Wible's Weekly: Cord-Cutting, Gaming Updates, and Broadcast Victory - Janney/MediaEntertainment- Tony Wible

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  • Cord-Cutting – According to research by Nielsen, there are now 5 million cord cutting homes (5% of the market). These "Zero TV" households still own a TV set but opt out of MVPD packages in favor of streaming, gaming, and DVDs. The demo skews younger (44% under 35 years old) and tend not to have children (81%). It remains to be seen if some of these users are merely delaying the purchase a MVPD package or if there is a more damaging shift away from traditional TV as younger viewers enter the market that have been conditioned to OTT. The rapid growth in content (including originals) improves the viability of cord cutting but broadband pricing may reduce the cost savings from cord cutting and negate this risk. We note that a significant portion (23%) of NFLX users do not subscribe to an MVPD.
  • Ad Mix – Marketers now expect traditional advertising to decline by 2.7% while dollars shift to digital, according to research by Duke University and AMA. The shift is projected to be most pronounced in business-to-consumer products, with digital growing 14.6% and traditional declining 5.4% in the next 12 months. eMarketer is forecasting long term growth in digital ad spending in the US, from $42.5 billion in 2013 to $60.4 billion in 2017 (9.2% CAGR). Separately, the WSJ reported that online video inventory has risen to the degree that CPMs have fallen and are now more comparable to TV, which could spark flows of ad dollars from TV to online video.
  • Gaming Updates – The digital gaming market grew by 39% last year to $960 million, according to online gaming research company SuperData. This is mostly driven by mobile gaming, where conversion rates are increasing and reached 5.2% vs 2.1% for social. Social gaming is reaching a plateau while increased smartphone penetration is still driving growth for mobile. Separately, PS Vita saw significant sales increases in Japan. While price cuts likely drove this, we wonder whether the recent PS4 announcements on compatibility/integration also played a role, as it essentially future-proofs the PS Vita through the coming cycle.
  • Broadcast Streaming – U.S. Broadcasters can take heart from a legal decision in the EU where European Court of Justice ruled that Internet companies cannot stream broadcast TV content on the web without getting permission from broadcasters who own the rights to programming. This outcome is not likely to affect the future of Aereo, whose service offering is also being contested in court. To date, courts have not ruled against Aereo, and its service offering may be found to be both legal and attractive. This could put pressure on broadcast networks and give more power to MVPDs as they negotiate retrans fees, particularly if they incorporate Aereo-like services.
  • Film Financing – Producers raised over $2.5 million through crowd-sourcing site Kickstarter to help fund a movie based on the TV series "Veronica Mars". The Kickstarter campaign was conducted with the blessing of IP-owner Warner Bros., although it was unclear how much (if anything) they would be contributing to the production or what it would charge for the use of the IP. While we do not believe crowdsourcing has the ability to replace more traditional financing, or the studio green-lighting process, it may help studios evaluate if there is a market for certain films.

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 Investment Research—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.

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