Does Katzenberg’s Quibi and its $100M in ad sales signal a streaming bubble?

Does Katzenberg’s Quibi and its $100M in ad sales signal a streaming bubble?

As we get ready to enter the second half of 2019, we will see several streaming video services launching, including the high profile ones from Disney and Apple, with more to follow in the coming quarters. No surprise as consumers flock to that aspect of our Digital Lifestyle investing theme, preferring to watch what they want, when they want on the device they want.

The question we are thinking through is how long until we see the once quality content filled streaming services become the new cable – filled with subpar programming and in some cases ads?

It seems every week there is a new streaming video service with recent ones including the ability to watch Broadway shows and short-form programming. An example of the latter is Quibi by Jeffrey Katzenberg, one of the former Disney Hollywood wonders, and in a world of other streaming services as well as short-form videos from Snap, Twitter, Facebook and Instagram, the Tematica jury is out on its success.

What’s interesting in the price point at $7.99 for an ad-free subscription, which is less than the $6.99 starting price for Disney+. That same $6.99 starting price was one of the factors that led Comcast to rethink its own streaming service in favor of selling its stake in Hulu to Disney.

The bottom line is we’ve seen these rushes in the past, and invariably there is a shakeout that will washout a number of entrants looking to capitalize on the trend.

Quibi, the short-form video platform founded by Jeffrey Katzenberg, hasn’t even launched, but has already booked $100 million in advertising sales, according to a report from The WSJ this morning. The company, which aims to cater to younger viewers with premium content chopped up into “quick bites,” says it has already booked advertisers, including Protector & Gamble, Pepsi Co., Anheuser-Busch InBev, Walmart, Progressive and Google.

It still has around $50 million in unsold ad inventory ahead of launch.

It’s hard to imagine how a service like Quibi will compete in a market dominated by paid streamers like Netflix and free services like YouTube — both preferred by a younger demographic. But Quibi has been raising massive amounts of money to take them on. In May, it was reported that Quibi was going after another billion in funding, on top of the billion it had already raised.

Beyond the industry’s big bet on Katzenberg himself, Quibi has booked big-name talent, including Steven Spielberg and Guillermo del Toro, and is filming a show about Snapchat’s founding, which may draw in millennial viewers.

But it sounds like Quibi may also be relying on gimmicks — like Spielberg’s horror series that you can only watch at night (when it’s dark outside). Not to mention the very idea that Quibi thinks it’s invented a new kind of media that falls between today’s short-form and traditional TV-length or movie-length content found elsewhere.

On Quibi, shows are meant to be watched on the go, through segments that are around 7 to 10 minutes long. Some of the content will be bigger, more premium productions, while others will be more akin to what you’d find on cable TV or lower-cost daily news programming.

The service will launch April 6, 2020 with two tiers. A $4.99 per month plan includes a pre-roll ad before each video segment. The ad is 10 seconds if the video is less than 5 minutes, and it’s 15 seconds for any videos between 5 and 10 minutes. Some ads themselves will tell “brand stories” throughout the program breaks.

A $7.99 per month tier offers an ad-free experience.

Source: Jeffrey Katzenberg’s streaming service Quibi books $100M in ad sales ahead of launch | TechCrunch

Video game publishers leverage high profile gamers to drive sales

Video game publishers leverage high profile gamers to drive sales

The gaming market is already dwarfing the movie box office and as we’ve seen in the social media space and year ago in the internet space, eyeballs drive revenue. This is leading gaming companies to recruit popular gamers to help drive awareness of their latest games much the way consumer product companies are utilizing social media stars on Instagram and YouTube to drive product awareness and sales via product placement. It’s a very different way to advertise but advertisers have a history of going where the eyeballs are.

In today’s Digitial Lifestyle, that means streaming video and gaming platforms, live gaming events and various social media platforms. This could mean an advertising business model is to be had in Apple’s Apple Arcade, Google’s Stadia and Microsoft’s rumored streaming gaming platform.

