Arguably, the breakout star of last week's WidgetCon was Eyal Gever of the Israeli-based startup Gizmoz. While his peers offered sobering case studies, Gever let his product speak for itself, making him an instant rock star with the audience. The
proposition: create a 3-D animated avatar simply by uploading a head shot. Trick it out in a couple of minutes, not the hours one can spend on Second Life. Users are then able to take their avatars across the Web -- into virtual worlds, within blogs, on Xbox, Wii, and later, mobile platforms. Gever's endgame is beyond simply being a best of breed widget company. Gizmoz sees its tools as bringing "Pixar to the People." Gever contends that his
contribution is creating "much more than just an avatar. It's about good storytelling. It's a new form of entertainment. We want to establish a new form of expression." Gever hinted at the promise of avatars being mashed-up within video and 3-D environments with a short clip of his avatar performing acts of derring-do in a James Bond movie. Gever has taken the concept to the branding level - working with celebrities such as 50 Cent and Destiny Child's Kelly Rowland to create avatars that can then be deployed on their MySpace homepages. Even before launch Gever was approached by MTV and Taco Bell for TV Me!, a user-generated contest to find three "consumer actors" for an ad spot that debuts during the MTV Video Music Awards (VMAs) on September 9, 2007. by Jerry Weinstein
MAGNA Global Second-by-Second Ratings Insights
MAGNA Global media agency established the first industry deal for access to TiVo's groundbreaking second-by-second ratings, providing exclusive insights. MAGNA's Steve Sternberg,
using three seasons of average minute Nielsen data has developed an in-depth study into the dynamics of commercial pod versus program performance in primetime. He advises "the average second information provided by TiVo will help us validate or fine-tune previous findings. It will also give us unprecedented media buying insights and a new way to evaluate creative effectiveness in a DVR environment."
Sternberg shared initial findings from the agency's first report based on the TiVo database:
DVR users seem to have better
commercial retention than non-DVR users when watching live TV.
There is little variation in commercial fall-off during live viewing based on position within a commercial pod.
About half of all primetime broadcast viewing is time shifted in TiVo homes.
Roughly 70 percent of
commercials are fast-forwarded during playback (this is in line with the MAGNA Global Commercial Pod Study).
The first and last positions in a commercial pod experience less fast-forwarding than middle commercial positions.
AOL "Free" Strategy Tracking Ahead of Schedule
Bear Stearns analyst Spencer Wang reports there are signs that AOL's free strategy is tracking ahead of schedule, leading to an Outperform recommendation for Time Warner Inc. (TWX). In his report, Wang
provides an update on the progress of AOL's new "free" strategy by analyzing 2Q07 comScore data. He also provides a preview of TWX's 2Q07 earnings, which are scheduled to be released before the market open on August 1. Wang advises:
First, reported AOL page views totaled 52,080 million for 2Q07, +0.8% y/y.
We view this increase, albeit slight, as very significant because this is the first time that AOL page views has
shown a y/y increase since it began losing subs, signaling the new strategy is yielding the desired results (i.e., more page views despite fewer paying customers).
TWX management has in the past indicated that AOL page views should begin showing increases in 3Q07, implying that the new strategy may be a quarter ahead of schedule.
In addition, as we have written in the past, comScore reported statistics understate AOL's page views
and need to be adjusted for two factors:
Time, Inc. websites which are no longer managed by AOL as of 3Q06 and
lost AOL subs between 2Q06 and the implementation of the new free strategy.
Adjusting for these 2 factors, AOL page view performance is even better. On this basis, AOL's page views rose an estimated 7.9% y/y in 2Q07, a sequential acceleration from low single digit growth in 1Q07, flat growth in 4Q06 and declines prior to the new strategy.
We reiterate our Outperform rating and $24 price target on TWX based on positive signs for AOL's new strategy and our thesis that TWX will more aggressively restructure its business portfolio over the next 12-18 months. We believe valuation remains appealing with non-Cable TWX selling at 16x '07 P/E.
News Corp Jones'n for Dow Jones
Wang also issued an advisory on News Corp, addressing the likely decision by Dow Jones and the controlling family interests
to accept its $60/share bid. Issuing a "Peer Perform" rating, Wang provided a detailed analysis of potential synergies and the implications for NWS.
Assuming 10.8x '07 EV/EBITDA, we estimate DJ's core businesses are worth $4 billion. In turn, if this is accurate, NWS's $5.5 billion bid implies $1.5 billion of "synergies." Areas of synergy are
potentially economies of scale, overhead elimination, online benefits, and jump starting NWS's fledgling Fox Business News (FBN) channel.
Our analysis finds very low correlation between scale and margins, implying limited economies of scale, while elimination of DJ's overhead leads to an estimated $383 million of synergy value. We
also see limited online synergies as our survey of MySpace users finds that news/information is not users' primary focus on MySpace.
Therefore, for a deal to be value neutral for NWS, synergies related to FBN would need to total ~$1.1 billion. Ex-Dow Jones, we estimate FBN is worth about $540 million, implying that DJ
synergies would have to triple the value of FBN. We think this is unlikely, especially with the WSJ's exclusivity with
CNBC running through FY12.
We believe the good news is that a negative value impact from a possible DJ deal is small relative to overall NWS and the stock's recent underperformance appears to have factored in the downside risk, as long as dilutive acquisitions do not become the norm.
Although we do not regard valuation as demanding for NWS, we maintain our Peer Perform as we think further
exposure to newspaper/business content is a questionable use of capital, relative to other options.
DISCLOSURES & REG AC IN REPORTS AVAILABLE FROM BEAR STEARNS. Spencer Wang can be contacted at SWang1@bear.com
CBS: Asset Sales and Share Buyback Expected
JPMorgan analyst John Blackledge advises in a report he "expects a modest quarter, with 2Q07 revenue and EBITDA of $3.4b and $879m, down 2% and flat y/y, respectively. We are forecasting
2Q07 EPS of $0.53 (vs. $0.49) driven by a lower share count and lower interest expense." Blackledge maintains an Overweight rating. Explaining "CBS trades at 9.4x 2007E EV/EBITDA, at the low end of the pure play TV, radio, and outdoor players trading between 10x-15x."
We estimate 2Q07 TV segment revenue and EBITDA to decline about 3% and 2% y/y, respectively, given the absence of the Final Four in 2Q07 (vs. 2Q06 last year), the lack of political
revenue at the TV station group, as well as lower syndication results and the absence of the UPN network. Also ratings declines at the network, which were down 9-10% in key demo's were partially offset by double digit increases in the scatter market.
We believe the Outdoor segment will experience continued strong organic growth domestically in 2Q07, with
domestic revenue up high single-low double digit (x-the absence of NYC and Chicago transit deals), while continued investment in London underground should offset cost savings, resulting in revenue up
over 2% and EBITDA up roughly 5% y/y.
We believe further radio station divestitures could be in the works and could generate net proceeds of about $300-$360 million. Given CBS's sale of 39 radio stations last year for about $670
million (or roughly 14x EV/EBITDA) and with the challenges facing the radio sector, CBS may be willing to sell an additional 20-30 more stations in its smaller markets.
CBS may also either increase its dividend and/or announce a share buyback. CBS is currently paying out about 45% of its FCF via its dividend and given that it's targeting (longer term) a 60-70%
payout of FCF, another dividend increase could be on the horizon. Additionally, a share buyback could also be in the offing given CBS's low leverage and cash on hand.
