Posted: October 11th, 2014 | Author: Clark Schultz
There’s no slowdown in Netflix, despite growing competition from Amazon, Hulu, and Apple. If anything the streaming giant has become more aggressive than ever with its international growth and content deals continuing to disrupt the media landscape. Though consumers have seen some changes with the Netflix user interface which have been notable, it’s behind the scenes where the company has taken dead aim at cracking the bundled content model of the pay-TV industry.
- Push for Ultra-HD TVs a factor Netflix
- Redbox Instant by Verizon bites the dust
- Netflix and IMAX look to disrupt the Hollywood model
- New international launches for Netflix
via Seeking Alpha
What to watch
- Valuation on Netflix continues to factor in enormous global subscriber growth and margin expansion. With the company’s content acquisition costs always a bit of a mystery, a bet on Netflix factors in the service penetrating even further into digital/mobile/household viewing habits to become a standard.
- NFLX +3.09% over the last 90 days, +22.8% YTD, +38.1% over the last year, P/E ratio 135.9, market cap $27.2B.
Posted: September 12th, 2014 | Author: Clark Schultz
The love-fest between Apple and U2 appears to have had some economic benefit for the boys from Dublin. After giving away its current album for free on iTunes, a quick check of the iTunes best-selling charts reveals 17 U2 titles in the top 100 albums. Even 1987 release The Joshua Tree is throwing its weight around at number 12 on the list.
Those streets without a name are paved with gold.
Via Re/Code and Slashdot.org
Posted: September 12th, 2014 | Author: Clark Schultz
Toyota says it has no new or pending battery projects under discussion with Tesla Motors .The announcement is the Japanese automaker’s first official response to a statement from Elon Musk earlier this week that a fresh Tesla-Toyota partnership could happen within a few years.
What to watch: The development could ratchet up the dialogue in the electric car vs. hydrogen fuel cell debate as both automakers have aggressive plans for 2015 for their preferred technology and have been known to take swipes at each other. In the U.S., Tesla’s Model X is expected to outsell the Toyota FCV, while heavy subsidies by the Japanese government could favor the FVC on its home turf.
Via The Wall Street Journal and Seeking Alpha
Posted: August 22nd, 2014 | Author: Clark Schultz
The Federal Reserve will raise interest rates sooner rather than later. Adjust accordingly.
Source: Bloomberg News
Posted: August 17th, 2014 | Author: Clark Schultz
Amazon’s move to pull Disney DVD titles from its website could be backfiring as Wal-Mart aggressively moves into the distribution void.
Pre-orders for Captain America: The Winter Soldier soared 90% after Wal-Mart offered a price cut on the Marvel film to $14.96 vs. the list price of $14.99 on Amazon where consumers can only sign up for an e-mail notification on availability. Analysts note that although DVD sales are only a small piece of the e-commerce pie, any development that levels out the playing field is a boost to Wal-Mart’s online brand. Global e-commerce sales rose 24% at Wal-Mart in Q2, led by double-digit growth in the U.S. and China.
Via Seeking Alpha
Looking ahead: DVD sales typically peak during the holiday shopping season giving Disney even more leverage in ongoing negotiations with Amazon over pricing. The development also highlights the trouble Amazon may have extracting margin gains easily from retail partners with the Bentonville giant looking over its shoulder.
Posted: August 9th, 2014 | Author: Clark Schultz
The battle between Netflix (NFLX) and HBO Go appears to be just beginning as HBO hires more software engineers and aggressively looks toward international growth opportunities. Despite active user growth of 35% in Q2 for HBO Go, it’s Netflix (NFLX) which has been the most aggressive streaming content player. CEO Reed Hastings took to Facebook to call attention to what he calls the milestone achievement of the company passing HBO in subscriber revenue:
“HBO rocks, and we are honored to be in the same league,”
During Time Warner’s (TWX) earnings call earlier this week, CEO Jeff Bewkes was spared any direct questions about the Netflix factor. Perhaps just as well after Bewkes in 2010 famously likened the metamorphosis of Netflix into a streaming giant to the Albanian army trying to take over the world.
The growing war for streaming content could help boost studios with a sizable portfolio of titles. Lion’s Gate (LGF) and AMC Networks (AMCX) come to mind.
Sources: Seeking Alpha, Facebook, TWX earnings call transcript
Posted: August 3rd, 2014 | Author: Clark Schultz
The Starbucks Growth Engine: Eventually Starbucks (SBUX) will saturate the markets in the U.S., Europe, and China with its store footprint, which could bring into the investment matrix the question of growth as pricing and comp sales level out. The rich valuation on SBUX factors in growth from new areas – one of which could be consumer packaged goods.