The world’s biggest videogame publishers are paying popular gamers tens of thousands of dollars to play their latest releases live over the internet, hoping to break through to buyers in a crowded industry where dominant games like “Fortnite” cast a large shadow.

Electronic Arts Inc., EA -1.58%Activision Blizzard Inc., ATVI -2.28%Ubisoft Entertainment SA and Take-Two Interactive Software Inc. are among the publishers making hefty payouts for the real-time broadcasts, or live streams. The amounts vary depending on the popularity of the “streamer,” and could go as high as $50,000 an hour for top celebrity gamers, according to talent and marketing agents.

Take-Two plans to pay streamers to play “Borderlands 3” when the comedic shooter game launches Sept. 13. Ubisoft, an early adopter of the live-streaming strategy, plans to use it again for the Oct. 4 release of its special-ops shooter game “Tom Clancy’s Ghost Recon Breakpoint.”

“Having celebrity streamers play games is an important part of the business,” Strauss Zelnick, Take-Two’s chief executive, said in an interview. “It is relatively new, but it has to be organic. The streamers have to believe in it.”

Source: Top ‘Live-Streamers’ Get $50,000 an Hour to Play New Videogames Online – WSJ

A live concert in Fortnite shows why Netflix is right to be worried

A live concert in Fortnite shows why Netflix is right to be worried

We recently published a Thematic Signal in which we discussed the comment from Netflix management why it isn’t so worried about HBO, but rather Fortnite. If there was any doubt it was put to rest in the form a recent live concert held inside Fortnite that drew “25 times as many people that attended Woodstock in 1969.”

According to reports, that four-day music event that spanned August 15-18, 1969 in the Catskill Mountains attracted more than 400,000 people. Some simple math suggests the live concert in Fortnite attracted roughly 10 million people.

10 million!

Watching a concert inside a game!

What were those 10 million people not doing?

Watching Netflix, HBO, Hulu or another streaming video service.

Yes, Netflix is right to be worried over competitive streaming services that take eyeballs away from its content.

This makes the much-rumored streaming gaming services from Apple, Amazon, Google, and Microsoft even more interesting as it could alter the Digital LIfestyle market shares and make for an even more challenging landscape for the existing video streaming services as well as those that are forthcoming from Disney, NBC, and Apple.

 

The wildly popular video game “Fortnite” made history yesterday with a live show by EDM artist Marshmello that reportedly drew millions of viewers — which, for context, would be 25 times as many people as attended Woodstock in 1969.

“It truly felt like a glimpse into the future of interactive entertainment,” wrote Nick Statt for The Verge, “where the worlds of gaming, music, and celebrity combined to create a virtual experience we’ve never quite seen before.

Source: Live Concert Inside “Fortnite” Drew More Viewers Than Woodstock

As streaming music booms, CD sales are no more at Best Buy 

As streaming music booms, CD sales are no more at Best Buy 

One of the industries that has both adapted to and felt the pain of our Digital Lifestyle investing theme is the music industry, something near and dear to the hearts and souls of team Tematica. Over the decades, we’ve seen the migration from vinyl albums to 8-track to cassettes to CDs followed by the abiltiy to rip and burn CDs, downloadable music and now streaming services. While it’s resulted in people buying the same music content more than once, people have continued to do so to have the music they want when they want it, where they want it and on the device they have at the moment. This has given rise to streaming subscription services like Pandora, Spotify, and Apple Music.

According to Loudwire, more than 62% of the total music market is now made up of streaming services, and physical sales only account for around 16% of the overall revenues. Following an announcement earlier this year, yesterday we said bye-bye to CD sales at Best Buy and soon perhaps at Target. What will Best Buy use the additional floor space for? Most likely appliances and other connected devices.

 

It’s the end of an era. Today is officially the last day you will be able to buy CDs at Best Buy, as they are pulling the discs from their shelves July 1st.

Back in February, we reported that the tech giant would be phasing out the products due to steadily declining sales over the years.

Seeing as Best Buy followed through on their promise, Target may be next to phase out CDs. In February, they gave an ultimatum to both their music and video suppliers trying to shift inventory risk back to the labels. If the wholesale companies don’t abide to the new terms, Target may slowly phase out CDs and DVDs as well.

