Posted: February 27th, 2014 | Author: Clark Schultz
There’s a major war brewing in the media industry as consumers reach their upper limit of what they will pay each month for broadband/TV services and the online viewing of content becomes a larger factor than ever with millennials and Generation X maturing. The Pay-TV industry stands in the middle with its bundled network model being held together by juggernauts like ESPN and a wave of consolidation, but can it last?
Upstarts such as Aereo and a host of online video sites threaten the industry by drawing in younger consumers – while Netflix, Hulu, and Amazon Prime Instant Video continue to redefine how content is digested. Advertisers are exploring ways to get around binge-viewing and ad-skipping technology through in-content product placements which gives the sites/services more revenue potential. Though a few staid entertainment conglomerates are likely to get let behind, the scorecard below shows that some major players have their hands in many pies and are hedged to take advantage of any seismic shifts in the media landscape. Disney, CBS, and Comcast come to mind.
What to watch: Even as the younger generations unplug from the traditional media matrix, their viewing of content will remain intense. On-trend studios such as Lions Gate Entertainment (Hunger Games, Divergent) and AMC Networks (Breaking Bad, The Walking Dead) will still have numerous channels to churn up carriage/distribution fees. The more things change, the more they stay the same. Quality content will win out as the number of global media-enabled devices explodes.
What to bet on: Pick through the companies listed below for potential winners and losers in Media 2.0 or consider a catch-call investment in the PBS Dynamic Media Portfolio (PBS) which has blown past broad market averages over the last year. The ETF looks well-positioned for even more gains with current top holdings including Google, Disney, CBS, Time Warner, and Discovery Communications.
Major Pay-TV Operators and Broadband Providers – Holding up the wall as long as they can
Dish Network (DISH)
Charter Communications (CHTR)
Time Warner Cable (TWC)
AT&T (T) through U-Verse
Verizon (VZ) through FiOS
Broadcasters and Studios – Creating the content for boomers, Generation X, and millenials
AMC Networks (AMCX) – AMC, IFC, Sundance TV
Time Warner (TWX) – Warner Bros, TBS, TNT, HBO, New Line Cinema, CNN, Castle Rock Entertainment
Viacom (VIAB) – Paramount, MTV, Nickolodean
21st Century Fox (FOXA) – Fox News, Fox Sports, 20th Century Fox, Big 10 Network, FX
Disney (DIS) – ABC, Disney Channel, Pixar, Marvel, Lucasfilm, A&E, Walt Disney Studios
CBS (CBS) – CBS, CBS Films, Showtime
Lions Gate Entertainment (LGF) – Summitt Entertainment, Epix, Lionsgate Films
AMC Networks (AMC) – Open Road, Relativity Media
Sony (SNE) – Columbia, Sony Pictures, TriStar Pictures, Sony Pictures Television GRoup
MGM Holdings (private) – MGM, United Artists
Discovery Communications (DISCA) – Animal Planet, TLC, Discovery Channel
Comcast (CMCSA) – NBC, USA Network, Universal
Streaming and Online Video Sites – The land of cord-cutters and cord-nevers
Hulu – owned by Comcast, Disney, and 21st Century Fox
Blip (Private-equity owned)
Dailymotion (Orange S.A.)
Sources: The Hollywood Reporter, Mediapost.com
Posted: December 31st, 2013 | Author: Clark Schultz
2014 could be the year that DirecTV, Dish Network, and the cable operators decide to take a stand against higher sports programming costs with their subscriber growth stagnant and consumers rebelling against higher monthly fees. The most contentious battle could be in Los Angeles where Time Warner Cable’s regional sports network, which includes L.A. Dodgers games, is behind in adding distribution channels. The question is if the monthly bills being charged to consumers has reached a tipping point with streaming and cord-cutting proving irresistible or if the need to digest live sports will support the Pay-TV model. At the moment, consumer polling indicates that life without coverage from ESPN and other live sports providers is unappealing to a high percentage of current cable/satellite customers. But how many people know Super Bowl XLVII can be streamed for free from NFL.com? More high-profile sporting events are also slated to be streamed this year for the cord-cutting crowd.
In a clash of titans, Disney (DIS) is still in negotiations with Dish Network over an ESPN contract to replace the one that expired in October. The carriage fee for ESPN already averages an industry-high $5.54/subscriber, but Wells Fargo thinks that rate will go to $7.65/subscriber by 2018 with the network’s NFL and college football coverage a must-have. If there is an exec in the sector with the moxie to go toe-to-toe with ESPN, analysts think Dish CEO Charlie Ergen fits the bill – although if he bluffs right past a key blackout deadline the impact on the company could be catastrophic.
The deciding battle over sports costs hasn’t been fought yet, and thanks to ESPN’s clout, the Pay-TV model might survive long enough for broadcasting companies to continue to rake in profits.