Starbucks 2.0: There’s something major brewing in grocery stores this summer and it’s a direct result of the forward-looking strategy of the coffee giant from Seattle. The company’s consumer packaged goods are grabbing prime real estate in grocery stores at the end caps and in sections where energy drinks, coffee, and milk products are sold. Reported results from Starbucks for FQ2 and FQ3 – as well as some anecdotal evidence from retail shopping in Florida, Missouri, and Illinois – suggest sales for the CPG channel are accelerating.
Channel Development: Starbucks grew sales 13% and widened margins by 800 bps to 37.1% last quarter in a sector where growth was on the sluggish side. The company forecasts growing margins another 600 bps in FQ4. Early results from the segment indicate the brand is powerful enough to command premium pricing and allow Starbucks to dip into new categories.
Source: Starbucks FQ3 report
Posted: July 31st, 2014 | Author: Clark Schultz
Media stock update: Comcast (CMCSA) and AT&T (T) kept a close eye on their acquisition prizes today as they both showed gains during Q2 for one of the most watched metrics in the pay-TV sector. Time Warner Cable (TWC) grew its average revenue per user (ARPU) by 1.7% to $106.98 and DirecTV (DTV) saw a 4.5% gain to $103.26 in the U.S. Merger synergies for the mega-deals are based on ever-rising ARPUs while scale brings down content and acquisition costs. Today’s read from the pay-TV sector is that the U.S. consumer hasn’t quite hit the breaking point yet on monthly bill charges even with cord-cutting growing and a generation of cord-nevers evolving.
Regulatory watch: The FCC has started its merger review countdown clock by taking comments from consumer groups. Though Comcast maintains in government filings that acquiring TWC will help consumers, the focus on rising monthly pay-TV bills could take the steam out of that argument.
Streaming: A higher level of ARPUs across the pay-TV sector helps broadband providers and streamers such as Netflix and Hulu which can still offer a pricing advantage.
Via DirecTV, Time Warner Cable, and Seeking Alpha
Posted: July 3rd, 2014 | Author: Clark Schultz
A little number-crunching on the relationship between box office totals and the stocks of media companies owning studios leads to a wild lesson in just how meaningless some of the entertainment press headlines on the so-called success of the large investments made by the studios on their tentpoles and other films. The increasing importance of global movie markets like China and the obtuse studio system of accounting and write-offs, along with a host of other factors, keeps the business of linking weekly box office wins and immediate stock performance a tricky business. A study in wretched failure below:
Stock Returns YTD of Major/Minor Film Studios
20th Century Fox (FOXA) +1.5%
Warner Brothers (TWX) +1.7%
Disney/Buena Vista (DIS) +13.1%
Sony/Columbia (SNE) -2.1%
Universal (CMCSA) +5.0%
Lionsgate (LGF) -8.0%
Open Road Films (via RGC and AMC) +14.9%
Fox Searchlight (FOXA) +1.5%
Relativity Media – IPO expected in 2015.
Correlation of stock returns and studio variables
Box Office Gross – A negligible relationship between total box and stock direction exists. The correlation limps in at +0.10463.
Box Office Market Share – A flimsy, bordering on meaningless correlation.
Market Share Gain/Loss – Fox picked up share in 2014, while Disney fell off. Nothing to see with correlation to stock price, however. Move on.
Number of Movies Released – Interestingly, the strongest negative correlation of all the variables.
Number of Weeks with #1 Film – More meaningful than box office tallies, but not enough alpha to trade on.
Predicted Oscar Nominations – Wad up and throw away.
Critical Reviews – Less meaningful than generating long-lasting hits and slightly more relevant than the number of letters in the film’s title.
Social Reviews – CinemaScore ratings and Rotten Tomatoes scores are a great indicator of the legs a movie will have at theaters, but don’t move the needle on the stock return Richter scale.
Sequel % – Not of predictive value.
High budget % – Just OK as an indicator of stock returns. A correlation coefficient of -0.28737 isn’t too much to get excited about (1=perfect correlation, 0 = neutral, -1 = negative correlation) – but in this motley bunch of variables it stands out. No surprise – a low high-budget film percentage is optimal.