Source: Today is the last day you can purchase CDs at Best Buy – Alternative Press

Fortnite is the harbinger of more pain for the already struggling toy industry

While it is rather clear to us why Toys R Us is filing bankruptcy and even Star Wars themed toy sales weren’t enough to help Mattel (MAT) this past holiday season, in-app purchases for the new iOS version of Fortnite are rather revealing. The recently launched gaming app, which sits at the center of our Connected Society and Content is King investing themes, typifies the shift toward gaming, and mobile gaming, in particular, that has changed the kinds of toys that children of all ages play with.

At Tematica we like to say confirming data points for our investment themes are all around us in everyday life. In this case, all one has to do is look at the kinds of “toys” being used by children, tweens and teens as well as some adult – smartphones and in some cases tablets to play games, read or even stream movies and TVs. With a nearly endless choice of games, books and video content, one has to wonder how long traditional toys, such as action figures and dolls, can survive? Perhaps they will in a limited form that powers licensable content to gaming and content producers much the way the struggling comic industry is being utilized at the movie box office.

That would mean companies like Mattel and Hasbro (HAS) understand what it takes to pivot and capture the benefits of our Asset-lite Business Model investing theme.

 

Though it launched on iOS as a limited “early release” last Thursday, Epic Games’ Fortnite is already sitting atop the App Store’s free app download charts and, according to fresh estimates from Sensor Tower, has grossed more than $1.5 million in worldwide in-app purchases.

Players spend real money to buy V-Bucks, which can be redeemed for skins, accessory modifications, character animations and more. Currently, V-Buck packs range from $9.99 for 1,000 currency units to $99.99 for 10,000 units. Larger purchases net additional in-game currency, for example the $99.99 tier comes with an extra 3,500 V-Bucks on top of the standard 10,000 units.

According to the report, $1 million of Epic’s total estimated earnings came in the first three days after in-app purchases were activated. The performance puts Fortnite well ahead of similar battle royale style games Knives Out and Rules of Survival, which earned approximately $57,000 and $39,000, respectively, when they debuted.

A separate report from Apptopia adds color to Epic’s release, noting the game now sits in the No. 1 overall App Store spot in 89 markets. Currently the second-highest grossing game in the U.S. behind App Store stalwart Candy Crush Saga, Fortnite appears in the top-ten highest grossing charts in 15 markets, the analytics firm says.

 

Source: Fortnite estimated to have grossed $1.5M in in-app purchases after 4 days on iOS App Store

Remaining patient in the face of more near-term pain for Disney shares

Remaining patient in the face of more near-term pain for Disney shares

In recent weeks, shares of Content is King company Walt Disney (DIS) have drifted lower as the company shared it is pulling its content from Netflix (NFLX) and embarking on its own streaming services for Disney, Marvel and Star Wars content as well as ESPN. This move brings more than a few questions at a time when candidly there is no clear cut catalyst for the shares. Investors don’t like uncertainty and hence the slow drift lower in the shares to the recent $101-$102 level, that is in line with our entry points in the shares, from $110-$111 just over a month ago.

Given new developments that include CEO Bob Iger sharing that Disney’s 2017 EPS would be flat year over year, vs. consensus expectations that were looking for year on year growth near 2.5%, and the impact of Hurricane Irma on its Florida operations, we expect DIS shares could come under additional pressure in the near-term. One strategy would be to exit the shares, another is to recognize that in the next few months Disney will once again be back at the box office as well as opening new attractions at is very profitable parks business. As a reminder, the company recently opened Frozen land and is slated to open Toy Story land in 2018 followed by Star Wars Land in 2019. These new and branded attractions are likely to entice former park visitors as well as attract new ones.

