Media and Distribution Diversified Entertainment: Market Overweight Pay-TV: Market Weight Local: Market Weight
A View Of The Media Ecosystem: What Happens Now?
NYC September 12, 2019
Marci Ryvicker, CFA, CPA, Sr. Analyst (646) 582-9330 [email protected]
This report is limited solely for the use of clients of Wolfe Research. Please reference to the DISCLOSURE SECTION located at the end of this report for Analyst Certifications and Other Disclosures. For Important Disclosures, please go to www.WolfeResearch.com/Disclosures or write to us at Wolfe Research, LLC, 420 Lexington Avenue, Suite 648, New York, NY 10170. Media Is Being Disrupted
Newspaper
• Digital publications (i.e. Buzzfeed, Vice Media, Vox) • Facebook/ Google • Twitter
Radio:
• Sirius/ Pandora • Apple Music/ Spotify • Podcasting
Television:
• SVOD (i.e. Netflix, Hulu, Amazon Prime Video) • VMVPDs (i.e. Hulu Live, YouTube TV, AT&T TV Now) • DTC (i.e. CBS All Access, WWE Network) • YouTube/ Pluto TV
Outdoor: • Connected and self driving vehicles (eventually…..)?
Source: Wolfe Research, LLC 2 Media Is Being Disrupted
Wolfe’s US Advertising Growth Forecast by Medium (%) 2017A 2018E 2019E 2020E 2021E 2022E 5-Yr. CAGR Digital 21% 18% 17% 13% 12% 10% 13% Television (5%) 5% (3%) 6% (7%) 6% 0% National Cable (5%) 3% (0%) 6% (6%) 5% 1% Local Broadcast (5%) 10% (9%) 9% (9%) 10% 1% Network Broadcast (5%) 3% (0%) 6% (6%) 5% (0%) Print (11%) (18%) (18%) (16%) (15%) (13%) (15%) Radio (3%) (2%) (3%) (2%) (3%) (2%) (3%) Out of Home 1% 4% 3% 3% 3% 3% 3% Directories (22%) (20%) (19%) (17%) (15%) (12%) (16%) TOTAL U.S. ADVERTISING 4% 7% 5% 8% 4% 7% 6%
Real GDP 2% 3% 3% 3% 3% 3% 3% Nominal GDP 4% 5% 5% 5% 5% 5% 5%
Advertising Growth (5-yr. CAGR)
15.0% 13.0%
10.0% 6.0% 5.0% 5.0% 3.0% 3.0% 0.5% 0.0% Digital Total U.S. Nominal Out of Real GDP Television Radio Print Directories Adv. GDP Home (5.0%) (2.5%)
(10.0%)
(15.0%) (15.3%) (15.8%) (20.0%)
Note: Our advertising estimates include political and Olympics advertising. Source: eMarketer and Wolfe Research, LLC 3 Advertising Trends
Wolfe’s U.S. Advertising Market Share by Medium (%) 2017A 2018E 2019E 2020E 2021E 2022E Digital 44% 48% 53% 56% 60% 62% Television 34% 33% 30% 30% 27% 27% National Cable 13% 12% 12% 11% 10% 10% Local Broadcast 9% 9% 8% 8% 7% 7% Network Broadcast 8% 7% 7% 7% 6% 6% Print 11% 9% 7% 5% 4% 4% Radio 7% 6% 6% 5% 5% 4% Out of Home 4% 4% 4% 3% 3% 3% Directories 1% 1% 1% 0% 0% 0% TOTAL U.S. ADVERTISING 100% 100% 100% 100% 100% 100%
Television Advertising Market Share by Medium (%)
70%
60%
50%
40%
30%
20%
10%
0% 2017A 2018E 2019E 2020E 2021E 2022E
Digital Television Print Radio Out of Home Directories
Note: Our advertising estimates include political and Olympics advertising. Source: eMarketer and Wolfe Research, LLC 4 TELEVISION ECOSYSTEM IS BEING DISRUPTED
5 Television Ecosystem – The Content Trail
Television Broadcast Stations Networks
Distribution Consumer Cable / Telco / Satellite
Cable Networks
DTC SVOD – NFLX
Source: Wolfe Research, LLC 6 Television Ecosystem – The $$$ Trail
Television Reverse comp Broadcast Stations Networks
Consumers can get broadcast for free via an Retransmission consent antenna! Fixed Payment
Monthly fee Distribution Consumer Cable / Telco / Satellite
Affiliate fee
Monthly fee Symbiotic (we think) Monthly fee Cable Networks
DTC SVOD – NFLX
Source: Wolfe Research, LLC 7 OTT – The Evolution Of Video Content Distribution
OTT (Over The Top)
• A standalone streaming service distributed over the internet that bypasses traditional distribution forms such as cable, satellite, and telecommunications.
SVOD (Subscription Video On Demand)
• An on-demand OTT video streaming service that typically provides a wide range of content for a flat monthly subscription fee (typically not live). Content can be aggregated and created by the service. • Examples include Netflix and Amazon Prime.
VMVPD (Virtual Multichannel Video Programming Distributor)
• An OTT service that aggregates live and on-demand linear content and delivers it via a streaming internet service. • Also known as a skinny bundle. Examples include: Hulu Live, DISH’s Sling, YouTube TV, DirecTV Now, PlayStation Vue, and fuboTV.
