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Friday, July 13, 2018

Streaming Scenarios

The business news is full of reports about deals going on in the media business. Will Comcast be able to best Disney’s latest offer to Fox’s film and broadcast assets? If Disney gets it will Comcast be satisfied to enlarge their global footprint by purchasing Sky in the United Kingdom? Will Comcast leverage up and try and purchase both Fox and Sky? If shut out of the Fox assets will Comcast make a run at Discovery as a consolation prize and, at the same time, enhance their global reach as Discovery has some fine overseas assets? I admit that I watch the financial soap opera daily and find it amusing. To me, however, it is not the really big issue out there although it is a part of it.

The real issue, to me, is the coming war for consumers in the streaming video space. As you know, Netflix, Amazon Prime, and Disney are active in this space. Two other tech giants, Apple and Facebook have talked about entering the fray. And, of course, there is Alphabet (Google), an absolute behemoth which has owned YouTube since 2006 but has yet to fully monetize its possibilities as an video and advertising platform.

Sumner Redstone, decades ago as CEO of CBS, popularized the term “Content is King.” The statement has proven to be true as distribution is now taking a backseat to content and the streaming bidding wars are beginning in earnest.

I have generally hesitated to make definitive forecasts but in this case I make an exception. We, in and of the media world, are going to see fireworks in mergers, acquisitions and new services in the next few years that will dwarf anything that we have experienced to date. Why? From my viewpoint, it is very simple. The companies involved are the greatest companies (by many yardsticks) in measured economic history. They have the deepest pockets of any publicly held companies since (adjusted for inflation) John D. Rockefeller’s Standard Oil was broken up by the federal government early in the 20th century.

Consider the players:

1) Apple—this company has nearly 200 billion dollars in cash. They are generating an additional several billion a month in free cash flow. Now, they want to get in to streaming content. They can lose several billion a year for a while and can play the long game. A year ago, I, along with other media observers, thought that Apple would be wise to purchase Netflix. Perhaps they are sorry that they did not. Since the beginning of 2018, Netflix shares have increased by 115% so the acquisition now would be far more costly and more risky.

2) Alphabet—for nearly 12 years, they have done little with their amazing YouTube platform. If they decide to go all in with streaming by creating content, they will be a formidable competitor very quickly.

3) Amazon—Jeff Bezos has a lot of irons in the fire but his 100 million plus Amazon Prime members gives Amazon a nice start in streaming. And, if you watch it, you will see that Amazon Prime video original content is getting better. Bezos is patient. Remember that Amazon was not consistently profitable for many years. As was true of Apple, Amazon can play the long game in streaming content if they choose to do so.

4) Facebook—The social media titan is losing a bit of luster with millennials but they have a huge global base and deep pockets to boot.

5) Disney—the “Mouse House” has a great deal of their own content and may indeed snare the Fox Studio and film library from Comcast’s clutches. They are planning their own streaming service and have great franchises such as Lucas Films (Star Wars), Marvel Entertainment and classic children’s fare. Perhaps they can shoehorn ESPN in to the package as well. Disney is a leader in global entertainment and has made few missteps over the years. If they price their streaming service well and package it up properly, they will be a force for sure.

6) Netflix—let me begin by saying that I love the service. I use it several times a week for their Netflix originals and, given my affection for classic films, I also re-watch a number of my favorites. One issue that I have with Netflix is that they are not spinning off much cash. Yes, they have tremendous loyalty and have become one of the world’s most valuable brands. But, they are spending a fortune on content. I have seen estimates of $8 billion dollars for calendar 2018 alone. When asked about it, talking heads on CNBC and Bloomberg have rationalized it by saying that they can easily issue more shares if they need more money. Okay, that is fine when a bull market is in progress but this one is getting long in the tooth. When will they get profitable and start delivering a boatload of free cash flow? Right now, their logarithm seems to have found a sweet spot for consumer likes and their original programming has surprised many of us with success after success. And, their global footprint is expanding much faster than the traditional media companies. Still, I think they are vulnerable and a sale last year to Apple might have been their ticket to immortality.

