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After The Fall : Four Key Trends For Media Managers 

 

 
 
Tags:  credit report com  bogdan.kozachenko@gmail.com 
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Published:  November 21, 2011
 
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Slide 1: After the Fall: Four Key Trends for Media Managers November 3rd, 2009 1) Advertising Snapback – “This One Goes to ’11” 2) We Just Can’t Get Enough TV 3) Why FiOS is Really Hurting Cable 4) Adieu to the DVD Benjamin Swinburne, CFA US Media Analyst Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. 1
Slide 2: 1) Advertising Snapback – “This One Goes to ’11” 2
Slide 3: Historical Regression Predicts 5%+ Ad Growth in ‘10 20.0% R = 0.6378 2 15.0% Predicted '10 Ad Growth of 5.4% 10.0% Actual Ad Growth -5.0% 5.0% 0.0% 0.0% 5.0% 10.0% 15.0% 20.0% Regression Predicted Ad Growth -5.0% -10.0% • Historical Regression Includes Olympic Variable, (5) Presidential/Summer Olympic Variable Source: Bureau of Economic Analysis, Haver, Morgan Stanley Research (1) Real GDP Growth, (2) GDP Price Inflator, (3) Light Vehicle SAAR Growth, (4) Mid-term/Winter 3
Slide 4: “Jobless” Recovery Limiting Further Advertising Upside US Economists Estimates 2009E Real GDP -2.5% Personal Consumption Expenditures -0.6% Business Fixed Investment -17.8% Residential Investment -20.1% Housting Starts (000) 579 Civilian Unemployment Rate 9.2% Source: Morgan Stanley Research 2010E 2.7% 1.7% 0.0% 9.6% 707 9.9% 2011E 2.8% 1.7% 3.9% 4.4% 741 9.5% 4
Slide 5: Local Media Hardest Hit – Should Lead the Recovery Media Type ($mm) Local Broadcast National Broadcast Total Broadcast TV Cable TV Radio Newspapers Magazines Outdoor Yellow Pages Internet Total National Total Local US Advertising Source: Morgan Stanley Research 2010E Equivalent Year $13,751 1997 16,140 2002 29,891 1999 21,676 2008 14,745 1998 25,835 1985 18,732 2000 6,218 2005 10,854 1998 25,886 NA 83,251 70,587 $153,838 2005 1996 2000 5
Slide 6: Local Ad Spend Has Been In Decline Since Early ‘07 15% 10% 5% YoY Growth 0% -5% -10% -15% -20% -25% -30% Ja n Fe -08 b M -08 ar Ap -08 M r-08 ay Ju -08 nJu 08 Au l-08 g Se -08 p O -08 c N t-08 ov D -08 ec Ja -08 n Fe -09 b M -0 9 ar Ap -09 M r-09 ay Ju -09 n09 Local Source: TNS Media Intelligence, Morgan Stanley Research National 6
Slide 7: Survey: Expected % Change in Budget Over Next 2 Years Local Media Share Shift – 2009 vs 2008 (bps) Internet Television Direct Mail Other Billboards Radio Yellow Pages Newspapers / Mags(1,212) (1,500) (1,000) (500) 0 500 1,000 1,500 (279) (521) 16 268 224 142 1,360 Source: 2009 Local Advertiser Survey, Morgan Stanley Research 7
Slide 8: Secular Shifts – Marketing Services 60% Advertising 58% 56% 54% % of US Budget 52% 50% 48% 46% 44% 42% 40% 7 20 0 20 8 09 20 E 10 E 2 4 6 1 7 3 8 5 9 1 4 0 2 3 19 9 19 9 19 9 19 9 19 9 19 9 19 9 19 9 19 9 20 0 20 0 20 0 20 0 20 0 20 0 20 0 5 20 0 6 Marketing Services Source: Morgan Stanley Research 8
Slide 9: 2) We Just Can’t Get Enough TV “..I’m here to tell you about an exciting new technology called television. Television allows you to watch the things just like you would on your computer or cell phone, except while seated in a more comfortable chair”. – Conan O’Brien 9
Slide 10: TV Viewership Continues to Grow Media Comparisons 115 110 105 100 95 90 85 80 75 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 TV Time Spent Newspaper Readership Radio AQH Ratings Source: Nielsen, Arbitron, Newspaper Association of America, Morgan Stanley Research. 10
Slide 11: Average Channels Delivered has Doubled Since ‘00 Average Channels per TV Household 140 120 100 80 60 40 20 0 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 DTV Launch DISH Launch Fios/U-Verse Launch Note: Nielsen data points highlighted with markers, other years interpolated Source: Nielsen, Morgan Stanley Research 11
Slide 12: DVR Penetration has Reached 1/3 of Households 45% DVR % Penetration of US HH 40% 35% 30% 25% 20% 15% 10% 5% 0% 2003 2005 2007 2009E 2011E Standalone Telco DBS Cable Source: Company Data, Morgan Stanley Research. 12
Slide 13: TV Industry Has Seen Much of the Impact & Survived • Live viewing represented 91% of total day viewing in 2Q09 Percentage of Minutes of Television Viewed on Time‐Shifted Basis 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 8.5% 8.4% 8.3% 8.6% 8.8% 9.1% 20.1% 19.3% 19.0% 17.7% 18.6% 19.9% Only During Prime Time, And Only Adults 18‐49 With DVRs Full Day, All DVR Households Source: Nielsen, Magna, Company Data, Morgan Stanley Research. Note: Includes DVR Households only 13
