BOTTOM LINE: On our analysis of new data from Nielsen, SVOD services (including Netflix, Amazon Prime and Hulu Plus) have now passed 50% TV household penetration in the United States as of the end of February, up from 43% in the year-ago-period. Despite this rise, core television viewing trends are down only modestly, and not by much more in homes accessing SVOD services than in those without them. Notably, not every network group is down because of the growing availability of SVOD services. Looking at data for the period from October 1 2015 to Feb. 21 2016 vs. the year-ago period, we can see that viewing of the CBS broadcast network and of Time Warner’s ad-supported cable networks are up by more in SVOD homes than in those without SVOD services. Ultimately, we do not believe the growth of SVOD services meaningfully impacts advertisers’ spending at the medium level, but we do see ongoing risks to affiliate fees which can be offset by license fees from the SVOD providers.
We continue to view companies focused on video and television favorably, and see the most upside vs. yesterday’s trading levels at Viacom and Time Warner. While Time Warner stands out solely for its relative risk-adjusted growth potential vs. peers, Viacom is a somewhat more challenging stock to own, of course. Although it has governance, management and related perception issues at this time, for investors with sufficiently long time horizons and risk tolerance, it provides the greatest potential upside relative to where the stock currently trades.
Additional commentary and data is included in the following note.
FULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE: TV Update 3-8-16.pdf
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