DTC (Direct to Consumer)
• An OTT service that is distributed by the content creator directly to the customer for a monthly fee. • Examples include: CBS All Access, HBO Now, WWE Network, and the upcoming Disney+.
Source: Company data and Wolfe Research, LLC 8 SVOD Was The First OTT Product
• Netflix – largest SVOD service in the world that offers thousands of original and licensed content in over 190 countries.
• Launched streaming service Feb 2007 • 60.1MM domestic subs & 81.5MM international subs as of June 2019 • Basic plan ($8.99/mo.) – stream only 1 device at a time in SD • Standard plan ($12.99/mo.) – stream up to 2 devices at a time in SD or HD • Premium plan ($15.99/mo.) – stream up to 4 devices at a time in SD, HD or UHD
• Hulu – similar to Netflix, Hulu offers a library of original and licensed content; 28MM subs (incl. its Live TV service subs as well) as of 6/30; launched March 2008; streaming library is available in HD.
• Hulu ($5.99/mo.) – service has limited ads • Hulu (No Ads) ($11.99/mo.) – service is ad free
• Amazon Prime Video – offers thousands of original and licensed content to Amazon Prime members at no additional cost.
• Over 103MM Prime subscribers worldwide as of April 2019 • Prime Video ($8.99/mo.) – only provides access to Prime Video in SD, HD, or UHD • Prime Monthly ($12.99/mo. or $119/yr.) – access to all benefits of Prime membership (incl. Prime Video, Free Two-Day Shipping, etc.)
Source: Company data and Wolfe Research, LLC 9 VMVPDs – Are They Breaking The Bundle?
• YouTube TV – 70+ channels for $50/mo.; package incl. the most popular broadcast and cable networks as well as RSNs. As of September 2019.
• Hulu Live – 60+ channels PLUS access to Hulu’s SVOD service; package incl. the most popular broadcast and cable networks as well as RSNs; available in HD • Hulu + Live TV ($44.99/mo.) – SVOD service has limited ads • Hulu (No Ads) + Live TV ($50.99/mo.) – SVOD service is ad free
• AT&T TV Now– 2 main packages, incl. an assortment of broadcast & cable networks and RSNs: • Plus ($50/mo.) – 45+ channels; includes HBO • Max ($70/mo.) – 60+ channels; includes HBO and Cinemax
• Sling TV – 3 main packages, consisting of mostly cable networks and RSNs:
• Orange ($25/mo.) – 30+ channels • Blue ($25/mo.) – 40+ channels • Orange + Blue ($40/mo.) – 50+ channels
• fubo TV – 2 main packages centered on live sports
• fubo ($44.99/mo.) – 90+ channels • fubo Extra ($49.99/mo.) – 110+ channels
• Charter’s Spectrum TV Essentials – 60+ entertainment channels (i.e. no broadcast or sports networks) for $14.99; only available to consumers within its broadband markets
Source: Company data and Wolfe Research, LLC 10 DTC Is Fragmenting The Bundle
• CBS All Access – 4MM subs; launched Oct. 2014; price $5.99/mo. (or $9.99/mo. ad-free)
• Showtime Now – 4MM subs; launched July 2015; price $10.99/mo.
• CBS’s Target – 25MM combined subs for All Access and Showtime OTT by 2022
• ESPN+ – 2.4MM subs at June 30th; launched July 2018; price $4.99/mo.
• Currently losing nearly $200MM per quarter
• Disney+ – most controversial DTC product and expected to compete with NFLX on some levels
• Launching Nov. 12th for $6.99/mo. • Bundle of Disney+, ESPN+, and ad-supported Hulu will launch the same date for $12.99/mo. • Wolfe Research subscriber est. is 25MM by the end of Year 1, ramping to 90MM by 2024
• HBO Now – 5MM subs as of Feb. 2018 (last available data); launched April 2015; price $15/mo.
• WWE Network – 1.6MM subs; launched Feb. 2014; price $9.99/mo.