New sports stations from Fox (FOXA) and NBC (CMCSA) don’t have the leverage that ESPN carries around, but are still forecast to command higher rates with more bidders emerging on the scene for content. A rising moat could also help lift CBS (CBS) and Madison Square Garden (MSG). A catch-all for the whole media sector is the PowerShares Dynamic Media ETF (PBS) which is coming off a 60% return for 2013.
Sources: Deadline.com, Seeking Alpha
Posted: December 22nd, 2013 | Author: Clark Schultz
The engineers at Google X are much further along with the self-driving car concept than many people think. Google cars have self-piloted around Silicon Valley and powered by the company’s algorithm beast they are starting to pass some impressive field tests on identifying roadside obstacles and solving driving issues. Eventually, self-driving cars could be part of the delivery industry and a mainstay on college campuses, corporate parks, or large shopping areas.
So what’s the downside? An article in The New Yorker brings home the point first demonstrated in the movie 2001 (Open the Car Door HAL) of the unintended consequences of technology. Chaos theory at its most dangerous.
“Put too much intelligence into a car and it becomes creative.”
That warning from researcher Sebastian Thrun sounds harsh, but take a look at it another way. In 1940, Winston Churchill is believed to have withheld information on a pending attack by the Germans on Coventry, England because the nation couldn’t afford to let the Nazis know the code-breakers at Bletchley Park broke the Enigma code. The action (if true) is one of the best examples of the greater good theory. How would the Google algorithm handle the greater-good question in the inevitable case of an impending accident? What if the Google algorithm pulls a wildcard that results in the death of one driver to potentially save two? That’s a tricky question for Google X engineers. Just ask Churchill.
Posted: December 21st, 2013 | Author: Clark Schultz
What’s up with Mickey D’s? Same-store sales have been unimpressive this year and the company’s profits have been hurt by its heavy reliance on the Dollar Menu. Sure, the economy hasn’t cooperated in full, but execs deserve at least some of the blame. Let’s call it an identity problem.
McDonald’s you’re not Buffalo Wild Wings
McDonald’s has 10M pounds of unsold chicken wings after misfiring on a fall promotion, according to the WSJ. Consumers found Mighty Wings too expensive and too spicy during the product’s first national run. Due to the large supply of wings that franchisees are stuck with, the company may be forced to drop prices. By most accounts, the great chicken wing experiment has been a fail so far.
McDonald’s you’re not Starbucks
OK, a tip of the cap to the company for delivering a vastly improved menu of coffee products, but the vision of McDonald’s seriously hurting Starbucks is a reach. The difference in ambience between the two chains is just too great. Many consumers try to find a reason to sit and enjoy their coffee at Starbucks while a trip to the Playland area at McDonald’s is hard time. The latest coffee play from management, selling bagged coffee in grocery stores, seems like a risky gamble as well. The high-end is well-covered by Starbucks and others – while the discount sellers will likely pressure McDonald’s to enter at a price point that will pressure margins. Dunkin Donut’s is the rival that McDonald’s will aim to challenge for market share, but its brand in strong in coffee
McDonald’s should just be McDonald’s
The recipe is simple: Dominate the burger joints.
The restaurant re-model program from McDonald’s has been impressive. The next step should be to just beat Wendy’s, Hardees, Sonic, and Burger King at their own game and return customer service back to reasonable levels. The modernized restaurants from McDonald’s is a great start, but now the menu and the pricing point matrix need to be adjusted so that restaurant performance improves.
Sources: Wall Street Journal, Seeking Alpha
Posted: December 17th, 2013 | Author: Clark Schultz
Are things about to get testy in the premium organic grocery store sector? Whole Foods Markets (WFM) plans to ramp up to 1,200 store in the U.S. as execs tip off the company is seeing early success in smaller markets. Trader’s Joes is still in indy mode, but is making some expansion plans of its own – including a store in Boise, Idaho with its population of 212K. That’s all fine and dandy, and could be another smashing success for the chain, but what’s will be interesting to watch is which organic food favorite plays better away from larger metropolitan areas. Here’s one bet: The cult of Trader Joe’s wins out as publicly-traded Whole Foods has to walk the tightrope between keeping shareholders happy and staying with its organic roots. Perhaps, a Trader Joe’s IPO could level the playing field. Just let us aficionados in on the ground floor.
Sources: The New York Times, Whole Foods Market IR site
Posted: December 17th, 2013 | Author: Clark Schultz
Nirvana was elected to the Rock and Rock Hall of Fame in its first year of eligibility.
