This is Eric Jackson’s weekly Sunday newsletter, republished with permission. Jackson is an investment manager at Ader Investment Management. Subscribe to his newsletter here, or listen to his podcast here.
We are about halfway through earnings from Big Media after this past week.
We heard from:
- Discovery (good)
- Fox (not so good)
- AMC Networks (good)
- CBS (pretty good)
- Time Warner (not good)
- Disney (not bad which was taken as very good)
If you had to draw a conclusion from the various calls, it is that the bigger of the big media (Disney, Fox, and Time Warner) are all still seeing sub losses. But some (Discovery and AMC) are picking off ad budgets for strong shows and networks at the expense of the bigger names.
Time Warner took the biggest hit this week, finishing down nearly 9% vs. the S&P which was up about 1%.
If you listened to the TWX call, the biggest reason for investor worries was because they took down their 2016 EPS target from $US6.00 to $US5.25. Their explanation was that at least 50 cents of the cut was due to FX. Management struck a tone of: “other than that, nothing to see here, and we’re doing quite well.”
Wall Street clearly didn’t believe Jeff Bewkes and Company. And why should they take the FX explanation at face value? The dollar has been strong for months now. Although they said that sub losses were tracking ahead of what they predicted for next year (1%), they didn’t say exactly how much they were tracking ahead.
What I found very strange was that Bewkes took time in his prepared remarks to talk about how his company needed to invest in the customer experience:
“…having great content is no longer enough. Content has become just one element of the broader consumer experience. And while we are living in the golden age of television programming, for many consumers, the television viewing experience is stuck in the Bronze Age. So we’re stepping up our investment and providing the best possible consumer experiences. For instance, we plan to increase our investments in new digital products and infrastructure so that we can meet consumer demand for video outside traditional TV and compete effectively across platforms.
That includes new broadband delivered initiatives targeted at millennials such as HBO NOW, CNN’s start up Great Big Story, and TBS’s new digital studio, Super Deluxe.
It also includes investments like Turner’s majority stake in iStreamPlanet, a leading platform for live streaming. And we’ll continue to build out data and analytics capabilities, both as the engine of our industry leading advanced advertising product and to inform our marketing, our digital products and even some of our content development itself.”
And Bewkes wasn’t the only one talking about this additional investment. Bob Iger spoke about the same thing on Thursday night:
“From our perspective, there are three key elements that are essential for success in media today.
First, you have to have a quality product, preferably high-quality branded product. Next, you need to create a fantastic user experience with incredible interface navigation, you have to make the service easy-to-use and the content easy-to-find. And the third essential element is mobility. Consumers now dictate where they want to access media and it’s essential for legacy distributors to crack the mobile code. The demand for great content is stronger than ever, but consumers are demanding a better user experience and they’re migrating to platforms and services that deliver it. Because of our great brands and franchises, we’re uniquely positioned to use new platforms to reach more people and to do so in more compelling ways. And we intend to use these platforms to augment distribution and connect with consumers more directly.”
I’ve got news for Iger and Bewkes: you don’t have a user experience. You have great content. But the user experience is on the new Apple TV, or the iPad, or the iPhone, or the Roku box. You are an app.
Your “great brands and franchises” are important. Game of Thrones. The NBA. The NFL. Mickey Mouse.
But “incredible interface navigation”?
Migration to platforms and services that deliver “a better user experience”? Are people tuning off ESPN because FS1 gives them a better user experience on a mobile device? It’s preposterous.
These guys are delusional if they think they are (or are going to be) magical software whizzes like Steve Jobs. What they do – content – can be magical when done well. But it’s all bits and bytes through the pipes and showing up on a device. Just keep making great content or buying sports rights. That’s all.
Netflix goes above and beyond with its “queue” and ability to learn what content people watch and predict what they might like to watch. Maybe that’s the aspiration here for Bewkes and Iger: they want to be as smart as a Netflix app. They want to be as magical as Hastings and not Jobs.
That would be ironic – at least for Bewkes, as he famously once referred to Netflix as the Albanian army.
Regardless of who they want to be, it’s unlikely that either Time Warner or Disney or any other traditional Big Media company is going to figure out some magical user experience any time soon. Buy all the data and analytics you want. Hire all the fancy engineers you want. Tell them that working at Columbus Circle is exactly the same as Silicon Valley. It all sounds like money down the drain.
Which perhaps is why Time Warner’s shares got pummelled.
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