• The first DTC product launched by a content creator
Source: Company data and Wolfe Research, LLC 11 We Estimate A -6.5% Traditional MVPD CAGR
Traditional MVPDs 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E CAGR ('18A - '24E) ATUS 3,406 3,308 3,239 3,161 3,073 2,975 2,867 2,749 (3.0%) CABO 347 310 280 243 206 169 132 95 (17.9%) CHTR 16,400 16,104 15,552 14,960 14,335 13,660 12,985 12,310 (4.4%) CMCSA 21,303 20,959 20,353 19,543 18,693 17,843 16,993 16,143 (4.3%) Other 10,312 9,594 8,876 8,158 7,440 6,722 6,004 5,286 (9.5%) CABLE 51,767 50,275 48,300 46,065 43,747 41,369 38,981 36,583 (5.2%)
DISH Network 11,030 9,905 9,054 8,139 7,188 6,322 5,541 4,841 (11.2%) DirecTV 20,458 19,222 17,222 15,212 14,062 13,062 12,162 11,362 (8.4%) SATELLITE 31,488 29,127 26,276 23,351 21,250 19,384 17,703 16,203 (9.3%)
T 3,631 3,681 3,384 3,184 2,984 2,784 2,584 2,384 (7.0%) VZ 4,619 4,451 4,234 4,066 3,898 3,730 3,562 3,394 (4.4%) Other 2,376 2,336 2,216 2,096 1,976 1,856 1,736 1,616 (6.0%) TELCO 10,626 10,468 9,834 9,346 8,858 8,370 7,882 7,394 (5.6%)
TOTAL TRADITIONAL LINEAR PAY-TV SUBS 93,881 89,870 84,409 78,761 73,854 69,122 64,565 60,180 (6.5%) Y/Y Change (4.3%) (6.1%) (6.7%) (6.2%) (6.4%) (6.6%) (6.8%) Note: Figures in thousands
100,000 93,881 89,870 84,409 CAGR: -6.5% 78,761 Satellite – DirecTV and DISH lost over 1MM 80,000 73,854 subs EACH in 2018 – a 2.4MM total decline, or 69,122 64,565 7% of total subs. 60,180 60,000 Cable – Lost ~1.5MM subs, or 3% of their total
40,000 subs
Telco – Lost 150k subs, or 1.5% of their total 20,000 subs Number Number of (‘000s) Subscribers
0 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E
Traditional MVPD Subscriber Estimates
S&P GLOBAL CONTAINS COPYRIGHTED AND TRADE SECRET MATERIAL DISTRIBUTED UNDER 12 LICENSE FROM S&P. FOR RECIPIENT’S INTERNAL USE ONLY Source: Company data, S&P Global and Wolfe Research, LLC estimates. We Estimate VMVPDs Will Add ~2% To The Pay-TV Ecosystem Annually
Virtual MVPDs 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E CAGR ('18A - '24E) DISH Sling TV 2,212 2,417 2,482 2,477 2,472 2,467 2,462 2,457 0.3% DIRECTV NOW 1,155 1,591 1,409 1,709 1,909 2,009 2,059 2,109 4.8% Hulu 450 1,650 2,850 3,750 4,550 5,350 6,150 6,950 27.1% YouTube 300 1,450 2,250 2,650 3,050 3,450 3,850 4,250 19.6% Philo 50 150 250 350 450 550 650 750 30.8% fuboTV 125 275 400 440 480 520 560 600 13.9% Sony Playstation View 455 546 646 706 756 806 856 906 8.8% Virtual MVPD Pay-TV Subs 4,747 8,079 10,287 12,082 13,667 15,152 16,587 18,022 14.3% Y/Y Change 70.2% 27.3% 17.4% 13.1% 10.9% 9.5% 8.7% Note: Figures in thousands
20,000 18,022 VMVPDs have gained over 8MM subs CAGR: +14.3% 16,587 since their launch in ’15 – however, we 16,000 15,152 expect growth will slow due to the law of 13,667 12,082 large numbers. 12,000 10,287
8,079 8,000
4,747
4,000 Number Number of (‘000s) Subscribers
0 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E
Virtual MVPD Pay-TV Subs
Source: Company Data, S&P Global and Wolfe Research, LLC estimates 13 Overall, We Est. That Video Subscribers Are Declining By ~3.7% Annually
CAGR: -3.7% 100,000 4,747 8,079 10,287 12,082 80,000 98,628 13,667 97,949 15,152 94,696 90,843 16,587 87,521 18,022 84,274 81,152 60,000 78,202
93,881 89,870 84,409 40,000 78,761 73,854 69,122 64,565 60,180
20,000
0 Number of Subscribers (‘000s) 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E
Traditional MVPD Subscriber Estimates Virtual MVPD Pay-TV Subs
Source: Company data, S&P Global, and Wolfe Research, LLC 14 Netflix – Friend Or Foe?
Netflix continues to grow quickly – both domestically (4MM+ adds/year) and internationally (estimated 20MM+ adds/year) as it enters new markets
Netflix Domestic Subscriber Estimates Netflix International Subscriber Estimates 90,000 250,000 224,139 CAGR: +4.8% 77,553 80,000 75,303 72,803 200,739 69,803 200,000 CAGR: +18.5% 70,000 66,303 177,139 62,303 58,486 153,339 60,000 52,810 150,000 129,339 50,000 105,139 40,000 100,000 80,773 30,000 57,834 20,000 50,000 Number of Subscribers 10,000
0 0 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E
Domestic Streaming Subs ('000s) International Streaming Subs ('000s)
Netflix has spent heavily on content to drive this growth…. $12B in 2018 alone and on plan for $14B+ in 2019E
Of new content spending, approximately 85% is on originals – making NFLX one of the largest producers of TV content in the U.S.
Source: FactSet, Company Data, and Wolfe Research, LLC 15 Netflix – Friend Or Foe?
50.0%
40.0%
30.0%
20.0%
10.0%
0.0% 1/1/2019 2/1/2019 3/1/2019 4/1/2019 5/1/2019 6/1/2019 7/1/2019 8/1/2019 9/1/2019
(10.0%)
NFLX DIS FAANG (Ex-NFLX) S&P 500 NFLX’s Q2 Print
Source: FactSet, Company Data, and Wolfe Research, LLC 16 Affiliate Revenue Growth Is Decelerating
Affiliate Revenue Growth (2015A - 2023E)
9.0% 8.3% 8.0% 7.0% 6.0% 6.0% 5.0% 4.2% 4.0% 4.0% 3.5% 3.0% 2.6% 2.2% 2.2% 2.2% 2.2% 2.0% 1.0% 0.0% 2014A 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E
Affiliate revenue has trended lower over the last few years.