So, where does all this leave us? In the 40 plus years that I have been analyzing media properties, I have found that it has generally been a bad move to bet against Disney. Yet they do not have the borrowing power of an Apple, Alphabet, Amazon, or Facebook or the recent success of Netflix. Were this a simple fight with Netflix pitted against Disney, I would bet that once Disney made a complete commitment to streaming they would eventually win a very hard fought victory. But with all the FAANG’s involved, it is a whole new ballgame.

One good thing. As competition heats up, it will be great to be a consumer. We will get some really nice pricing on streaming venues over the next few years.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Wednesday, July 4, 2018

Is Legacy Media Really Tuscany in Disquise?

On September 8, 2001, I was reading the New York Times. Columnist Anthony Lewis wrote a wonderfully descriptive piece on his love of Italy’s Tuscany and Umbria regions. It reads in part—“The silvery olive groves, the fields of sunflowers, the vineyards, the stone houses and barns……….Italy is evidence that there is more to life—a civilized life—than the unregulated competition of the market. There are values of humanity, culture, beauty, community that may require deviations from the cold logic of market theory.” He went on to lament the growth of corporate farms and waxed poetic over the small agricultural units he saw in the those two beautiful Italian provinces. I got his point—there is more to life than turning a buck and sometimes we need a reminder about what is important and quality of life should generally outweigh scheming for income.

I remember actually clipping the article out (no convenient online folders for me then) and vowing to visit Italy soon. Three days later, the 9/11 tragedy struck and the article and its message was submerged by glaring headlines. Some years later, I found the hard copy of the article as I was preparing to move. A few years later, my wife and I and other family members visited both Tuscany and Umbria and loved them. Also, friends put us on to the beautiful  walled city of Lucca where we spent some wonderful days. A return visit is definitely on our bucket list. One thing that I notice as a demographer was how old the areas were getting. Young people have gravitated to the bigger cities for job opportunities and those remaining tend to be quite old in many instances. So, the memorable lifestyle afforded in many of the villages that we visited was threatened as the low Italian birthrate was well below zero population growth (children needed to maintain a level population).

I bring this story up not to defend the free market system although I am normally happy to do it.  Rather, as conventional media is dying in the U.S. and other Western nations, a part of our lifestyle is fading as well. I am especially referring to metropolitan newspapers and selected magazines. Today, some 40+% of Americans get their news from Facebook. Call me old fashioned but I like the New York Times, Wall Street Journal, and The Washington Post which require two or more sources on their fact-finding. Investigative journalism is still important in a free society but as legacy media withers it is largely disappearing unless the story is huge. I also like to ponder a TIME magazine essay now and then even though the news in the publication (now sadly very thin) is not a few hours old.

The immediacy that the internet and contemporary news sources provide has its place and will only get stronger. I, for one, still savor, however, the nuance and distance that the printed reports in some old line media still provide.

To all of my American readers who make up nearly 45% of the Media Realism audience, may I wish you a happy Independence Day!

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Wednesday, June 27, 2018

Stranded Assets in Media?

Very recently, I had a conversation with a small market broadcaster. In a moment, you will see why I will not identify him nor his markets or whether he operates in TV or Radio.

He called me and said that his media company was struggling. He said essentially that his net worth was suffering from a case of STRANDED ASSETS. “Don, you probably do not know what that means”, he told me. “No, I know exactly what it means.” That was not good enough for him. He said that I needed to define it. I was not thrilled but rattled off a definition that any MBA would be proud to call his/hero own. For you non-wonks, a stranded asset is “an asset that is worth less on the market than it is on a balance sheet due to the fact that it has effectively become obsolete in advance of complete depreciation.

In other words, my acquaintance has broadcast assets with a listed value but he knows they may never see the light of day in the real world if he wants to sell. And he does. He is getting older as we all are and thought that selling his properties would provide him with a platinum parachute in his golden years. This is somewhat analogous to several million people in 2008-2010 who were “underwater” on their mortgages. They owed more on their mortgages than they could sell their homes for. Some walked away, others went bankrupt, but many simply stayed put and dug themselves out of a huge hole over several years. The broadcaster appreciated the analogy but was clear that his small market properties would never bounce back as the real estate market has done to a certain degree.