Slide 14: Nielsen: TV Time Spent Outpacing Online Online 5.0 4.5 Hours / Day Per User 2+ 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 2007 2008 2Q08 2Q09 0.95 0.94 0.86 0.86 … while total online time spent declined 0.9%. 4.57 TV 4.65 4.53 4.60 Time spent watching TV grew 1.5% in 2Q09... Source: Nielsen, Morgan Stanley Research. 14
Slide 15: Bandwidth Consumption at Inflection Point Est. US Consumer Internet Use (GB per sub per mo) 100 80 60 40 20 0 2008E 2009E 2010E 2011E 2012E 2013E Source: Cisco Visual Networking Index; Morgan Stanley Research estimates 360% growth over 5 years 15
Slide 16: Sources of Internet Traffic - Video Growing Rapidly 8k North American Consumer Internet Traffic (PB/mo) 7k 6k 5k 4k 3k 2k 1k 0k 2008 2009 2010 2011 2012 2013 Source: Cisco Visual Networking Index, Morgan Stanley Research. Note: Data is for North America, limited to non-mobile consumer usage Other Ambient Video Web, Email, and Data Internet Video to TV File Sharing Internet Video to PC 16
Slide 17: “TV Everywhere” – Hail Mary or Home Run? • • • • Authentication Bandwidth Monetization of Content Participants • • • • • • • • • • • • Time Warner Inc. (Turner, HBO) Rainbow A&E AMC BBC Bravo Scripps Networks CBS DirecTV Time Warner Cable Comcast Verizon 17
Slide 18: TV Networks Enjoying Strong Recurring Subscription Revenue Growth 35,000 Subscription Fees YoY Growth 30,000 10.0% 12.0% 8.0% $ millions 25,000 6.0% 20,000 4.0% 15,000 YoY Growth 2.0% 10,000 20 08 20 03 20 04 20 05 20 06 20 07 20 09 e 20 10 e 20 11 e 20 12 e 0.0% Source: Company data, Morgan Stanley Research. 18
Slide 19: Technology/Consumer Changing Economic Model 85% Advertising Dollars 75% % of Total US TV Revenues Subscription Fees 65% 55% 45% 35% 25% 15% 20 01 20 00 19 99 20 02 20 03 20 04 20 05 20 06 20 07 20 08 e e e 20 11 20 10 20 09 20 12 e Source: Company data, Morgan Stanley Research. 19
Slide 20: 3) Why FiOS is Really Hurting Cable 20
Slide 21: Telco Share Gains a Positive for Content Providers • Telco penetration (U-verse & FiOS) driving negotiating leverage for content providers – We estimate that the Telco providers will gain some xxx bps of pay TV market share by YE12 Satellite 90% 80% Share of Pay-TV Market 70% 60% 50% 40% 30% 20% 10% 0% 1998 2000 2002 2004 2006 2008 2010E 2012E Cable RBOCs Other Source: Company data, Morgan Stanley Research. E = Morgan Stanley Estimates 21
Slide 22: Content Costs a Problem for Cable/Sat/Telco Distribution • High costs driven by: 1. Sports Programming 2. Channels / TV HH 3. Retransmission Payments 40% 35% 30% 25% 20% 2000 2002 2004 2006 2008 2010E 2012E Cable DBS (ex NFL Sunday Ticket) Source: Company data, Morgan Stanley Research. E = Morgan Stanley Estimates 22
Slide 23: Retransmission Fees are the Next “Event” Rating Points (left axis) 25 20 15 $15 10 $10 5 0 Broadcast Cable Source: Company data, Morgan Stanley Research. Excludes cable pay-TV, non ad supported channels Affiliate/Retrans Revenue $B (right axis) $30 $25 $20 $5 $0 23
Slide 24: 4) Adieu to the DVD 24
Slide 25: DVD Sales / DVD HH peaked in ’04, DVD HH growth in ‘08 Annual Purchases per DVD HH DVD Household Penetration 20 100.0% 15 80.0% 60.0% 10 40.0% 5 20.0% 0 20 09 E 20 10 E 20 07 20 00 20 02 20 04 20 06 20 08 20 01 20 03 20 05 0.0% Source: Morgan Stanley Research, Kagan World Media, DVD Entertainment Group, Nielsen 25
Slide 26: Home Video is Critical to Film Economics 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % Contribution to Ultimate Film Revenues Worldwide TV, 16% Worldwide Home Video, 38% International Box Office, 26% Domestic Box Office, 20% Source: Vogel, Company data, Morgan Stanley Research. E = Morgan Stanley Estimate 26
Slide 27: Digital Offers Profitability Promises, Behavioral Heartbreak Rental Contribution Margin (in USD) $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 PPV DVD Digital Blu-ray Cable VOD New Release Library Source: Company data, Morgan Stanley Research. 27
Slide 28: Netflix & Redbox Will Have a Nice Multi-year Run Revenue (in mm's) $10,000 49% VOD TV HH Penetration 30% Apple Video device Penetration per US capita 15% DVD Mail TV HH Penetration $7,500 $5,000 $2,500 $0 20 07 20 05 20 06 20 09 E 20 10 E 20 11 E 20 12 E 20 13 E 20 14 E 20 15 E 20 16 E 20 08 Physical Stores Source: Company data, Morgan Stanley Research. DVD Mail Subscriptions Kiosk 28
