchelson also urged cable operators to improve the user experience before Internet services have a chance to establish themselves. He says that investors also are “pretty nervous” about the rising prices that cable operators are paying for programming — especially now that broadcast networks are demanding cash from systems that rebroadcast signals from their local stations.
Here’s why: Media stocks are up 24.4% over the last six months, outperforming the benchmark Standard & Poor’s 500, which rose 15.1% over the period. So they already reflect a lot of optimism. But investors may be disappointed by upcoming news about ad sales, ratings, and ticket sales, Nomura Securities analyst Michael Nathanson says in a report out this morning. His warning comes as media executives prepare to release their quarterly earnings and talk to Wall Street about the state of the business. They conduct hour-long infomercials designed to persuade the world that everything is fine — or, if it manifestly isn’t, that it’s someone else’s fault.
But Nathanson says the companies’ go-go projections about over-the-top ad sales miss how much Japanese auto makers are cutting production as they grapple with parts shortages following the country’s earthquake and tsunami. For example, Toyota will crank out 35,000 fewer cars than planned in North America in March and April. That’s a big deal: Auto companies typically spend about $1,200 on ads for each car they sell. Meanwhile, overall broadcast and cable network ratings stank in the first quarter. The Big Four networks’ live ratings were down 15.9% vs. the same period last year. As for movies, if you don’t know about this year’s miserable ticket sales, then you aren’t paying attention — although Nathanson says that box office would have been up 11% if last year didn’t include Fox’s Avatar and Disney’s Alice In Wonderland.
EXCLUSIVE: The media fund is raising money for a number of projects including 28K, written by Paul Abbott. Showtime USA is currently remaking Abbott’s Channel 4 series Shameless, while Universal turned his BBC series State of Play into the Russell Crowe movie. The urban thriller starts filming in October. Ultimate aims to establish a string of tax-effective Enterprise Investment Scheme companies. Each EIS will invest up to £2 million ($3 million) in a spread of film, TV, music, internet and theatre start-ups. For example, distributor Route One plans to release six movies and up to 40 DVDs a year. The idea is to spread the investor’s risk, while still giving him a 20% tax break.
If successful, the rolling media fund aims to raise £20 million each year.
Oliver Rothschild, founder of Buchler Rothschild Investments, is the chairman. Vice-chairman is Martin Carr, an independent feature producer who has worked with Danny Boyle in the past. Other board members include veteran director Piers Haggard, whose credits include the Beeb’s Pennies From Heaven.
This is not the first time Carr has gone down the EIS route. He used the EIS to fund gangland drama Clubbed. The film was released theatrically in the UK and France in 2009 and sold to 20 other territories on DVD. Unusually for a privately-financed EIS film, Clubbed also sold to BSkyB. But investors still not out yet. Sales agent AV Pictures has just closed a US sale. Carr and his partner Neil Thompson have pledged half their net profits from …