We expect the decline to continue for the next year or two.
We don’t expect a meaningful re-acceleration for the foreseeable future.
Source: Company Data, S&P Global, and Wolfe Research, LLC estimates 17 Have’s and Have Not’s
List of Major Streaming Services And Network Groups Included DirecTV Spectrum Spectrum TV fuboTV Hulu Live TV Philo Sony Vue Sling TV TVision YouTube TV Sum NOW Stream Esse ntia ls DISCA X X X X X X X X X X 10 AMCX X X X X X X X X X 9 F OXA X X X X X X X X 8 NBCU X X X X X X X X 8 TWX X X X X X X X X 8 CBS X X X X X X X 7 DIS X X X X X X X 7 VIAB X X X X X X X 7 For CHTR 200 mkts, but Appears to CBS, FOX, Most stations internet Most stations Broadcast Most stations not all FOX, NBC in For CHTR Have All Big 4 NBC in most widely customers (incl. widely Affiliates in top 50 mkts stations in select mkts customers Stations in top mkts distributed A&E & Hallmark distributed every mkt Initial Launch nets)
Source: Company data and Wolfe Research, LLC 18 Are Affiliate Fees At Risk?
Top 20 Networks By Affiliate Fees Per Sub Per Month (Excl. RSNs) Network Name 2019E ESPN $7.69 TNT $2.57 NFL Network $1.68 FOX News Channel $1.65 USA $1.61 TBS $1.19 Disney Channel $1.09 ESPN2 $0.97 CNN $0.96 SEC Network $0.89 Nickelodeon/Nick At Nite $0.78 F X $0.77 FOX Sports 1 $0.71 MTV $0.55 FOX College Sports $0.55 BTN $0.55 AMC $0.54 CNBC $0.54 MGM HD $0.52 Paramount Network $0.50
Source: S&P Global and Wolfe Research, LLC estimates 19 Are Sports Rights Going To Break The Bundle?
Top 20 Networks By Affiliate Fees Per Sub Per Month (Incl. RSNs) Network Name 2019E ESPN $7.69 YES Network $6.49 FOX Sports Detroit $5.99 NBC Sports Chicago $5.71 Spectrum SportsNet LA $5.33 FOX Sports Arizona $5.06 NBC Sports Philadelphia $4.94 Spectrum SportsNet/Deportes $4.84 MSG Network $4.65 New England Sports Network $4.44 ROOT SPORTS Northwest $4.38 FOX Sports Ohio $4.27 FOX Sports Midwest $4.22 AT&T SportsNet Pittsburgh $4.16 FOX Sports Wisconsin $4.01 FOX Sports Southwest $3.35 FOX Sports West $3.34 MSG+ $3.28 NBC Sports California $3.11 SportsNet New York $3.08
Source: S&P Global and Wolfe Research, LLC estimates 20 List Of Key TV Sports Rights By Owner
Pro Leagues ABC CBS FOX NBC ESPN FS1 NBCSN TNT/TBS MLB X X X X NBA X X X NFL X X X X NHL X X Olympics X X
College Conferences ABC CBS FOX NBC ESPN FS1 NBCSN TNT/TBS ACC X X Big Ten X X X X X Big 12 X X X Bowl Championship Series X NCAA Tournament X X Orange Bowl X Pac-12 X X X Rose Bowl X SEC X X X Sugar Bowl X
Source: Company data and Wolfe Research, LLC 21 Why Sports Matter – It Dominates Broadcast
Top 10 Broadcast Shows In A Typical Fall Week
Rank Broadcast Shows Aired Dec 10-16, 2018 Net Day Time 18-49 rating 18-49 viewers (000s) 1 SUNDAY NIGHT FOOTBALL NBC Sun. 8:23 PM 5.4 7,002 2 THURSDAY NIGHT FOOTBALL FOX Thurs. 8:23 PM 5 6,451 3 FOOTBALL NT AMERICA PT 3- NBC Sun. 7:50 PM 2.8 3,561 4 THURSDAY NIGHT PRE-KICK FOX Thurs. 8:06 PM 2.7 3,467 5 60 MINUTES CBS Sun. 7:30 PM 2.5 3,203 6 FOOTBALL NT AMERICA PT 2 NBC Sun. 7:30 PM 2 2,550 7 SURVIVOR CBS Weds. 8:00 PM 1.5 1,987 8 THE VOICE NBC Mon. 8:00 PM 1.4 1,862 9 THE VOICE – TUE NBC Tues. 8:00 PM 1.4 1815 10 THURSDAY NIGHT PREGAME FOX Thurs. 7:30 PM 1.4 1796