As the water and impact of Irma subside, we will look to use any incremental near-term pain in DIS shares to improve our cost basis, remembering the company had a whopper of a share buyback program in place exiting the June quarter. On that corresponding earnings conference call, Disney signaled it would repurchase between $2.2-$3.2 billion of stock in the current quarter. Odds are that effort will help backstop the shares in the coming days. Our bias is to use any pullback that brings the shares closer to the $90 level to improve the positions cost basis. Recognizing the potential impact of Irma, and remaining questions on its proprietary streaming business, however, we are reducing our price target to $120 from $125.

  • While we expect further near-term disruptions at Disney (DIS) owing to Hurricane Irma, we will remain patient with the shares.
  • We are trimming our price target to $120 from $125.
Facebook’s Content is King effort Watch goes live… will you watch it? 

Facebook’s Content is King effort Watch goes live… will you watch it? 

 

We’ve seen a number of companies, like Netflix (NFLX) and Amazon (AMZN) look to position themselves within our Content is King investing theme. It’s a smart strategy as that proprietary content is a competitive moat that helps reduce customer churn. With Watch, Facebook (FB) is looking to push into streaming video and vie with Alphabet’s (GOOGL) YouTube as a home for longer-form video. And Facebook is hoping to grab a bigger chunk of money from advertisers’ TV budgets, by steering users toward content with more 15-second ad-break opportunities.

It’s worth noting that in addition to smartphones and desktops, Watch is available on several connected-TV platforms: Apple TV, Amazon Fire TV, Android TV and Samsung Smart TV. We like the multi-platform approach, especially since Apple TV has yet to get Amazon’s Prime Video… perhaps we’ll hear more on that on Sept. 12 at Apple’s next big event?

Starting Thursday, Facebook’s Watch feature — essentially a programming guide to episodic shows hosted on the social platform — will become broadly available to users in the U.S., after a three-week limited beta run.

The Watch guide is stocked with several hundred shows, a mélange of scripted, reality, documentary and sports content of varying lengths from both traditional media companies and individual digital creators. (Here’s a select list of shows currently in Watch or coming soon.) The new Watch tab isn’t the only way to access the series: They’re also available through Facebook’s new “Show Pages,” which provide features specifically for episodic video content.

 

Source: Facebook Launches Watch Feature, Shows in U.S.: Will Viewers Tune In? | Variety

Tencent set to Stream 2017, 2018 and 2019 NFL games in China

Tencent set to Stream 2017, 2018 and 2019 NFL games in China

We’re not only seeing a blurring of our Content is King and Connected Society investing themes here in the U.S., we’re seeing in China as well in a deal between Tencent and the NFL. Live news and sports were two of the holdouts in streaming content, but with Google (GOOGL) adding streaming news to YouTube;  Amazon (AMZN), and Facebook (FB) streaming live sporting events this fall, and Disney (DIS) bringing a streaming ESPN service to market next year we think the TV broadcast only business is resembling the newspaper industry around 2001-2002.

 

Tencent is to become the exclusive live streaming partner in China for the National Football League’s American football games. The social media, games and streaming giant will air live and on-demand selected preseason games, all Thursday Night Football, Sunday Night Football and Monday Night Football games, as well as selected Sunday afternoon games, the playoffs, the Pro Bowl and the Super Bowl for the 2017, 2018 and 2019 seasons. The deal also includes non-game NFL content.

NFL live games and content will be available through Tencent’s NFL sections on both mobile and desktop terminals including Tencent Sports, QQ.com, Tencent Video, Kuai Bao, Penguin Live, the Tencent Sports app, the Tencent Video app, the Tencent News app, as well as its social networking services, QQ and WeChat. At the end of June, the combined monthly active users of Tencent’s social communications platforms, Weixin and WeChat, was over 960 million.

Source: Tencent to Stream NFL in China | Variety

Apple to spend big to ride our Content is King theme 

Apple to spend big to ride our Content is King theme 

 

Thus far Apple (AAPL) has stayed on the Content is King theme sidelines, but a combination of recent hire and a purported $1 billion check book to develop content change that. Granted, that $1 billion is well below what Netflix (NFLX) and Amazon (AMZN) are spending, but Apple has Apple TV – a solid platform that is bringing Amazon’s Prime Video and Wal-Mart’s (WMT) Vudu video service under its offering. As we like to say at Tematica, the only thing better than having one of our investment tailwinds behind a company’s back is having several of them.

