Wible's Weekly: Cord-Cutting, Social TV, and Display Dilemma - Janney/MediaEntertainment

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9% Cut the Cord – Cord-cutting remains relatively stable at 9% of broadband homes, according to a survey by Leichtman Research. The survey supports the notion that cord-cutting is driven more by economics (price) than the a preference for (online) alternatives, although we believe that people would be less price sensitive if there were no low-cost alternatives. We believe that Aereo is part of these alternatives and its expansion and legal progress will help bring an alternative to pay TV to more households. However, Aereo continues to be challenged as it enters new markets by local broadcasters and networks. Given the conflicting FilmOn and Aereo precedents, this will likely end up as a Supreme Court case, a petition for which was filed on Friday by broadcasters.

Social TV Ratings? – Twitter is ramping up its TV deals, as it prepared for its (estimated) mid-November IPO. Its latest announcement was with CMCSA, where their subs can click on a "see-it" button in certain tweets to access programming across devices. This should improve content discovery and will help quantify second screen behaviors that we see as increasingly important part of the ad buying process. Separately, Nielsen introduced Twitter TV ratings, capitalizing on the social media service as an indicator of audience engagement. Nielsen believes that the ratings help determine reach and unique audience/impressions as a pathway to brand momentum. The Twitter TV audience is estimated to be 50x larger than the number of authors (on average), according to MediaPost, although that does not represent the number of actual viewers. It is unclear how this will incorporate demo data and how the social media reach compares with traditional TV measures.

Digital Ads Gaining Share – DIS' ESPN and AOL struck a premium video syndication agreement which will strengthen AOL outlets and its partners' sites with ESPN-branded content, including SportsCenter video content, news, highlights, and analysis for multiple sports. The deal is positive for AOL which is transitioning to a content-centric model driven by advertising, as its subscription business continues to decline. Interestingly, ESPN is leading the ad sales for the library of video content that will be accessible through the AOL On Network, with revenue share flowing back to AOL and syndication partners. The IAB reported that digital video generated $1.3 billion in ad revenues in 1H13, up 24% YoY. This growth is well ahead of total internet ad spend and traditional TV ad spend. Ubiquitous access to content and the growth of overall viewing should continue to support ad growth.

Display Dilemma – Consumers generally can only see about 46% of the ads loaded on a desktop web page, which is a big issue for display advertising. Media technology firm Sticky goes one step further by tracking (using webcams) the number of ads that were actually seen, which averaged out to about 14%. This number varied significantly across website design and placement of the ad, but clearly there is an inefficiency if ad buyers are paying for impressions that are not seen. We see this as a boon for mobile as buyers realize there is a lower ROI on desktop. Sticky believes that marketers could unlock some of the 94% of brand dollars that are spent offline by having these additional metrics.

Parks Updates – DIS' MyMagic+ parks innovation is getting more attention in the press. The wristband /RFID technology can gather data to personalize marketing and will encourage spending through the use of non-cash payment through the wristbands. This information has the potentially to help target merchandise based on behavior in the park. Separately, Hong Kong Disneyland plans to open an Iron Man attraction in 2016 - the first Disneyland attraction since the acquisition in 2004. Marvel characters are popular in the region and make for a great audience draw given that many in the region are less familiar with the classic DIS characters. We believe DIS has a tremendous opportunity for leveraging Marvel and Lucasfilm content across its businesses globally, including Parks. However, we note that these projects combined with the build out of Avatar in Orlando and the Chinese park will weigh on Cap Ex in 2015/16.

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.

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