Rank Broadcast Shows Aired Nov 5-11, 2018 Net Day Time 18-49 rating 18-49 viewers (000s) 1 SUNDAY NIGHT FOOTBALL NBC Sun. 8:23 PM 6.5 8,369 2 THURSDAY NIGHT FOOTBALL FOX Thurs. 8:23 PM 4.8 6,125 3 SUNDAY NIGHT NFL PRE-KICK NBC Sun. 8:12 PM 4.2 5,466 4 FOOTBALL NT AMERICA PT 3 NBC Sun. 7:50 PM 3.2 4,132 5 THURSDAY NIGHT PRE-KICK FOX Thurs. 8:06 PM 2.9 3,799 6 THE BIG BANG THEORY CBS Thurs. 8:00 PM 2.3 2,964 7 60 MINUTES CBS Sun. 7:40 PM 2 2,522 8 YOUNG SHELDON CBS Thurs. 8:31 PM 1.8 2,260 9 THE VOICE NBC Mon. 8:00 PM 1.8 2256 10 FOOTBALL NT AMERICA PT 2 NBC Sun. 7:30 PM 1.7 2147
NFL is increasingly important in the Fall / Winter – 6 of the top 10 shows in any given week are NFL
60 Minutes is under the radar in its importance – speaks to the power of news
Source: Company data and Wolfe Research, LLC 22 Why Sports Matter – It Dominates Cable Too
Top 10 Basic Cable Shows In A Typical Week
Rank Cable Shows Aired Feb 11-17, 2019 Net Day Time 18-49 rating 18-49 viewers (000s) 1 2019 NBA ALL-STAR GAME – TEAM LEBRON / TEAM GIANNIS TNT Sun. 8:34 PM 2.4 3,098 2 NBA ALL-STAR SAT NIGHT TNT Sat. 8:00 PM 2.2 2,867 3 THE WALKING DEAD AMC Sun. 9:00 PM 1.7 2,150 4 NBA ALL-STAR TIP OFF TNT Sun. 7:00 PM 1.2 1,562 5 WWE ENTERTAINMENT USA Mon. 8:00 PM 0.9 1,165 6 WWE ENTERTAINMENT USA Mon. 9:00 PM 0.8 1,062 7 CURSE OF OAK ISLAND HISTORY Tues. 9:00 PM 0.8 1,024 8 COLLEGE BKBL REG SSN – TENNESSEE/KENTUCKY ESPN Sat. 8:06 PM 0.8 1,024 9 WWE ENTERTAINMENT USA Mon. 10:00 PM 0.8 986 10 NBA BASKETBALL – CELTICS/76ERS TNT Tues. 8:13 PM 0.7 934
Rank Cable Shows Aired Jan 28 - Feb 3, 2019 Net Day Time 18-49 rating 18-49 viewers (000s) 1 WWE ENTERTAINMENT USA Mon. 8:00 PM 1 1,280 2 WWE ENTERTAINMENT USA Mon. 9:00 PM 1 1,216 3 WWE ENTERTAINMENT USA Mon. 10:00 PM 0.9 1,152 4 NBA BASKETBALL – 76ERS/WARRIORS TNT Thurs. 10:31 PM 0.9 1,126 5 CURSE OF OAK ISLAND HISTORY Tues. 9:00 PM 0.8 986 6 DR. PIMPLE POPPER TLC Thurs. 9:00 PM 0.8 960 7 LIVE PD: 183 LIVE PD A&E Sat. 9:00 PM 0.7 909 8 WWE SMACKDOWN – WWE SMACKDOWN USA Tues. 8:00 PM 0.7 896 9 NBA BASKETBALL – 76ERS/LAKERS TNT Tues. 10:39 PM 0.7 845 10 LIVE PD: 182 LIVE PD A&E Fri. 9:00 PM 0.7 832
6-8 of the top 10 shows in any given week are Sports-related
Source: Company data and Wolfe Research, LLC 23 Sports Rights Are The Anchor For Any Successful Network
NFL TV Rights Games Years Price Increase Fox, CBS, NBC Sunday games 2015-2023 $3.1B/year Up ~60% ESPN Monday Night Football 2014-2022 $1.9B/year Up ~70% DTV (1) Sunday Ticket 2014-2022 $1.5B/year Up ~50%
NHL TV Rights Games Years Price Increase NBC, NBCSN Exclusive partner 2012-2021 $0.2B/year N/A
Note (1): The NFL reportedly has an opt-out clause that can be exercised by the end of the '19/'20 season
Source: Company data, trade press, and Wolfe Research, LLC 24 Over-Earners vs. Under-Earners – Cable Affiliate Fees By Programmer
Basic Cable Affiliate Fee Share By Programmer (2018) Total Monthly Basic Cable Affil Fees By Programmer (2018) 30% $20.00 27% 26% $18.00 25% $15.22 $16.00 $14.66 $14.00 20% $12.00 15% $10.00 11% $8.00 9% 9% $6.18 10% 8% $5.25 $6.00 $4.63 $5.08 6% $4.00 $3.23 5% 2% $1.24 1% $2.00 $0.43 0% $0.00 CBS AMCX DISCA VIAB NBCU FOXA TWX DIS Other CBS AMCX DISCA VIAB NBCU FOXA TWX DIS Other
DIS has roughly 1/4th of all basic cable affiliate fees.
ESPN (owned by DIS) alone collects $8.14/sub/mo. in fees – good enough for 2nd place on this list.
Relative to viewership, DIS is a substantial over-earner thanks to ESPN and its live sports.
AMCX and VIAB are significant under-earners due to their niche-y portfolios and lack of sports.
