Upfronts, Freemium Risk and Social TV Engagement - Janney/MediaEntertainment

By Wall St. Speaks Out Archives
Cover image for  article: Upfronts, Freemium Risk and Social TV Engagement - Janney/MediaEntertainment

Early Upfront Read – Projections for the upfronts are relatively timid, reflecting factors such as ratings trends, competition from online video and increased optimism around global ad spend. Upfront commitments from ad buyers for cable could accelerate to 5% YOY growth vs 4.3% last year, while broadcast may not see any increase, according to a FOXA executive. The executive expects to see 7%-8% CPM increases for top-tier cable networks, while smaller cable nets will grow CPMs 3%-5%. CMCSA's NBCU is positioning for higher CPMs by focusing on its turnaround performance in the 18-49 demo, although this is in part driven by recent Olympic games. Meanwhile, Magna Global projects 4%-5% growth in cable upfront spend, while broadcast might drop 2%-3%, driven in part by increasing competition from online video. Viewership is increasingly fragmented; however, we still view TV as an effective medium to reach large audiences, and better measurement of online TV viewership will help.

Video Ad Fraud – Increasingly sophisticated online ad fraud is being discovered in online video sites, according to ad software firm TubeMogul. The firm published a list of sites that are contaminated with bot traffic that generates 30 million fraudulent views daily on video ads for advertisers. The level of sophistication is increasing, as the bots will now make one infected computer appear like many more - greatly amplifying fraudulent clicks. We believe the massive size of ad fraud makes it very difficult to measure absolute ROI and is one of the bigger downsides to online spend.

Freemium Risk – New freemium mobile games were opened only once by 19% of players, while 66% stopped playing after 24 hours according to a report by app testing firm Swrve. On average players spend $0.45 over the course of 90 days, with 2.2% actually spending any money and 46% of revenues coming from the top 10% spenders. ARPU for free-to-play MMO titles are higher, with the top 10 (globally, per SuperData) seeing $1.32-$4.51. This is below the $8 US averages cost per install and suggests caution around paying for app-installs. We also view the reliance on whales as a key risk for ZNGA, particularly as we see a significant overlap with core gamers that might prioritize spending on next gen console games (this was prevalent in our recent survey).

Spider Super Ticket – RGC continues to experiment with Super Tickets as a means to participate in the home entertainment market (part of our investment thesis) and leverage the high inelasticity of theater patrons. Spiderman 2 attendees will now get the option to purchase an UltraViolet compatible version in theaters to watch when it becomes available in the home entertainment window. We believe this is a very low risk/cost opportunity to increase revenue per guest. However, studios may need to balance pushback from retail outlets.

Social and 2nd Screen Engagement – According to research by Shareaholic, YouTube is the most engaging social media site based on average time spent and pages viewed per visit. We the platform inherently benefits from the secular demand for online video content. TWTR drives social referrals on par with FB in terms of bounce rates, but both trail YouTube, Google+ and LNKD. Separately, social media use during TV viewing attracts 16% of internet users, with 45% of those using social media related to the program being viewed, according to Nielsen. A recent Deloitte report has 26% of Internet users accessing social media while watching TV, while this is as high as 48% among younger age groups. We view these stats as validating core strategies by TWTR and FB to focus on media integration.

Tony Wible joined Janney Montgomery Scott in 2008 and is a Managing Director covering the Media and Entertainment sector after spending the previous 10 years at Citigroup InvestmentTony WibleResearch—most recently covering the Broadcasting and Entertainment Services industries.
Tony can be reached at twible@janney.com.

Janney Montgomery Scott LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corp. Disclosures may be reviewed at Wible's Weekly.

Read all Tony's MediaBizBloggers commentaries at Wible's Weekly: Janney/MediaEntertainment.

Check us out on Facebook at MediaBizBloggers.com
Follow our Twitter updates @MediaBizBlogger

The opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggers.com management or associated bloggers. MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries.

Copyright ©2019 MediaVillage, Inc. All rights reserved. By using this site you agree to the Terms of Service and Privacy Policy.