We then went in to a lengthy and at times amusing conversation about how his bailout position may be a “greater fool”. The Greater Fool Theory is a an equity market term that is, in essence, a crazy idea. It is the opposite of the Graham/Dodd/Buffett/Munger approach of investing in the fundamentals of a company. When the greater fool theory is in evidence be if for a stock, a house or a business, the buyer knows that the price one is paying is unjustifiably high but the buyer does not care as he/she is convinced that the price of the asset is going up and fast. The speculator, I cannot stomach calling him an investor, sells when the asset pops up to another bozo whom we shall dub the greater fool. There have been greater fool purchases throughout my life and even in recent history particularly in the tech bubble and highly leveraged real estate.

The broadcaster talked at length and his candor was refreshing. He doubted he could rustle up a “greater fool” to buy his properties. I countered that just as everyone and his brother think that they can run a restaurant and most fail miserably, there has to be a small but passionate group who think that they could run a TV or Radio station profitably even in today’s environment. He thanked me for my time. Really,  I think that all he wanted was someone to listen.

My caller is a survivor. I am confident that he will work his way through things somehow. Yet, what gnaws at me is how many others are out there in a similar boat in the media and advertising worlds? Are stranded assets a silent burden that many are carrying?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Wednesday, June 13, 2018

Silicon Valley Wisdom

I was doing a bit of digging recently and found that the term Silicon Valley is a good but older than I imagined. While there is a lively dispute going on regarding who coined the term, it appears that Don Hoefler was the first person to use the term “Silicon Valley” in the printed word. That was way back in 1971 which surprised me. Prior to that, many people appeared to refer to the tech area as “Silicon Gulch.”

As the years have passed books have been written about the nuggets of wisdom coming from Silicon Valley. They may be attributed to Steve Jobs, Steve Wozniak, Mark Zuckerberg, a number of venture capitalists and many other tech players. Someone asked me this past week which comment had the most staying power with me. I am embarrassed to say that I do not know the man or woman who first said it but it goes as follows:  “We overestimate what can be done in three years, and underestimate what can be done in 10.”

Think about that line for a few moments. To me, it so dead on that it is almost eerie.

To the graybeards reading this—Remember when cable first began as an advertising medium? Some suggested that the major over the air networks were going to dry up and blow away. Clearly, it did not happen in three years but a decade later, the networks had lost substantial audience share and ad dollars began a shift as well.

The same thing happened with early online activity in late 1999 and early 2000. When the dot.com crashed occurred, online suffered a setback but came roaring back a few years later and, by 2010, only neanderthal advertisers did not have some digital in the mix. How about 2009-2010? If someone wanted to look intelligent in a meeting, the magic word, sometimes whispered, was Facebook. I am convinced that they picked up much too much advertising revenue early on in their development. Did it work? Few knew and sadly, some did not care. They wanted to appear cutting edge.

Look back, if you will, ten years. Think of the things that you do now as a matter of course that you would not have thought of years ago. Netflix streaming? Watching video on your phone? Texting like crazy at age 70? Making bank deposits via your device? These lifestyle changes have been remarkable and we would all regret losing them.

My point is that we, in the media world, need a long term perspective. We need to be flexible and always remember that we will be surprised at both what will happen and what will not.

The great Danish theologian, Soren Kierkegaard, wrote in “Either/Or”—“he who becomes wedded to the spirit of the times soon becomes a widower.” So, embrace change, but do not do a complete 180 degree turn on media mix. Over a decade, absolutely. But constantly shifting gears as we move in to new platforms seems to be a winning approach.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmaill.com or leave a message on the blog.

Thursday, June 7, 2018

A Dead Cat Bounce in Legacy Media?

There are many sayings in Wall Street lore that I love and have used to make a point over the years. One of my favorites is the “Dead Cat Bounce.” What this means is a temporary recovery of the share price of a company that has taken a real shellacking of late. For example, a stock was at 100 and dropped to 30. It then jumps back for a brief time to 35 as short-sellers cover and then continues its downward slide. Wall Street analysts will sometimes say “Even a dead cat will bounce if it is dropped from high enough.” At the risk of offending the cat lovers among my readership (I am an enthusiastic dog guy), I think an argument can be made that a dead cat bounce might in evidence in the conventional media world these days.