Source: Company data, S&P Global, and Wolfe Research, LLC estimates 25 Biggest Threat To Sports Rights?
AMAZON
APPLE
Source: Wolfe Research, LLC 26 Biggest Threat To Sports Rights?
AMAZON
APPLE
Source: Wolfe Research, LLC 27 Net Retrans Is At Risk Longer Term
Wolfe’s Net Retrans Industry Forecast 2018A 2019E 2020E 2021E 2022E 2023E 2024E '19-'24 CAGR RETRANS: Network O&O Retrans rate/sub/mo $1.96 $2.25 $2.62 $2.98 $3.26 $3.57 $3.95 12% Network O&O Big 4 Subs including VMVPD (MM) 111 109 107 104 100 97 95 (3%) Multiply by 12 months 12 12 12 12 12 12 12 TOTAL NETWORK RETRANS REVENUE (MM) $2,615 $2,943 $3,363 $3,704 $3,928 $4,177 $4,484 9% Total Network Retrans Growth 14% 13% 14% 10% 6% 6% 7%
Affiliate retrans rate/sub/mo avg. $2.35 $2.69 $3.06 $3.34 $3.61 $3.92 $4.22 9% Afffiliate Big 4 subs - including VMVPD (MM) 246 241 237 229 223 216 209 (3%) Multiply by 12 months 12 12 12 12 12 12 12 TOTAL AFFILIATE RETRANS REVENUE (MM) $6,945 $7,791 $8,698 $9,194 $9,651 $10,144 $10,614 6% Total Affiliate Retrans Growth 11% 12% 12% 6% 5% 5% 5%
TOTAL INDUSTRY RETRANS REVENUE (MM) $9,560 $10,734 $12,060 $12,898 $13,579 $14,322 $15,098 7% Total Industry Retrans Growth 12% 12% 12% 7% 5% 5% 5%
REVERSE COMP: Affiliate reverse/sub/mo avg. $1.17 $1.40 $1.68 $1.89 $2.09 $2.33 $2.55 13% Affiliate Big-4 reverse subs - including VMVPD (MM) 246 244 241 238 234 231 227 (1%) Multiply by 12 months 12 12 12 12 12 12 12 TOTAL AFFILIATE REVERSE COMP (MM) $3,451 $4,087 $4,880 $5,390 $5,873 $6,441 $6,966 11% Total Industry Retrans Growth 19% 18% 19% 10% 9% 10% 8%
TOTAL AFFILIATE NET RETRANS (MM) $3,494 $3,705 $3,818 $3,804 $3,778 $3,703 $3,648 (0%) Total Industry Net Retrans Growth 3% 6% 3% (0%) (1%) (2%) (1%) TOTAL AFFILIATE NET RETRANS MARGINS 50% 48% 44% 41% 39% 37% 34%
Source: Company Data, S&P Global and Wolfe Research, LLC 28 Wide Gap Between TV Viewership & Distribution Revenues
Broadcast vs. Basic Cable - Share of Total Viewership 70% 61% 59% 60% 60% 59% 60% 59% 60% 60% 58% 58%
50% 42% 41% 42% 40% 40% 39% 41% 40% 41% 40% 40%
30%
20%
10% Share of Total Avg. Delivery TVHH (%) Broadcast grabs ~40% of 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 viewers but generates only
Broadcast Share of Total Avg. TVHH Delivery (%) Basic Cable Share of Avg. TVHH Delivery (%) 14% of programming/ Broadcast vs. Basic Cable - Share of Total Distribution Revenues distribution revenues 120%
99% 99% 98% 97% 96% 95% 100% 93% 91% 89% 86%
80%
60%
40%
20% 14% Share of Total Distribution Revenue 9% 11% 4% 5% 7% 1% 1% 2% 3% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Broadcast Share of Distribution Revenues (%) Basic Cable Share of Distribution Revenues (%)
Note: Our total TVHH viewership data is average 24 hr. TV household delivery from all broadcast and basic cable networks; our total distribution 29 revenue comprises of total affiliate fee revenues plus total retrans revenues from S&P Global. Source: Company Data, S&P Global and Wolfe Research, LLC Wide Gap Between TV Viewership & Distribution Revenues
Broadcast vs. Basic Cable - Share of Total Viewership 70%
59% 60% 60% 60% 60% 60% 60% 60% 60%
50% 41% 40% 40% 40% 40% 40% 40% 40% 40%
30%
20%
10% Share of Total Avg. Delivery TVHH (%)
0% By 2023, we expect broadcast 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E to keep its share of total Broadcast Share of Total Avg. TVHH Delivery (%) Basic Cable Share of Avg. TVHH Delivery (%) viewership at 40%, while Broadcast vs. Basic Cable - Share of Total Distribution Revenues increasing its share of 100% distribution revenues to 18%. 91% 89% 90% 86% 85% 85% 84% 83% 83% 82% 80%
70%
60%
50%
40%
30% 17% 17% 18% 20% 14% 15% 15% 16% 11% Share of Total Distribution Revenue 9% 10%
0% 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E
Broadcast Share of Distribution Revenues (%) Basic Cable Share of Distribution Revenues (%)
Note: Our total TVHH viewership data is average 24 hr. TV household delivery from all broadcast and basic cable networks; our total distribution 30 revenue comprises of total affiliate fee revenues plus total retrans revenues from S&P Global. Source: Company Data, S&P Global and Wolfe Research, LLC Net Retrans Is At Risk Longer Term
• Sub declines are accelerating
• Carriage disputes seem longer than usual
• Retrans may be what ultimately breaks the bundle
IS THE CONSUMER REALLY GOING TO PAY $27/MONTH ($6.79/Big Four) FOR SOMETHING HE/SHE CAN EFFECTIVELY GET FOR FREE (via antenna)?
