Wible's Weekly - SVOD Overlap, TV Everywhere Improvements, and COPPA Complication - Janney/MediaEntertainment

SVOD Updates – According to a report by NPD Group, there was a 34% YoY increase in SVOD viewers watching TV shows in 1Q13. NFLX captured 89% share of the viewing units, which was down a bit form 93% in 1Q12. Hulu Plus grew its share from 7% in 1Q12 to 10% in 1Q13, while AMZN Prime accounted for 2%. Subscribers are now more likely to try multiple services. NFLX only subs fell to 67% from 76% in 1Q12 while 10% now use both NFLX and AMZN and 8% use NFLX and Hulu. The market place may get even more fragmented, as DISCA is prepared to offer direct consumer subscription services in a new window between traditional VOD and SVOD.

TV Everywhere –According to comScore, TV Everywhere viewers across seven MVPDs grew 24% since January with a commensurate 27% increase in the number of videos streamed. However, CMCSA showed an odd 3% drop in viewers despite the fact that it has the largest platform. It appears that viewers are moving to TV Everywhere for must-see live programming based on the spike of XFinity viewership during the NCAA basketball championships in March. These are encouraging signs given the ratings, rights, and authentication headwinds that have plagued the service to date. However, TV Everywhere remains relatively small compared to SVOD providers with on a 1.6% combined share vs. 10.6% for NFLX.

COPPA Connection – Apps for kids are currently extracting more user data than most users are aware of, without parental consent, according to a WSJ article. Collecting data from kid-friendly apps will be more difficult after July 1, when the new FTC rules on children's online privacy (COPPA) take effect. A recent WSJ article notes that many apps collect more data than most users are aware of. This new hurdle will limit the effectiveness of targeted adverting, and while it is a very tenuous connection, we believe that makes traditional advertising incrementally more attractive to the benefit of names like VIA.

Digital Offset – NPD estimates that U.S. consumers spent $3.5 billion on games in 1Q13, which is flat YOY and reflects a 25% YOY increase in digital sales that offset weaker end of cycle packaged goods sales. The company estimated there was $559 million spent on used games and rentals and another $1.59 billion spent on all forms of digital media (DLC, social media, mobile, etc.). The numbers imply that digital is the largest component of overall videogame content spending. Separately, there are reports that GOOG is developing a videogame console that we suspect will push Android mobile games to TV screens. We do not believe this is a threat to console gaming and note that GME also recently made an investment in a similar hardware concept company called Game Stick.

Digital Marketing – According to a survey by marketing software company Vocus and Inc. Magazine, small businesses are quickly moving to digital marketing strategies (website and social media) as we suspect financial and technical hurdles for digital marketing tools come down and are now seen as a more attractive alternative to traditional media. Small businesses currently have relatively simple goals but increasingly use digital tools to help drive customer engagement and reach new customer segments. Over time, this may signal a potential shift in local marketing away from local print, radio, and TV - albeit we believe each media serves a different purpose.

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.

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