Several years ago, newspapers were essentially left for dead. Many are still struggling. The two leaders, THE NEW YORK TIMES and THE WASHINGTON POST, are currently enjoying something of a revival. The TIMES now has over 2.5 million digital subscribers and revenue is up from subscriptions although advertising is still struggling. The Wall Street Journal has nearly 1.3 million subscribers while the POST has recently crossed the 1.0 million mark after a spirited marketing effort. Some say the POST has been energized by Jeff Bezos who has added a large number of reporters and a financial cushion. One reader told me (and I disagree) that the paper has been much helped by the release of Steven Spielberg’s film, THE POST.

How about MSNBC? Its ratings have soared over the last year and do not forget the late night talk shows. Jimmy Kimmel, Trevor Noah, and Seth Myers all seem to have a new lease on life and they appear to be having the time of their lives each night.

Why? Well, it seems that we have a controversial person in the White House. The papers have lots of material to work with and are turning investigative reporters loose as our the cable channels. The comics are doing some wonderful political satire and some of their material is hilarious. Saturday Night Live seems more vibrant that it has been in decades and big name talent appear to be lining up to do cameos. Two on air talents, Bill Maher and Samantha Bee, to me, have crossed the line of propriety with their comments.

So the question I have for you is the apparent chaos in the White House and Congress the real reason for the renewed vigor of these media properties? If someone else is president on January 20, 2021 will these legacy media properties and formats continue their relentless slide of recent years? Is their current buoyancy real or is it a media version of a “dead cat bounce.” Will newcomers stick with them for the long haul?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Friday, June 1, 2018

A New Lost Generation?

The group of people who came of age during World War I (1914-1918) were sometimes referred to as “The Lost Generation”.  The term was popularized by the great author Ernest Hemingway and was front and center in his 1920’s novel, THE SUN ALSO RISES.
Some sociologists characterized this group as being disoriented, wandering and directionless. A bit harsh, I would say. Yet, looking at some recent demographic data, I wonder if a 21st century Lost Generation is emerging 100 years later.

What am I referring to is the millions of young Americans who are hamstrung or perhaps handcuffed by student loans and are struggling to repay them. The average student loan now rests at $34,000 and many young adults with unusually high balances are on 20 year payment plans to retire them.  Some unscrupulous lenders came in at almost predatory interest rates and added fuel to the fire although they are not as prominent today. According to recent data and projections provided by the Brookings Institution, many who owe are in default. There is a unique and scary divide on defaults. A stunning 47% of people with loans to fund education at a for-profit institution are in default. Conversely, 13% (still too high) are in default if the loan was for schooling at a non-profit center of higher learning. Also, the Brookings data showed that many people default after many years of dutiful payments. Some people pay for a dozen years and then fall off the ability to pay. Brookings projects that as many as 40% overall could be in default by 2023. How is that possible? Here is my theory: our economy has been in recovery after a terrible downturn in 2008 aka The Great Recession. At some point, a downturn is inevitable. When it hits, a few million young people who have been struggling to make their monthly payments may default as many will be hit with either short term or perhaps long term unemployment.

Just how big is the total of Student Loan debt? The figure bandied about these days is $1.4 trillion. Here are some data compiled by the New York Federal Reserve Bank for January, 2018 which pegs student loans as the 2nd largest category of loans in the U.S. Details are:

Home Mortgages    $8.7 Trillion

Student Loans.          1.34 Trillion

Auto Loans.               1.19 Trillion

Credit Card Debt        784 Billion

Home Equity Loan     412 Billion


Some crazy things are going on in an effort to prevent defaults. Some 22 states will pull licenses for nursing, medical technicians, doctors, and even teachers certifications if you have misses a certain number of payments. Three states—Montana, Iowa, and Oklahoma have suspended drivers licenses to those in default. Really? In rural areas, how do you get to work where there is no public transportation? Does a friend give you a ride every day? C’mon. The states are sensitive about the drivers license issue and say that it is rarely enforced. How does a nurse pay back her debt when she can no longer work as a nurse? It is a classic Catch-22. Remember, even if you declare bankruptcy your student loans are not forgiven so people cannot “game the system” that way.

Some people say that student loans are harmful to the economy. On a short term basis, that strikes me as sheer idiocy. The money does not sit there. It goes to schools for tuition, room and board and greedy book publishers pick up some funds. That money goes to pay salaries and maintenance at the institutions.  Long term, I do believe the approximately $1.4 trillion and growing will be a drag on the economy. Some four out of 10 recent graduates stay living with their parents for a few years to allow them to buy a vehicle and pay down some of the debt until a raise or two or a better job arrives.  Some 78% of millennials with student debt state that they cannot save for a downpayment on a home. A full two thirds say that they do not feel secure. I could not find figures on this but I am curious as to how many with student debt bypass 401k’s at their place of work until the balance is worked down. Your 20’s and early 30’s are key capital formation years and if you miss the first 12-15 years, you will never catch up with your debt free colleagues.

