Investors Cut The Cord On Traditional TV

Michael Hedges August 10, 2015 Follow on Twitter

With short attention spans and an anxious nature investors don’t need a lot of input for buy-sell decisions. The digital era has given them many tools. And they certainly like betting on change. They only need be right 51% of the time so the slightest nudge sets them off.

It all started with a comment from Walk Disney Company CEO Bob Iger. During remarks opening an investor conference call Mr. Iger defended the financial condition - and future - of sports operation ESPN. It’s all about those “skinny or cable light packages” that “cord-cutting” young people are subscribing to rather than standard 150 channel bit-of-everything subscriptions.

“We are realists about the business and about the impact technology has had on how product is distributed, marketed, and consumed,” he offered, quoted by Business Insider (August 5). “We are also quite mindful of potential trends among younger audiences, in particular many of whom consume television in very different ways than the generations before them. Economics have also played a part in change and both cost and value are under a consumer microscope. All of this has and will continue to put pressure on the multichannel ecosystem, which has seen a decline in overall households as well as growth in so-called skinny or cable light packages.”

Well, thanks, Bob. Within a day investors yanked a bit less than US$60 billion in value from some of the biggest US media companies. Disney’s stock price dropped 11%, Time Warner 10%, 21st Century Fox 13% and Viacom, turning in a weak quarterly sales a day later, dropped 21%. Perhaps as a coincidence, Viacom’s Comedy Central channel bid farewell last week to ratings magnet Daily Show star Jon Stewart after 16 years.

With the usual 20-20 hindsight financial analysts summed up the August reality check as “a media meltdown,” noted Hollywood hometown newspaper LA Times (August 7). Conventional wisdom, often muttered but rarely exclaimed, holds that video on demand services are killing the golden goose, a whole flock actually. An average American household pays US$100 a month for a slew of channels wired to the living room box. They can subscribe to a VoD service for a tenth of that and get the top-notch TV fitted nicely to their smartphone or tablet. Since online and mobile distribution is hard to measure - read: almost impossible - ad buyers are negotiating lower rates.

The investor media freak-out was borderless. Shares in UK free-to-air TV broadcaster ITV Plc fell to 15 month low point by Friday. Some in the investor set had been, as they do, gambling on Liberty Global, principally controlled by cable guy John Malone, going all the way and just taking over ITV. But, no, Liberty Global only raised its stake to 9.9% from 6.4% a week earlier and notified regulator OFCOM that’s no plan to take more. Viacom, noted above, bought UK free-to-air commercial Channel 5 last year. UK pay-TV giant Sky Plc is principally owned by 21st Century Fox.

Also caught in the storm was German pay-TV operator ProSiebenSat 1 Media, share value dropping 5.88% by Friday. A few weeks ago a merger “discussion” with big German publisher Axel Springer came to a halt, boosting the share price of both companies. “We are in a market where broadcast is not declining,” said ProSiebenSat Digital managing director Christof Wahl, quoted by AdExchanger (August 3), a few days before the sell-off.

Shares in French broadcaster TF1 were 3.3% lower with “investors wondering about the future of traditional broadcasters,” said French investors portal easyborse.com (August 7). Shares in big advertising firms Havas and Publicis were also lower, 4% and 1.6%, respectively. A loose plan to create a French version of SVoD Netflix among telecom Orange, TF1, M6 and public broadcaster France Télévision was scuttled in mid-July for lack of agreement on terms and interests. TF1 ceded its remaining 49% share in Eurosport to Discovery Communications a few days later.

Shares in Italian broadcaster Mediaset, principally controlled by the Berlusconi family, closed 4.2% lower Friday after dropping 3.7% the day before. Investors seem to have been spooked by the Italian government’s plan to accelerate private equity investment in broadband adding pressure to free-to-air broadcasters, suggested Il Sole 24 Ore (August 5). Mediaset and Telecom Italia agreed a “strategic cooperation” for content distribution. Investors, apparently, were hoping for more.

All corners of European television were touched. Modern Times Group (MTG) was the worst performer on the Stockholm exchange, dropping 3.9% by the Friday close. MTG has been scooping up controlling interests in online video business, the most recent 51% of Dutch VoD zommin.tv. Due to Russian Federation restrictions of foreign ownership MTG recently divested its 39% stake in CTC Media.

All of this took place as Netflix, the VoD icon, saw its share price jump 4%. This puts the company’s valuation at US$53 billion, only slightly less than 21st Century Fox. Of course, Apple’s current valuation is US$650 billion and it’s readying a TV challenge.

See also in ftm Knowledge

Media Business Models Emerging

After a rough transition media business models are emerging. Challenges remain. There are Web models, mobile models, free models, pay models and a few newer models. It makes for exciting times. This ftm Knowledge file examines emerging business models and the speed-of-light changes. 137 pages PDF (January 2013)

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Television in the UK

Viewers in the UK love their 'telly'. The BBC is under pressure, BSkyB expanding, ITV and Channel Five are under new management. Hardly a week goes by without a complaint, new rules or other change. 58 pages PDF (October 2010)

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