To say 2018 was an eventful year for the media and entertainment sector would be the mother of all understatements.
There was the high-stakes fiscal soap opera over 21st Century Fox’s entertainment assets between Walt Disney and Comcast. Though Walt Disney won the clash of the Titans, it paid a steep price of $71 billion to scoop up some of the industry’s crown jewels including the storied 20th Century Fox studios. Philadelphia-based Comcast didn’t come away from the tussle empty-handed. It acquired the U.K. pay TV service Sky Plc. for $40 billion, which will help it grow outside the U.S.
Meanwhile, CBS CEO Leslie Moonves watched his career implode under the weight of credible accusations of sexual misconduct and his attempts to obstruct the company’s internal investigation which cost him a $120 million severance package. Comedian Bill Cosby was jailed for sexual assault and former movie mogul Harvey Weinstein is facing rape charges that could land him in jail for decades.
Facebook Chief Executive Mark Zuckerberg was forced to apologize yet again for the company’s failure to protect the personal data of its users. Meanwhile, digital publishers are floundering under the weight of the Facebook-Google duopoly that siphons off roughly 60 percent of all ad spending.
Let me dust off my crystal ball and take a look at what may lie ahead for this dynamic sector.
- CBS and Viacom -- Talk about coming full circle. When Viacom acquired CBS in 1999 for $36.5 billion, CNN noted that the deal would bring “the network of Dan Rather in touch with the MTV generation.” They split up in 2006 when Sumner Redstone, the controlling shareholder of both Viacom and CBS. declared the day of the diversified media conglomerate to be over. Now, Redstone’s daughter Shari and some Wall Street analysts are eager for the corporate siblings to join forces again. The combination of CBS and Viacom makes sense since their combined market capitalizations of roughly $26 billion are dwarfed by rivals Walt Disney ($159 billion) and 21st Century Fox ($88 billion). They will need the extra financial muscle heading into NFL broadcast rights negotiations. I expect the deal to happen sooner rather than later in 2019 because as BTIG analyst Richard Greenfield among others have noted they have no other options. One more thing: I would be surprised if interim CEO Joseph Ianniello gets the permanent job given his close ties to Moonves.
- Fox News -- Liberal activists have called on the public to boycott the advertisers of the conservative-leaning news channel’s biggest stars Tucker Carlson, Laura Ingraham, and Sean Hannity. Like Politico’s Jack Shafer, I have my doubts about the wisdom of holding advertisers responsible for every utterance on the television shows where they promote their goods and services. Indeed, the most effective way to punish the views of a pundit whom you despise is to ignore them. Even so, the boycotts aren’t going away and neither are the Fox hosts. This presents a dilemma for the management of Fox, which after disposing of its entertainment business to Walt Disney will become more dependent on Fox News to bolster its bottom line.
- Sports Betting --- Remember those obnoxious fantasy football ads from a few years ago? Well, they are starting to appear in states where sports betting was legalized in the wake of Supreme Court decision from earlier this year. That’s music to the ears of media companies and sports leagues who bitterly fought the spread of sports wagering for years. The allure for cash-strapped states is huge. According to Legal Sports Report, more than a dozen states including California, Tennessee, and Louisiana, are considering legalization in their legislatures. Unfortunately, as betting on college and professional spots becomes more ubiquitous the risks of gamblers fixing matches rises. Leagues in countries where betting is legalized have had these problems for years. It’s only a matter of time before a deep-pocketed gambler will find an athlete willing to take a payoff.
- Streaming Wars--Both Walt Disney and AT&T’s WarnerMedia are gunning for Netflix in 2019. Walt Disney is poised to launch its much-anticipated direct-to-consumer streaming service next year called Disney+, which will be the exclusive home for the company’s content including Disney, Marvel and Star Wars. AT&T’s WarnerMedia plans to offer a three-tiered streaming service plan in 2019. Though pundits often view streaming as a zero-sum game, many consumers including yours truly subscribe to more than one service. Even so, I expect Disney and WarnerMedia to break the record ESPN’s+ streaming service set this year by attracting more than 1 million subscribers in less than six months. Netflix's loses will be minimal.