Solutions? Some have suggested that you pay back as a fixed percentage of earnings. So, a young investment banker with six figure debt can pay it back faster by kicking in a fixed percentage of income each year while a lower paid worker can stretch out payments for a longer period . Others suggest retiring a portion of the debt if you work in public service areas such as teaching, government or nursing. My mild suggestion is that people need to know what they are signing. A lot of people who seem to get in to the most trouble are first generation college students. They have been told that a university degree is a ticket to prosperity. I have met a few canny students who have thumbed their noses at loans and take six-seven years to get their undergraduate degrees. They work either full time and take night classes or sometimes skip a semester and work 50 hours a week to pay the next semester or year in full. They do miss out on the “college experience” to a certain degree but they have no financial millstone around their necks. Also, they tend to attend state schools and with in-state tuition are provided with good value.


I feel for these fine young people. They cannot work a nice summer job and even begin to cover or largely cover expenses as they did in my day. Many will (sadly) become angry and bitter if things do not go their way.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Sunday, May 27, 2018

Where Have All The Babies Gone?

In the past 10 days three different reports were released which strike me as having a profound effect on the future of our country and, to a certain degree, marketing and media issues going forward. The first was from mainland China. Years ago, Chinese leader, Mao Zedong, instituted a one child policy. The fear was that the country could not feed itself so the population needed to decline over time. As, in recent years, the country experimented with a unique form of the free market, things improved for hundreds of millions and the leaders realized that, with a rapidly aging population, they needed more young people. So, approximately two years ago, they lifted the ban in many provinces that had only allowed a couple to have a single child. Surprise! Since the ban has been lifted there has been no statistically significant move upward in the Chinese birth rate.

In the U.S. the government released figures that stated that U.S birthrates are at a thirty year low. Let us set the stage for a moment. In order to keep a population level, the average women needs to have 2.1 children. This is known as Zero Population Growth (ZPG). The latest data from the U.S federal government puts the birthrate at 1.7545 which is well below ZPG. For years, we often felt that we could hover above ZPG as immigrants would provide the lift above the threshold as they tended to have more kids than citizens born in the states. For whatever reason, that no longer holds true in the last couple of years. While we are now below ZPG, we are nowhere near the low levels seen in countries such as Spain, Greece, Japan and Italy where the statistic can be as low as 1.1. Many forecasters said that once the Great Recession passed, our birthrates would climb back up. That has clearly not happened as we enter our ninth year of economic recovery.

Why should we care? Well, American is not close to being the provider state that many nations in Western Europe are. There is a somewhat frayed safety net here in the states but it is nothing like the cradle to grave security that many other countries provide which will be unsustainable going forward. Young people would pay into social security and medicare and take care of us baby boomers. If there are fewer young people in the workforce, safety net promises will be harder to keep.

The third shoe dropped on May 20, 2018 in the Sunday New York Times. An excellent opinion piece by professors Christina Gibson-Davis and Christine Percheski covered the issue and was entitled, “The Wealth Gap Hits Families Hardest”.

We have all read countless articles about income inequality and, after a while, we have become numb to them, or given their super left wing slant, find them tiresome. This one hit me hard right in the gut. For the first time, I looked at some data regarding families with children. The academics took a  long term look at U.S. Households from 1989-2013 with children under 18 and examined their net worth. Results, to me, were both eye opening and depressing. Here are the highlights:
 
                     Median Net Worth

Top 1%         $5.2 million

Next 9%         $584, 850

Next 40%         $68, 974

Bottom 50%       -$233


These data are totally in line with several reports that some 40+% of Americans cannot afford a minor medical emergency or a big car repair. Also, the authors raise the scary scenario that when some youngsters start college, their parents may still be paying off college loans.

So, what is happening? To me, it is very simple. Sadly, people are not having children or more children as they cannot afford them. It is not due to selfishness on the part of these young adults. Many are literally up against the wall financially.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com