Apple appears to be taking original content production very seriously. Building on significant talent hires, the Wall Street Journal writes Apple has readied a $1 billion budget to ‘procure and produce’ content over the next year.The report says the sum is about half what HBO spent on production last year.

Apple could launch up to ten new shows, with Apple SVP Eddy Cue said to have ambitions to offer shows that rival Game of Thrones.Try Amazon Prime 30-Day Free TrialApple’s initial rounds of content have not been runaway successes, with Planet of the Apps and Carpool Karaoke receiving bad-to-mild reviews from critics.

Reach of the shows has also been limited to users with Apple Music subscriptions.However, until recently, it didn’t really feel like Apple was giving much priority to original content efforts. With a large wallet and premiere talent leading the video programming division, it is likely that the quality of Apple’s in-development programming will also be higher.

Source: Apple to spend $1bn on original content and produce up to 10 new shows over the next year, according to report | 9to5Mac

Remaining Opportunistic as the Market Gets Cautious

Remaining Opportunistic as the Market Gets Cautious

After taking the prior week off on my sojourn to Singapore to present at INVESTFair 2017, I’m back. Take it from me, not only was the food fantastic as I put on several extra pounds, but Singapore is far ahead of us when it comes to our Cashless Consumption investing theme. Tematica’s Chief Macro Strategist, Lenore Hawkins, and I talked about this on our Cocktail Investing podcast recently, but that level of activity keeps us bullish on USA Technology (USAT) shares on the Tematica Select List.

Earlier this week, we posted comments on Content is King player Disney (DIS)’s recent announcement it will look to shun Netflix (NFLX) and enter the streaming content market gun, rather than remaining a content bullet, and scaled further into shares of Food with Integrity company Amplify Snacks (BETR). We also sent over out latest high-level thoughts on the market in this week’s Monday Morning Kickoff – if you missed it, you can read it here.

As a quick recap since our last Tematica Investing, we’ve seen a far more cautious attitude enter the market following the back and forth with the U.S. and North Korea. At the same time, we’re also seeing some fatigue as even solid earnings beats like the one yesterday from Home Depot (HD) are not having the usual or expected stock price reaction. While we could toss it up to the fact that we’re entering the back half of August — one of the traditionally slower times of the year as people sneak it that last round of summer vacation — there could be something else going on.

Our view here at Tematica is investors are taking stock of not only the vector and velocity of the domestic economy, but also the growing political unease and are looking ahead to what’s coming down the barrel in September: the unveiling of President Trump’s tax reform, Congress dealing with the debt ceiling and potentially the start of the Fed’s balance sheet unwinding. All that during what has historically been one of the worst months for the domestic stock market. We’d add in that September is full of investor conferences, and after the usual August quiet, we suspect investors will be listening closely to these upcoming company presentations to fine tune back-half of the year expectations.

So, while we’ve seen a bit of a rebound in the market so far this week following last week’s sell off, we’re inclined to see the near-term waters remaining a tad choppy. Let’s remember, trading volumes tend to be a tad light this time of year and that can exacerbate the swings in stock prices. The net result is that we will tread carefully in the coming weeks, but we will still be opportunistic like we were with the buying of additional Amplify Snacks (BETR) shares yesterday, a move that reduced the overall cost basis on the Tematica Select List.

 

Checking in on July Retail Sales – Looks Great for Amazon, Alphabet, UPS and Costco

As mentioned in this week’s Monday Morning Kickoff, there is a modest amount of economic data to be had this week, including yesterday’s July Retail Sales Report. Overall it was a positive report with core retail sales, which exclude auto, gasoline station, building materials, and food services and drinking places sales, up 0.5 percent. Moreover, the June decline of 0.1 percent was revised to an uptick of 0.1 percent. Digging into the July report, we found a pick-up in digital commerce, which likely reflects the Back to School shopping season as well as ongoing efforts by Amazon (AMZN) and others to grab consumer wallet share. Let’s remember that Amazon’s own would-be shopping holiday – Prime Day – fell in early July and likely was partly responsible for the strong rebound in digital shopping during the month.