Posted: December 13th, 2013 | Author: Clark Schultz
Chipotle (CMG) has a problem. The restaurant chain’s stock price trades at 52X earnings per share as investors continue to bet the sky-high growth track will continue. But the numbers don’t quite add up. It’s an understatment to say that shares look toppy after running up 72% YTD to +$500/share. The complication is in the growth at existing stores. While fast-casual superstars Panera Bread (PNRA) and Noodles (+103% from its IPO price) continue to squeeze more cash out of each visitor on expanded menus – Chipotle’s average transaction ticket has hit a ceiling. Though Chipotle’s same-store sales growth of 6% in Q3 was pretty respectable, saturated markets and a lack of premium menu items could play a factor in the near future as it tries to keep SSS numbers percolating.
CMG data by YCharts
The cure is simple. Chase the college crowd with 2:00 a.m. burritos. Dominos Pizza (DPS) and Taco Bell (YUM) have had a field day with the post-10:00 p.m. crowd, but Chipotle stubbornly closes its doors way too early in many markets near colleges or urban nightlife. Execs say the formula doesn’t work for them due to the difficulty in stocking fresh food. They also worry about being a late-night destination for branding reasons. Yada yada yada. The company needs to look at Buffalo Wild Wing (BWLD). The chain isn’t perfect and has had a dizzying stock run of its own, but it’s hard to argue with its striking mantra: Wings. Beer. Sports.
Chipotle deserve a lot of credit for putting a healthy food option into the fast-food sector. And who doesn’t want to eat meat that is sourced from a pig that’s had a free-ranging life up until its slaughter date? But perhaps management is taking itself too seriously by trying to lead the eco-friendly sustainable living movement in the food industry all by itself? Restaurant game theory suggests Chipotle should just play to its strength: 1) Buck up and focus on serving burritos and beer to the masses. 2) Crack the doors open for late nights. 3) Then watch investors chase CMG to $600 a share.
Posted: December 11th, 2013 | Author: Clark Schultz
Do-it-yourself investors should have a field day in 2014 with maturing upstart websites that will allow them to ditch their broker or financial adviser. The key theme emerging for 2014 is that a healthy dose of crowdsourced financial data, along with original and cutting-edge analysis, will beat the historical follow-the-crowd pattern of the major financial websites. The DIY-leaning sites listed below are a step removed from the mainstream buzz:
1. Planet Money – The economy explained rather simply without miring readers in Fedspeak and recycled financial headlines. A quick daily scan of this site is more productive than a daily dose of the shrills at CNBC.
Website: www.npr.org/blogs/money/ Twitter: @PlanetMoney
2. Jemstep – Online portfolio management that can help DIY investors analyze how they stand and where they need to go. A clever and usable platform that is edging ahead of a long list of other online portfolio management players.
Website: www.jemstep.com Twitter: @Jemstep
3. Estimize – This site makes the list again for the simple reason that the crowdsourced estimates thrash the consensus estimate of Wall Street analysts. Late action on estimates seem to tie-in to whisper numbers and deep sector analysis. The estimates leaderboard is full of star independent analysts – the key word is independent. Noisy sell-side analysts just might become irrelevant.
Website: www.estimize.com Twitter: @Estimize
4. Loyal3 – Investors can participate in IPOs directly through this site’s groundbreaking platform. The early roll-out looks clean and the ability to cut out the complicated and biased system of using a broker to get in on the ground floor of an IPO is pretty irresistible. Loyal3 is well-worth taking a flyer on if an attractive IPO pops up on its list or you can also try buying shares (up to $2.5K) of a company directly through Loyal3′s brokerage service. FINRA & SIPC and all that jazz.
Website: www.loyal3.com Twitter: @Loyal3
5. Seeking Alpha – News, analysis, and engaging conversation on stocks and investing. Subscribe by ticker or ETF for a personalized news feed that dominates competitors. The site has the best crowdsourced opinion and analysis on stocks in the personal finance vertical.
Website: www.seekingalpha.com Twitter: @SeekingAlpha
6. Zillow – Real estate, mortgage, loans, and interest rates can all be tracked and analyzed on this site without the degree of clutter and narrow objectivity of Lending Tree, BankRate.com, or Quicken Finance. Sure, a few quibble might be out there on the Zestimate appraisals, but the site’s tools are still the best of the mortgage sites.
Website: www.zillow.com Twitter: @Zillow
7. Consumerism Commentary – Personal finance shredded down to usable advice. This site tackles a wide variety of topics including savings, taxes, career paths, and investing products – but its bread-and-butter is effective cost savings tips. The non-biased blog is much easier digest than the plethora of deal and coupon sites. A must-read at least once a week.
Website: www.consumerismcommentary.com Twitter: @Luke_Landes
Posted: December 5th, 2013 | Author: Clark Schultz
Chaos Theory 101: Allow for the unexpected.