Average box office per movie – Again nothing to get a stats wizard hopping excited, but a correlation of +0.23245 shows some relationship between stock performance and studios which keep their film slate at a reasonable level to smooth out the average take.
Opening weekend take as percentage of production budget: Wow, this category seems like a winner, but it’s a tease. It can’t even scratch out a 0.25% correlation.
Rentrak numbers: Dumping some Rentrak data in a spreadsheet and running some correlation analysis isn’t going to give anyone an edge on a hedge fund. There’s some reason to think that the follow-through numbers from Rentrak are significant as they relate to DVD and streaming sales but the correlation to stock price is only mildly higher than opening weekend numbers.
It’s nearly a clean sweep of correlation misfires to the point that chaos theory almost seems to reign. Part of the issue is that the movie studios are only a part of the story for the profits at the parent companies. Also, the window on the stock performance might need to be lengthened as studios are known to play with their own reporting. But jeez – hits do matter. Disney franchises from Marvel and Lucasfilm are a major part of the company’s future earnings profile, especially as other segments such as consumer products and theme parks stand to benefit from box office juggernauts. Though trading Lions Gate (LGF) before or after the debut of one of the studio’s films is a dangerous game, where would it be without Hunger Games (1-4) and Divergent (1-3)? After Relativity Media goes public as a pure-play studio stock will it to be subject to the same vagaries?
If you put Nikki Finke in the same room with a quant trader maybe we could get answers.
Posted: June 15th, 2014 | Author: Clark Schultz
Google is giving a nice assist to ESPN by sending searchers with World Cup queries directly to the ESPNfc soccer site with a click. The action marks the first time Google has sent searchers directly to a third party with which it maintains a commercial relationship ahead of search results or paid advertising. A large embedded ESPNfc video playback option on the Google search page pushes down other organic search results to give ESPN some prime online real estate during the most highly-watched sporting event in the world. What to watch: The cozy relationship between the Disney (DIS) sports juggernaut and Google is interesting to media analysts with Disney sharing more than a little DNA with Apple (Steve Jobs Trust, Pixar). Where Disney shakes out in the battle for the rights to online TV content is critical to which platform might disrupt the pay-TV model.
Sources: Re/code.net, ESPNFC.com, Seeking Alpha
Posted: June 6th, 2014 | Author: Clark Schultz
Hyundai (HYMLF) plans to deliver its first hydrogen fuel cell-powered SUV in California next week. The launch comes despite the limited hydrogen refueling infrastructure in the state. The Japanese automaker is making a splash into hydrogen on its view that hydrogen-powered fuel cell vehicles rep the next generation of zero-emission electric vehicles.
Outside of the automobile industry, companies including FedEx (cargo tractors) and AT&T (server farms) have also been dabbling with using hydrogen despite the lack of a national pipeline. Critics says demand could reach a tipping point if more companies jump in too quick.
What to watch: If Hyundai’s launch of a SUV hydrogen goes over better than expected it could be a positive for FuelCell Energy (FECL), Ballard Power (BLDP) and Plug Power (PLUG). It also adds another layer to the engaging Toyota (TM) vs. Tesla Motors (TSLA) debate.
Posted: May 23rd, 2014 | Author: Clark Schultz
Analysts project China’s box office haul for this year will reach $4.49B to mark a 24.7% increase from last year’s level. U.S. films have performed extraordinarily well in China this year, led by Captain America: The Winter Soldier with a $116M gross. Godzilla opens in two weeks with expectations for a smashing run. Major Hollywood studios have walked a tightrope between adjusting scripts and sensibilities for Chinese regulators and keeping creative control. In a sign of the times, DreamWorks Animation’s Tibet Code is reported to have been greenlighted by the cultural czars in the country.
What to watch: The sizzling growth of China’s box office will provide a significant boost to a number of media companies in the region. Though interference from Beijing and rampant piracy is a risk for studios, the consumer appetite for Hollywood content has been voracious enough to keep profits flowing. A number of companies are poised for a second leg of growth as distribution hits new channels in China. At the top of the list:
Disney (DIS) – The studio’s superhero films have played well in China. Shangai Disney will help boost franchise potential.
DreamWorks Animation (DWA) – Via its Oriental DreamWorks joint venture
IMAX (IMAX) - Powered by wide acceptance (150 screens and growing) and plans for at-home theaters across China
Lions Gate (LGF) – Assisted by a potentially lucrative VOD deal with Jiaflix
Sources: The Hollywood Reporter, Seeking Alpha, Box Office Mojo, The Wall Street Journal