Wall Street’s Take On TV’s Future

In a few years, television will revolve around four global mega-companies — Netflix, Amazon, Disney and Apple, Steve Cahall of RBC Capital boldly predicted during a NATPE panel of Wall Street media analysts Tuesday.

“If you don’t work for one of those four companies, then the thing to do is try to figure out how you fit in a world where they become more and more dominant.”

Their rise will cause other companies to merge with each other or wither away, he added. “When things get disrupted this badly, there are going to be companies that go out of business; there are going to be companies that are going to be sub-scale.”

Cahall didn’t address the fates of individual companies like CBS, Fox, AT&T and Comcast, although he said that AT&T and Comcast are today among the five biggest spenders on TV programming along with Disney, Netflix and Amazon.

That three of the Cahall’s fab four of the future are digital companies is, in part, a function of their simply being digital companies, he said. As such, they are not tethered by the financial constraints by investors put on traditional media companies.

Netflix is spending $12 billion a year on content. That’s $1 billion per dollar of monthly revenue it gets from each subscriber. “That ratio is just out of whack with what anybody on the traditional side did for so many years.”

That’s the “disruption,” he said. “It’s great for consumers, but it’s really tough for companies locked in traditional business models.”

Panelist Michael Nathanson of MoffetNathanson didn’t second Cahall’s prediction in its entirety, but he did say that of all the traditional media companies Disney is in the best position to keep up the digital giants.

It’s because it can commit $1 billion to the launch of the direct-to-consumer service without bringing down the wrath of Wall Street, he said.

Unlike other traditional companies, it has substantial revenue not tied to the TV ecosystem — namely movies and theme parks — to support such an investment.

Because of its brand, HBO has an opportunity to be a mega-company, but parent AT&T probably will not seize it, he said.

No other company has the ability to get a “carte blanche” from Wall Street for the necessary big investment, he said.

He also endorsed Cahall’s notion that the best course for some companies now outside looking in on the Netflix-led OTT revolution may be to sell. He said that three of the companies that his firm once covered did just that — 21^st Century Fox (to Disney), Time Warner (to AT&T) and Scripps Networks (to Discovery).

Alexis Quadrani of JPMorgan Chase agreed that traditional media companies are held to a harder standard that makes it difficult for them to invest and compete.

But she added that there might come a day when Wall Street gets tougher with the digital companies and says: “Hey, wait a second, are you going … to make any money here?”

She also held out some hope for traditional media companies, noting that advertisers are still eager to reach the mass audiences that they deliver. News and sports are two types of programming that still pull large audiences that tolerate commercial interruptions.

Amy Young of the Macquarie Group said that the rise of the digital companies is reflected in the decline of the cable companies. Cable penetration peaked in 2012 at 92% and was down to 80% last year, she said. “I bet that number will continue to slide.

“What Wall Street wants to know is how quickly that pace of deceleration continues and what cable will look like.”

AT&T is still game with a plan that includes three streaming services in 2020, even as it licenses some of its best content (Friends) to the services with which it will compete, she said. “How they interact with Netflix, Apple and Amazon is going to be very interesting.”

Read more NATPE 2019 coverage here.