Wible's Weekly: Upfronts Up, Gaming, and Social Media Updates - Janney/MediaEntertainment

Advertising Upfronts – NBC and ABC are reported to book 7%-8% CPM increases in this year's upfront, while CBS had been reported to be in that range as well. The CPM increases are on the high end of what we had expected, and we believe this bodes well for the overall ad climate. CBS and ABC volumes were slightly lower, ABC's volumes driven by the network's unwillingness to lower prices. NBC bucked this trend and sold more inventory as it sought to lock in better pricing from improving ratings at top shows. Ad Age estimates that $800 million less was spent on the upfronts, which could mean advertisers are looking elsewhere (including cable or digital) to spend their dollars, or wait to try in the scatter market. We believe the implications of lower upfront volumes are positive for cable networks, in particular VIAB.

Gaming Updates – Nintendo reaffirmed its outlook for Wii U sales (9 million units) for this year, despite disappointing sales trends to date. More first party titles could drive sales and will benefit GME. TTWO was positive on selling AAA titles for tablets, particularly with the upcoming external iOS controller that would attract gamers, although this is likely a few years away. FB announced a mobile game publishing effort, aimed at more casual games, in competition with ZNGA. GOOG noted that thousands of players are logging in through Google+ to play multiplayer games via game services for Android. Google Play game services offers elements including Multiplayer, leaderboards, and achievements to make games stickier. We see casual games as positive for gaming, adding more players and expanding gaming time, and not necessarily a substitute for the new console cycle.

IPTV Competition – IPTV competition could be mounting as video becomes an increasingly important driver for AMZN Prime membership, according to recent management comments. More successful competition by AMZN and others may push content costs higher. Interestingly, IPTV services have to date not meaningfully affected premium channel adoption, even in the face of declining/stable MVPD subscribers, according to research by SNL Kagan. Premium subscriptions have risen 22% since 2009, while MVPD subs have been flat. Premium services per home went from 1.5 in 2009 to 1.8 in 2012. Programming spending will likely move further toward originals, similar to NFLX, and we believe that as the bar is raised, this may put at risk smaller or less successful networks, e.g. STRZA, substantially increasing their costs.

Cord Cutting – Fewer households rely on antennas for TV viewing in 2013 than in 2010, according to a CEA survey. Just 7% of TV households rely solely on antennas for TV signals, vs. 8% in 2010. The survey also found that the proportion of homes that receive TV programming through MVPDs dropped 5% to 83%. We believe this data implies that cord-cutters primarily use IPTV as a substitute for MVPD service, as the amount of content available and adoption of mobile connected devices increase.

Social Media – FB launched a new video advertising products that sells TV-style ads on its site for up to $2.5 million, according to Bloomberg. FB may start offering 15-second spots this year similar to other online companies' efforts to capture TV ad dollars, including GOOG's YouTube and AOL. The ads will be sold on a full-day basis, and can be targeted based on age and gender, similar to TV ads. FB is sensitive to advertising affecting the user experience and users will likely be limited in how many ads they are exposed to. FB now attracts more 18-24 year olds during prime time viewing hours than the four major TV networks, according to Nielsen. The data could change advertisers' perception of FB's reach and drive second screen advertising budgets toward FB.

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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