Slide 29: Digital Replaces Physical Sales Over Long-term Home Video Spending (in Millions) PPV Revenue VOD Revenue $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Digital Revenue Premium Revenue DVD Revenue VHS Revenue Blu-Ray Revenue Source: Nielsen, Rentrak, Company data, Morgan Stanley Research. E = Morgan Stanley Estimate 19 9 19 8 99 20 00 20 0 20 1 0 20 2 0 20 3 0 20 4 05 20 0 20 6 0 20 7 20 08 09 20 E 1 20 0E 1 20 1E 1 20 2E 1 20 3E 14 20 E 15 20 E 16 E 29
Slide 30: After the Fall: Q&A 1) Advertising Snapback – “This One Goes to ’11” 2) We Just Can’t Get Enough TV 3) Why FiOS is Really Hurting Cable 4) Adieu to the DVD Benjamin Swinburne, CFA US Media Analyst 30
Slide 31: Disclosure Section The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley C.T.V.M. S.A. and their affiliates (collectively, "Morgan Stanley"). For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA. Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Benjamin Swinburne. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Global Research Conflict Management Policy Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies. Important US Regulatory Disclosures on Subject Companies As of September 30, 2009, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: CBS Corporation, Discovery Communications, Interpublic Group, Liberty Capital Group, Liberty Interactive Group, News Corporation, Time Warner Inc.. As of September 30, 2009, Morgan Stanley held a net long or short position of US$1 million or more of the debt securities of the following issuers covered in Morgan Stanley Research (including where guarantor of the securities): CBS Corporation, Cinemark Holdings, Inc., Interpublic Group, Liberty Capital Group, Liberty Interactive Group, News Corporation, Omnicom Group Inc., Time Warner Inc., Viacom, Walt Disney Co. Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Cinemark Holdings, Inc., Interpublic Group, Omnicom Group Inc.. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from CBS Corporation, Cinemark Holdings, Inc., Discovery Communications, Interpublic Group, Liberty Capital Group, Liberty Interactive Group, News Corporation, Omnicom Group Inc., Time Warner Inc., Viacom, Walt Disney Co. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from CBS Corporation, Cinemark Holdings, Inc., Discovery Communications, Dreamworks Animation SKG, Inc., Interpublic Group, Lamar Advertising Co., Liberty Capital Group, Liberty Interactive Group, Lions Gate Entertainment Corp., News Corporation, Omnicom Group Inc., Scripps Networks Interactive, Time Warner Inc., Viacom, Walt Disney Co. Within the last 12 months, Morgan Stanley & Co. Incorporated has received compensation for products and services other than investment banking services from CBS Corporation, Interpublic Group, Time Warner Inc.. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: CBS Corporation, Cinemark Holdings, Inc., Discovery Communications, Dreamworks Animation SKG, Inc., Interpublic Group, Lamar Advertising Co., Liberty Capital Group, Liberty Interactive Group, Lions Gate Entertainment Corp., News Corporation, Omnicom Group Inc., Scripps Networks Interactive, Time Warner Inc., Viacom, Walt Disney Co. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: CBS Corporation, Interpublic Group, Liberty Capital Group, Liberty Interactive Group, Time Warner Inc., Walt Disney Co. An employee, director or consultant of Morgan Stanley is a director of Viacom. 31
Slide 32: Disclosure Section Morgan Stanley & Co. Incorporated makes a market in the securities of CBS Corporation, Cinemark Holdings, Inc., Dreamworks Animation SKG, Inc., Interpublic Group, Lamar Advertising Co., Liberty Capital Group, Liberty Interactive Group, Marvel Entertainment, News Corporation, Omnicom Group Inc., Regal Entertainment Group, Scripps Networks Interactive, Time Warner Inc., Viacom, Walt Disney Co. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. The fixed income research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and capital markets profitability or revenues), client feedback and competitive factors. Fixed Income Research analysts' or strategists' compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks. Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions. STOCK RATINGS Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Global Stock Ratings Distribution (as of October 31, 2009) For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively. Coverage Universe Stock Rating Category Count % of Total Investment Banking Clients (IBC) % of % of Rating Count Total IBC Category Overweight/Buy Equal-weight/Hold Not-Rated/Hold Underweight/Sell Total 875 1082 26 392 2,375 37% 46% 1% 17% 277 318 3 87 685 40% 46% 0% 13% 32% 29% 12% 22% 32
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