Year over year, Nonstore retailers (Commerce Dept. speak for digital commerce sales) rose 11.5 percent in July, once again making the category the strongest performer. We see this as boding well for not only our Amazon shares but also for United Parcel Service (UPS) — those packages have to get to your front door somehow — as well as Alphabet (GOOGL) given its Google Shopping service as well as the company’s Search business.

Getting back to the July Retail Sales Report, most other categories were positive for the month, save for Sporting Goods, Electronics & Appliances and Department Stores. The month’s data helps put some understanding around Dick’s Sporting Goods (DKS) slashing its 2017 outlook, but we also think that company is poised to hit the headwind aspect of our Connected Society investing theme following Nike’s (NKE) recent linkage with Amazon. Said another way, we continue to see a bleak outlook for traditional brick & mortar retailers as consumer products and apparel companies, especially branded ones, embrace Amazon and other digital logistic businesses.

Finally, the July Retail Sales Report put some much-needed context around Costco Wholesale’s (COST) July sales report. As a reminder, Costco reported its July sales increased 6.0 percent in the US, and 6.2 percent across the entire geographic footprint. That compares to just a 2 percent increase for General Merchandise stores as well as Grocery vs. July 2016. Additionally, Costco continued to open up new warehouse locations during the month, reaching 736 locations compared to 729 at the end of April. Paired with the recent membership fee increase, this expanding footprint should be a positive impact for the all-important and high margin member fee revenue stream.

Our price target on Amazon (AMZN) shares remains $1,150.
• Our price target on Alphabet (GOOGL) shares remains $1,050.
• Our price target on United Parcel Service (UPS) shares remains $122.
• Our price target on Costco Wholesale (COST) remains $190.

 

On Deck – Earnings from Applied Materials

Even though we are in the dog days of summer, we still have a few companies left to report their quarterly results. One of them is Applied Materials (AMAT), and that event happens later this week. Following a bullish report from competitor Lam Research (LRCX), we expect solid results to be had. Despite the move lower over the last several weeks, the outlook for semiconductor capital equipment remains bright given the expanding reach of chips into a variety of end markets as well as demand for next-generation memory and display solutions.

This includes the same currently capacity-constrained organic light emitting diode display market, which is seeing rising demand dynamics from the smartphone, TV, wearables and automotive industries. And yes, this same demand function that is benefitting the shares of Universal Display (OLED) on the Tematica Select List. On Applied’s earnings call we’ll be listening for equipment order as well as overall demand tone for this disruptive display technology to determine as best we can how many quarters

One final demand driver that should result in a positive quarter for AMAT — ramping capacity in China. The potential wrinkle with this is we’ll need to be mindful of exchange rates and the impact on the company’s business, but all in all, we suspect the company will deliver a solid quarter with an upbeat outlook.

On a side note, odds are Applied will discuss factors that are driving chip demand and therefore incremental demand for its semiconductor capital equipment. Likely subjects include data centers, the Internet of Things, the Connected Car and other markets. The one we’ll be listening to given the Tematica Select List position in AXT Inc. (AXTI) and Dycom (DY) will be the smartphone market — which is entering its seasonally strong part of the year — and any commentary on 5G network deployments. Other 5G commentary points to a pick-up in testing by Verizon Communications (VZ) and AT&T (T) as well as Apple being granted a license to test 5G wireless services. Both of these developments reinforce our bullish view on both AXT and DY shares on the Tematica Select List.

Our price target on Applied Materials (AMAT) remains $55.
• Our price target on AXT Inc. (AMAT) remains $11.
• Our price target on Dycom Industries (DY) remains $115.

 

Housekeeping Items

There are no housekeeping items this week, other than to remind you to check TematicaResearch.com as we post more thematic and macro commentary in the coming days. And while the Cocktail Investing podcast is on hiatus until the last week of August, feel free to revisit some of the past episodes here.