Wible's Weekly - HBO Direct, Foreign Affairs, and the 2nd Screen - Janney/MediaEntertainment

HBO Direct – We believe MVPDs are incrementally shifting focus to their broadband business, as it stands to be more profitable than video longer term and as it serves as a core platform for delivering more services. This is increasingly important as the traditional video business copes with Internet video alternatives and rising content costs. We see the integration of NFLX into set tops and news of CMCSA looking to provide HBO through a broadband package as signs of this shift. The new CMCSA product will provide access to local broadcasts and StreamPix. The new bundle has the potential to broaden HBO's market share. The move could be seen as a threat to NFLX or could actually drive business if these cord shavers see NFLX as an attractive complement given its ability to provide access to programing that subs may lose by abandoning traditional plans.

China Import – Chinese regulators have issued a decree that limits the import of non-factual programming for TV. Starting in 2014, satellite broadcasters will be limited to only one foreign format (to be aired in non-primetime hours) and only one musical talent show will be approved every quarter. China is forecast to be the largest pay TV market by the end of 2018 with 313 million households, and this will put a damper on growth prospects for program developers. However, documentaries will not face these restrictions which could bode well for DISCA, and FOXA's Nat Geo, and potentially for some of SNI's properties. In addition, Chinese viewers consume a lot of TV over the Internet, which does not appear impacted by these restrictions. We believe companies such as DWA that are investing locally may have an advantage in accessing the Chinese market.

TV Ratings – As viewers diversify how they consume content, viewership metrics are evolving, albeit slower than hoped. Nielsen recently introduced Nielsen Twitter TV Ratings, which incorporates social media buzz and measures the reach and impressions of tweets about TV programs. However, 53% of respondents find social media commentary on-screen distracting, according to a survey by Horowitz Associates. We believe cable networks are eager to tie social media to their broadcast, as it will be a tool to gain share of ad spend given the heavy use of 2nd screens during commercials. In a recent Deloitte survey of UK 2nd screen users 71% said they were likely to use the other device during ad breaks or program junctions, while 70% uses the other device when the content is "boring".

Media Ownership – The FCC is considering softening its stance on foreign TV and radio station ownership (currently capped at 25%), ahead of a Nov-14 vote. While the rules are set in Federal law, the FCC can make exemptions on a case by case basis. The FCC believes their proposal clears the way for increased access to capital and potential new investors for the broadcast sector. Immediate beneficiaries may be companies such as FOXA, which has had to suspend certain foreign stockholder voting rights to comply with current rules, and Univision, which is already part-owned by Mexico-based Televisa.

Ad Spend – US upfronts for the 2013-2014 season saw the shift toward cable continue. Cable took in $10.2bn (+4.1% YoY), vs. broadcast at $9.0bn (-1.5%), according to estimates by SNL Kagan. Media companies commented on the upfronts in recent earnings calls, with CMCSA confirming CPM increases of 7%-8% and DISCA noting that the broadcast CPM premium of ~30% was getting softer, which may have helped demand. Ad agency MediaVest announced its own "upfront" deal with GOOG for display, video, and mobile inventory in the US for the upcoming year. The deal gives their clients such as CCE, Honda and WMT access to online content such as YouTube partner channels, Google Display Network sites (e.g. People.com) and AdMob mobile app/display networks.

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 InvestmentResearch—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.