Industry Surveys Movies & Entertainment Tuna N. Amobi, CFA, CPA, Consumer Discretionary Sector Equity Analyst DECEMBER 2014 Current Environment ............................................................................................ 1 Industry Profile ...................................................................................................... 9 Industry Trends ................................................................................................... 12 How the Industry Operates ............................................................................... 18 Key Industry Ratios and Statistics ................................................................... 24 How to Analyze an Entertainment Company ................................................. 25 Glossary ................................................................................................................ 30 Industry References ........................................................................................... 32 CONTACTS: Comparative Company Analysis ...................................................................... 34 INQUIRIES & CLIENT SUPPORT 800.852.1641 clientsupport@ This issue updates the one dated June 2014. standardandpoors.com SALES 877.219.1247 [email protected] MEDIA Michael Privitera 212.438.6679 [email protected] S&P CAPITAL IQ 55 Water Street New York, NY 10041 Please see General Disclaimers on the last page of this report. Topics Covered by Industry Surveys Aerospace & Defense Electric Utilities Metals: Industrial Airlines Environmental & Waste Management Movies & Entertainment Alcoholic Beverages & Tobacco Financial Services: Diversified Natural Gas Distribution Apparel & Footwear: Foods & Nonalcoholic Beverages Oil & Gas: Equipment & Services Retailers & Brands Healthcare: Facilities Oil & Gas: Production & Marketing Autos & Auto Parts Healthcare: Managed Care Paper & Forest Products Banking Healthcare: Pharmaceuticals Publishing & Advertising Biotechnology Healthcare: Products & Supplies Real Estate Investment Trusts Broadcasting, Cable & Satellite Heavy Equipment & Trucks Restaurants Chemicals Homebuilding Retailing: General Communications Equipment Household Durables Retailing: Specialty Computers: Commercial Services Household Nondurables Semiconductors & Equipment Computers: Consumer Services & Industrial Machinery Supermarkets & Drugstores the Internet Insurance: Life & Health Telecommunications Computers: Hardware Insurance: Property-Casualty Thrifts & Mortgage Finance Computers: Software Investment Services Transportation: Commercial Lodging & Gaming Global Industry Surveys Airlines: Asia Foods & Beverages: Europe Pharmaceuticals: Europe Autos & Auto Parts: Europe Media: Europe Telecommunications: Asia Banking: Europe Oil & Gas: Europe Telecommunications: Europe Food Retail: Europe S&P Capital IQ Industry Surveys 55 Water Street, New York, NY 10041 CLIENT SUPPORT: 1-800-523-4534 VISIT THE S&P CAPITAL IQ WEBSITE: www.spcapitaliq.com S&P CAPITAL IQ INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Redistribution or reproduction in whole or in part (including inputting into a computer) is prohibited without written permission. To learn more about Industry Surveys and the S&P Capital IQ product offering, please contact our Product Specialist team at 1-877-219-1247 or visit getmarketscope.com. Executive and Editorial Office: S&P Capital IQ, 55 Water Street, New York, NY 10041. Officers of McGraw Hill Financial: Douglas L. Peterson, President, and CEO; Jack F. Callahan, Jr., Executive Vice President, Chief Financial Officer; John Berisford, Executive Vice President, Human Resources; D. Edward Smyth, Executive Vice President, Corporate Affairs;Lucy Fato, Executive Vice President and General Counsel. Information has been obtained by S&P Capital IQ INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Copyright © 2014 Standard & Poor’s Financial Services LLC, a part of McGraw Hill Financial. All rights reserved. STANDARD & POOR’S, S&P, S&P 500, S&P MIDCAP 400, S&P SMALLCAP 600, and S&P EUROPE 350 are registered trademarks of Standard & Poor’s Financial Services LLC. S&P CAPITAL IQ is a trademark of Standard & Poor’s Financial Services LLC. CURRENT ENVIRONMENT A continued evolution of over-the-top streaming video The past few months have witnessed several announcements across the media and entertainment landscape geared toward an acceleration of Internet television offerings—also known as over-the-top (OTT) streaming services—generally bypassing the need for cable or satellite subscription. Notable among these are plans by, HBO, a premium cable channel owned by Time Warner, Inc., to launch a stand-alone streaming video service in 2015. Of note, HBO recently had approximately 30 million subscribers in the US, while Netflix had about 7 million more. Household viewers have been paying for cable to watch live sports at ESPN or popular HBO shows such as Game of Thrones; however, in the past couple of years, viewers have been seeking more choices online, resulting in cancellations in what TV viewers perceive as expensive cable subscriptions. It is expected that the HBO streaming service will be priced at $13–$16 a month, compared with the current HBO subscription cost of about $15 a month, which is split with cable and satellite TV providers, as these are the companies that promote the service. HBO CEO Richard Plepler said that the service would attempt to target 10 million US homes that have high-speed Internet but not a cable TV subscription. Separately, another move toward streaming videos among programming giants is the multi-year licensing deal signed by Walt Disney Co.’s ESPN and the National Basketball Association (NBA). Pursuant to that deal, the cable TV company acquired rights for a potentially imminent launch of a new OTT service, which would stream out-of-market NBA games. The NBA, which currently offers a streaming product called “League Pass,” will be part owner of the service. Other potential entrants set for intensifying battles in OTT streaming Separately, CBS Corp. recently unveiled its own digital subscription video service for both live streaming and video on demand (VOD). The service will be available across the company’s 14 US markets and will include episodes of current shows, such as The Big Bang Theory and NCIS, one day after live broadcast. More than 5,000 episodes of “CBS Classics” will also air, including Star Trek, Cheers, and MacGyver. According to CBS, advertisements on the live stream will be the same as those on the traditional CBS broadcast, but the typical 12 to 16 minutes an hour of on-demand programming ads will be cut 25%. CBS Classic shows will be ad-free. In additional announcements, other companies also announced plans for OTT services. For example, Sony Corp.’s OTT service is expected to debut in 2015. This will include programming from Viacom—the parent network of Comedy Central, MTV, and Nickelodeon, among others. Also expected to launch a new OTT offering in 2015, DISH Network Corp. recently secured programing rights from Disney, Scripps Networks Interactive, Inc., and others. Yet other pay TV providers, such as DirecTV and Verizon Communications, Inc. have unveiled their own OTT plans, as well. Netflix unveils potentially disruptive plans for movie releases In October 2014, Netflix announced that it would release next year’s sequel to Crouching Tiger, Hidden Dragon, at the same time as it hits IMAX theaters. However, top major theater chains, Regal Entertainment, Carmike Cinemas, and Cinemark USA, balked at the plan and said they would not screen the film in their theaters, which comprise about one-quarter of the 418 IMAX theaters in the US. They argued that the simultaneous release of the sequel is the latest encroachment of Netflix into the traditional entertainment industry. According to an article in the Los Angeles Times on October 1, 2014, Netflix is intensifying its portfolio by improving its line-up of movies and TV shows in the face of rising competition from Amazon and Hulu. Also in October, Netflix signed a deal with screen actor Adam Sandler to produce and star in four feature films that will be available exclusively on Netflix. This marks the first time that the company plans to produce its own film. Following the announced simultaneous showing of Crouching Tiger, the partnership INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 1 with the actor, who ranks as one of the most popular on Netflix, is the second announced deal that reflects how the company has upset the traditional model for releasing movies. BOX OFFICE PACE RETREATS FROM PRIOR RECORD As of early December, the 2014 year-to-date domestic box office gross receipts had tallied $9.66 billion, which represent a 4.8% retreat from a record $1.05 billion achieved in both 2013 and 2012, according to data from boxofficemojo.com. In large part, this was due to a sharp decline over the last summer, after four consecutive seasonal records DOMESTIC THEATRICAL MOVIE INDUSTRY PROFILE through the summer of 2013. AVERAGE TICKET Trade publication Variety noted on --- BOX OFFICE --- -- ADMISSIONS -- ------ PRICE --------- NO. OF August 28, 2014 that, except