Source: Wolfe Research, LLC 31 Audio Is HOT Right Now
There are two segments to the AUDIO INDUSTRY: RADIO and MUSIC COLLECTION.
• RADIO: • MUSIC COLLECTION:
• Form of “companionship” • Form of “me time”
• Provides curated audio, information, • Provides library of content, tools, trust, live human conversation, & control, ease of play, & selected constant presence moments
• Examples: Broadcast Radio (i.e. ETM & • Examples: Apple Music, Pandora, IHRT), Sirius XM Spotify & Soundcloud
Sources: Company Filings and Wolfe Research, LLC 32 But Traditional Radio Hasn’t Benefited From The Resurgence
Radio’s reach and ad revenues have been relatively stable over the years
% of U.S. Population Using Broadcast Radio Weekly 100% 93% 92%
80%
60%
40%
20%
0% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2016 2017 2018
Gross U.S. Radio Ad. Spend (Bs) $16.9 $16.9 $17.0 $17.0 $17.1 $18.0 $16.2 $16.4 $16.6 $16.7 2.0% $16.0 $14.0 $12.0 1.2% 1.2% 1.2% $10.0 1.0% $8.0 $6.0 0.6% 0.6% 0.6% $4.0 $2.0 $0.0 0.0% 0.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018
Sources: RADAR Arbitron, MAGNA Global, S&P Global, Zenith, Equirus, Company Filings, and Wolfe 33 Research, LLC But Traditional Radio Hasn’t Benefited From The Resurgence
There is a ~2x gap between Share of Time Spent on radio vs. Share of Ad. Revenues – mostly driven by radio’s low CPMs
Share of Time Spent (%) Share of Ad Revenues (%) Radio 10%
Internet Radio 17% Internet Live + Time- (Desktop) Live + Time- 5% (Desktop) Shifted TV Shifted TV 18% 38% 44% Internet (Mobile) Internet 34% (Mobile) 34%
Range of CPM Estimates by Media $45 $40 $40 $35 $35 $36 $35 $32 $30 $27 $32 $25 $20 $25 $20 $18 $23 $15 $15 $15 $10 $10 $9 $5 $8 $5 $0 $3 OOH Radio Magazines OOH Airports Podcasts Digital Video Network TV Newspapers Spot TV (PT) Bulletins (PT)
Sources: RADAR Arbitron, MAGNA Global, S&P Global, Zenith, Peter J. Soloman, Company Filings, and 34 Wolfe Research, LLC Podcasting Is The Hottest Segment In Audio
Newest growth platform for listening and advertising revenue
Entire industry reaches 90MM people – as large as leading streaming music services
• Podcast listeners consume +6 hours per week of podcasts
• On average, listeners listen to 7 podcasts per week
• 48% of the listening is at home, followed by in a car (26%), at work (12%) and other (14%)
Industry ad revenues are expected to grow from $400MM in 2018 to $700MM in 2020, according to IAB
Sources: Podtrac, Company Filings, and Wolfe Research, LLC 35 Publishing Stocks Have Not Fared Well…Unless They’ve Embraced Digital
Publishing Stock Composite Compared To MDP, NWSA, & NYT 250%
200%
150%
100%
50%
0% 9/12/2014 9/12/2015 9/12/2016 9/12/2017 9/12/2018
-50%
-100% Composite MDP NWSA NYT
Note: Composite includes MDP, NWSA, NYT, RRD, LEE, TPCO, AHC, MNI, & NEWM. 36 Source: FactSet and Wolfe Research, LLC Outdoor Has Been On Fire
• Large market is growing HSD to Low DD
• Driven by strength in national and digital conversion in transit assets
• Digital is increasing as a percent of revenue but is still small as a percent of inventory
• On average, digital is 20%-23% of revenues, but only 1-2% of total displays
• Live boards
• Offer advertisers endless creative opportunities to engage audiences with full motion video in transit shelters/subways/train stations etc.
• Geofencing
• Allows for unique campaigns based on physical proximity to certain billboards and ads
• Less disruption
• Audience share is GROWING – compared to the rest of traditional media which is continuing to see additional audience fragmentation
Source: Company data and Wolfe Research, LLC 37 Gross Leverage (2019E)
Generally speaking, stocks with lower leverage tend to Outperform the market – we have seen a divergence this year as disruption or rather fear of disruption has become the most important factor.
7.0x 6.1x 6.0x 5.3x
5.0x 4.8x 4.4x
4.0x
3.0x 2.8x
2.0x
1.0x
0.0x Outdoor Radio Broadcast Pay-TV Diversified Entertainment
Source: Company data, FactSet and Wolfe Research, LLC estimates 38 Stock Price Performance vs. the S&P 500
4,000 3,317
3,000
2,000
1,000
0
(497) (1,000)
(1,358) (2,000) (1,593) Price Performance vs. vs. S&P Price (bps) Performance
(3,000) (2,829)
(4,000) Pay-TV Average Broacast TV Average Diversified Outdoor Average Radio Average Entertainment Average
Note (1): Pay-TV includes: ATUS, CABO, CHTR, CMCSA, and DISH; Broadcast TV includes: GTN, MDP, NXST, SBGI, SSP, TGNA, and TRCO; 39 Diversified Entertainment includes: AMCX, CBS, DIS, DISCA, FOXA, NFLX, VIAB, and WWE; Outdoor includes: CCO, LAMR, and OUT; Radio includes: BBGI, CMLS, and ETM; Note (2): Pricing as of 9/9/19 intraday; Source: Company data, FactSet and Wolfe Research, LLC estimates Average Revenue Growth
Average 2019E Revenue Growth 6.0% 5.3% 5.0% 5.0%
4.0% 3.7% 2.9% 3.0%
2.0%
1.0%
0.0% (0.1%) (1.0%) Broadcast (1) Diversified Outdoor Cable Radio Entertainment (Ex-NFLX and WWE) Average 2020E Revenue Growth 7.0% 6.3% 6.0% 6.0%
5.0% 4.7%
4.0% 3.6%
3.0% 2.0% 2.0%
1.0%
0.0% Broadcast (1) Diversified Cable Outdoor Radio Entertainment (Ex-NFLX and WWE)
Note (1): For 2019E we use a blend of 2018A and 2019E revenue growth; for 2020E we use a blend of 2019E and 2020E revenue growth; Source: 40 Wolfe Research, LLC estimates Average EBITDA Growth
Average 2019E EBITDA Growth
6.0% 4.6% 4.0% 3.3% 1.8% 2.0% 0.0% (2.0%) (4.0%)
(6.0%) (5.3%) (8.0%)
(10.0%) (9.2%) Pay-TV Outdoor Diversified Broadcast (1) Radio Entertainment (Ex-NFLX and WWE) Average 2020E EBITDA Growth 16.0% 13.7% 14.0% 12.0% 10.0% 8.0% 7.3% 6.3% 5.6% 6.0% 4.0% 2.3% 2.0% 0.0% Broadcast (1) Pay-TV Radio Outdoor Diversified Entertainment (Ex-NFLX and WWE)
Note (1): For 2019E we use a blend of 2018A and 2019E EBITDA growth; for 2020E we use a blend of 2019E and 2020E EBITDA growth; Source: 41 Wolfe Research, LLC estimates Average FCF/EPS Growth
Average 2019E FCF/EPS Growth 10.0% 8.0% 8.0% 6.6% 6.0% 3.6% 4.0% 2.0% 0.0% (2.0%) (0.5%) (4.0%) (6.0%) (6.0%) (8.0%) Broadcast (2) Outdoor Pay-TV Diversified Radio (2) Entertainment (Ex-NFLX and WWE) Average 2020E FCF/EPS Growth
40.0% 36.4% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.7% 5.6% 5.0% 2.9% 1.9% 0.0% Broadcast (2) Outdoor Pay-TV Diversified Radio (2) Entertainment (Ex-NFLX and WWE)
Note (1): For Outdoor we use AFFO growth; for Diversified Entertainment we use EPS growth; Note (2): For 2019E we use a blend of 2018A and 42 2019A FCF growth; for 2020E we use a blend of 2019E and 2020E FCF growth; Source: Wolfe Research, LLC estimates EV/EBITDA Comps
Average 2019E EV/EBITDA 14.0x 11.9x 12.0x 11.4x 10.7x 10.0x
8.0x 7.6x 6.7x 6.0x
4.0x
2.0x
0.0x Outdoor Diversified Pay-TV Broadcast (1) Radio (1) Entertainment Average 2020E EV/EBITDA 12.0x 11.3x 10.1x 10.0x 8.6x 8.0x 7.4x 6.3x 6.0x
4.0x
2.0x
0.0x Outdoor Pay-TV Diversified Broadcast (1) Radio (1) Entertainment
Note (1): 2019E multiples use an average of 2019E/2020E EBITDA; and 2020 uses an average of 2020E/2021E; Note (2): Data as of 9/5/19 close; 43 Source: Company data, FactSet and Wolfe Research, LLC estimates Price-to-Free Cash Flow Comps
Average 2019E P/FCF 30.0x
25.0x 23.8x 23.1x
20.0x 18.7x
15.0x
10.0x 6.2x 5.0x 4.2x
0.0x Pay-TV Outdoor (1) Diversified Broadcast (2) Radio (2) Entertainment Average 2020E P/FCF 25.0x
20.4x 20.0x
15.0x 12.2x 11.8x
10.0x
5.7x 5.0x 3.3x
0.0x Pay-TV Diversified Outdoor (1) Broadcast (2) Radio (2) Entertainment
Note (1): We use P/AFFO average for our Outdoor names; Note (2): 2019E multiples use an average of 2019E/2020E EBITDA; and 2020 uses an 44 average of 2020E/2021E; Note (3): Data as of 9/5/19 close; Source: Company data, FactSet and Wolfe Research, LLC estimates DISCLOSURE SECTION
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