Below is an excerpt from the latest issue of The Institutional Risk Analyst. You can read then entire conversation on our web site. Remember that when a new item is posted, the previous IRA rolls behind the pay wall. -- Chris
The Institutional Risk Analyst
October 9, 2011
Last December, we published an interview with Michael Whalen, Emmy award winning composer, City College and NYU professor, copyright expert and media analyst for Fox Business, about the near future for the business of creating and delivering content (See "Apple, Google, NewsCorp and the Future of Content: Interview with Michael Whalen," December 7, 2010).
In this issue of The Institutional Risk Analyst, we ask Michael how his predictions of last year panned out and what he sees in the future of media. And we also celebrate the tenth anniversary of Michael's bull call on Apple Computer ("AAPL") based on his vision of the advent of the world of new media.
The IRA: So Michael, since doing our interview in December 2010, what's happened in the entertainment and media space?
MW: We certainly had a wide-ranging discussion last year! It seems that about 100% of what we discussed has come to pass or is in process, and then some. We were talking about the eventual end of television networks, film companies and the continued radical upheaval of the music business. It is certainly the case that network television is ending as we know it. While we have not seen any of these media companies fall over and die - the erosion in all of television and broadcast media in general in just 10 months is alarming.
The IRA: Sounds like the deflation we see in the financial sector. What is alarming?
MW: I think the biggest single factor that has changed since we spoke last year is that major media companies and especially the television and cable franchises are no longer pretending that things are "OK". They're acknowledging that things are not "business as usual." They did their best to pretty up the "up front" ad sales numbers earlier this year - - however, the total number of people watching programmed broadcast television is less than half of what is was just 10 years ago. The level of desperation out there is amazing. Every day in the trade magazines and websites you see emotional production moves, defensive executive moves and knee jerk reactions by established members of the industry. Was anyone else but me shocked that America Online ("AOL") paid Arianna Huffington $300 million for Huffington Post? Really guys? Are readers of a blog that valuable?
The IRA: Short answer, no. The irony of AOL being the buyer is quite amazing, but nobody in the Big Media said much at the time of the deal.
MW: In the face of these actions, income streams everywhere are drying up. Look at how new ventures like Oprah's OWN network (launched just a year ago) has been a financial disaster since day one. News Corp's ("NWS") failure in launching their digital magazine "The Daily" and the continued trouble for media institutions like the New York Times ("NYT") are but single examples of an ocean of trouble for media. Furthermore, this fall TV season's show reorders have been cautious at best - Brian Grazer and Imagine Entertainment's expensive and VERY high profile series "The Playboy Club" was killed on NBC after only three weeks. The blood is running in the streets…
The IRA: Is this because of new technology or a change in the audience? Or both?
MW: Both. The new content streaming deals being discussed widely are not making things easier - nor are they making up for the lost revenues from the huge falloffs in YOY numbers for home video sales, foreign box office and the essential lifeblood statistic of network television: "homes using television" -- the HUT numbers. In the last 12 months, the numbers of distinct users on Hulu.com (in the United States) have outpaced the metered Nielson ratings of all FOUR television networks combined.
The IRA: Whoa. How much of this is due to the economy vs. structural changes in the industry?
The HUT metric seems to answer the question, but are the economics of advertising the only factor? We see a lot of retail vendors pushing very hard via mail, email, etc to generate sales.
MW: I think there are three factors at work: first of all the economy is a HUGE mitigating presence behind everything that is going on in the media & entertainment space. Worldwide, consumers are broke and resigned about their short and long-term financial prospects. They are not waiting for government to step in and "do something." They are VERY, very careful with their money and budgets. Extra things like movies and paid media in many families have been eliminated entirely. Only companies like AAPL seem to have punched through the cynicism to create the "gotta' have this" atmosphere for their products that supersedes any one local economy or financial circumstance. Other companies make short-term blips with price. For example, the success of the full featured Android phone platform is largely due to price slashing by multiple competitors in the US.
The IRA: Does this explain the decision by Google ("GOOG") to acquire the Motorola handset business? Nobody else wanted it?
MW: I think GOOG saw the purchase of Motorola ("MOT") as buying a pile of copyrights at a fire sale price. Do they actually want to compete toe to toe with AAPL, Android and the rest? I am not sure. Feedback on Google's mobile device software platforms have been mixed at best. AAPL's iOS and the Android OS are wiping the floor with the rest. With Motorola, they are getting manufacturing and a supply chain - but they are also buying 20 years of retail baggage with the public. Does Google want to play the "wait out the market" game using the Motorola name? We'll have to wait and see. However, if you're not deep into the mobile device market as someone in the media space - you are kind of out of the game at this point. So, said another way - - this is Google staying in the game. I wouldn't be surprised if more purchases will come soon. Yahoo ("YHOO")?
Click here to read the rest of the interview with Michael Whalen...