President John F. Kennedy and Secretary of Defense Robert McNamara attempted to put in a safeguard to prevent the world from nuclear annihilation during the 1960s with a secure password-protected system so an accidental or reckless launch of missiles couldn’t occur. A nifty idea that went sideways when U.S. generals with the Strategic Air Command decided to set every single password to 00000000 to ensure a quick response to an attack from the Evil Empire.
“For 20 years the password for the U.S. nuclear arsenal was ’00000000.’ Kennedy instituted a security system on all nuclear warheads to prevent them from being armed by someone unauthorized. It was called PAL, and promised to secure the entire US arsenal around the world. Unfortunately for Kennedy (and I guess, the whole world) U.S. military leadership was more concerned about delaying a launch than securing Armageddon. They technically obeyed the order but then set the password to 8 Zeros, or ’00000000′.”
Posted: November 27th, 2013 | Author: Clark Schultz
Miller’s Crossing is the 1990 movie from the Coen brothers that resonates like almost no other with certain people. You have either forgotten it completely or have it in your top ten favorites of all-time. Poignant and artful, with a healthy dash of gangster.
It’s a remarkably coincidental fact that the movie’s well-known quotes can be used to evaluate Tesla Motors and the EV automaker’s remarkable stock run.
Tesla began the year in the mid-$30s before running up to $194.50 on the promise of a mass-market paradigm shift to electric vehicles. Shares have since burned rubber back to $120 on concerns of valuation and the impact of a safety investigation. Still, expectations run sky-high. Tesla trades at a valuation that indicates it’s set to produce cars at a rapidly escalating pace.
Can Tesla deliver?
Nobody knows anybody. Not that well.
The acid-tongued Tom Reagan delivers that line in the movie. Reagan doesn’t believe you can trust anybody. The same is true for stocks. Plenty of companies or brands have conquered the world only to fall back again. Even more never delivered to the early hype. Tesla is a wonderfully inventive company led by an innovative leader. And the bull case for a paradigm shift by consumers is compelling. But nobody knows anybody. Not that well.
He’s honest and he’s got a heart.…Then it’s true what they say. Opposites attract.
There is an entreprenurial spirit about Tesla Motors that impresses. To go from being a startup to designing a car that wins Motor Trend’s prestigious Car of the Year award is a landmark achievement. But then there is that whole matter of mass production. Tesla is about to enter the complicated world of labor contracts, foreign partnerships, and working out an uneasy relationship with state AGs on selling directly cars directly to consumers outside the dealer network. Will heart and honesty work?
I suppose you think you raised hell. …Sister, when I’ve raised hell, you’ll know it.
Vera gives Tom a snappy answer as she brushes him off once again, but the smitten Tom gets the last word. Deliciously charming on both ends. Emotions run high on both sides of the Tesla argument (TSLA on Seeking Alpha) as well. The bears think they have given the smug Tesla acolytes their comeuppance, while Tesla bulls see the growth story at the automaker as just in its infancy. With emotion in stock investing comes momentum. Tesla is a wonderful company to follow in the news, but the Keynesian “animal spirits” of investors are likely to dominate the story. Take a flyer if you are a fan of Musk and electric vehicles, but keep your Tesla investment below 3% of your portfolio total.
Sources: Detroit Free Press, Miller’s Crossing
Posted: November 26th, 2013 | Author: Clark Schultz
The U.S. stock market has ripped impressive gains this year but could see some major headwinds with the taper and budget drama on the plate for 2014.
Across the pond, the U.K. stock market is in a different phase. The Bank of England has already shocked the system with hints of higher interest rates amid a recovery that appears to be taking hold based on growth and employment trends. The elephant in the room – higher interest rates – is being discussed openly. The tech and media sectors in the region look ripe for more gains and could help boost major indexes.
Another nugget to consider: The U.K. isn’t part of the traps and pitfalls of the inter-connected eurozone and PM David Cameron is pushing an U.K.-friendly agenda instead of caving to Brussels.
- iShares MSCI United Kingdom Index (EWU)
- First Trust Exchange Traded AlphaDEX Fund (FKU)
- Wisdom Tree United Kingdom Hedges Equity Fund (DXPS)
- MSCI United Kingdowm Hedges Equity Fund (DBUK)
Sources: Financial Times, Seeking Alpha
Posted: November 23rd, 2013 | Author: Clark Schultz
What happens if an alternative band mashes up Velvet Underground guitar feedback-type sounds with their Nirvana-inspired background and adds a haunting twist that reminds of that Alien/Promotheus trailer track?
Sail is the haunting song from Awolnation’s Megalithic Symphony album that pulls off the coup. It was released in 2011 to a mild response, but is now an underground hit turning back to mainstream.
Here at ground control it has at least 2,489 listens and counting at max volume. Grinding speaker test below: