Emerging Media Companies

Netflix, Amazon Unveil Deals for Disney-ABC Streaming Content

Question: Who are the emerging companies?

Summary:

Netflix and Amazon have both entered into a deal with Walt Disney Co. that will allow them to offer streaming of ABC and Disney Channel shows. These deals show the increasing importance of being able to offer online streaming for media companies. These deals, however, are not only important to the service providers - content owners are seeing a decrease in revenues from other sources.

Amazon has shown itself to be a real competitor for Netflix, having added more than 11,000 titles this year. In addition to increasing their content, Netflix has the added pressure of expanding their market. They will be moving into U.K. and Ireland, and are expecting some loss in parts of 2012.

A market analyst that covers Netflix for Janney Capital Markets, says that content companies are profiting from the current market, since they can sell their content to numerous distributors.

See article for a brief comparison of the financial states of both companies.

Analysis:

While there are few true entrepreneurs in the service providers section of media, there are a few companies that are changing the traditional approach to media through innovation. Netflix is the most obvious of them. It popularized the idea of streaming both movies and TV shows online, instead of watching them through traditional providers. Hulu, though neither mentioned in the article nor a public company, is a competitor of Netflix, offering a very similar streaming service, though at the moment its content is significantly weaker. Perhaps if it decides to go public at some point, it will be able to get the necessary capital to negotiate the deals that other companies are making.

Amazon is a very well established company, but it is a fairly new to streaming. However, it has a very large customer base and makes it easy for its customers to start using its streaming service. This deal shows that it is dedicated to entering this market and can become serious competition for Netflix.

"Paranormal Activity 3" Scares up Huge $54M Debut

Question: What are some current events in your industry? What is the impact of these events on the industry?

Summary: "LOS ANGELES (AP) — 'Paranormal Activity 3' didn't just go bump in the night. It made a ton of noise at the box office with a record-setting, $54 million opening.The third film in Paramount Pictures' low-budget fright franchise, which was No. 1 at the box office, had the biggest debut ever for a horror movie, according to Sunday studio estimates. It broke the previous record part two set a year ago with $40.7 million. It's also the biggest opening ever for an October release, topping the $50.35 million Paramount's "Jackass 3D" made last year." According to this article and Don Harris - Paramount's president of distribution - the third movie was the best out of all three, and that is why "this installment did so well."

Analysis: Obviously Paramount has profited from this movie, but besides Paramount the movie theatres did as well. With so many people coming in, imagine how much soda, popcorn and snacks were sold that day. Companies like Blockbuster, Netflix and Hulu are going to make some profit of that film, when it's going to come out on DVD. Newspapers and Magazines are going to profit from that movie because they're publishing movie reviews and different articles about Paranormal Activity 3 and that's what people want to read about "today"; so possibly more people are going to buy newspapers and magazines that contain at least some info about the movie in the following week or two, than they used to before. So overall, I think we can say that the success of the movie 'Paranormal Activity 3' has (or will have) a great impact on the media industry in the future, possibly even near future.

Sources: http://movies.yahoo.com/news/paranormal-activity-3-scares-huge-54m-debut-154505711.html

Netflix Earnings Expected to Rise

Question: Comment on revenue, profit, and loss of key industry players?

Summary: Netflix has been going through a rough couple of months. Shares have lost 60% of their value since July, partially because of their price raise and partially because of their botched DVD-streaming split, which fell through last month. Despite all of this, analysts are expecting Netflix to see a third-quarter profit of 96 cents a share, way up from last year's third quarter earnings of 70 cents a share. Analysts are also expecting revenue to reach 813 million dollars, as compared with last years third quarter revenue of 553.2 million dollars. This rise in revenues is expected to come partially from the rise in prices from $9.99 for a DVD-streaming plan to $15.98, and from Netflix's work with several other broadcasting firms, including Fox and CBS. Analysts have said that despite the tough quarter, Netflix is working hard on regaining customer appreciation, and will likely continue to see a rise in profits.

Analysis: Netflix has absolutely been through a very rough quarter, no one will deny. Yet at the same time it's growth opportunities remain large, and with its planned expansions into Canada and Europe over the next few quarters, it certainly has the opportunity to continue to produce a very hefty profit. Nevertheless, I can't help but wonder if these estimates aren't a little bit too high. Netflix's change in prices may have caused many to leave, and while the majority stayed, I would not at all be surprised if most switched to a less expensive streaming only plan. The disastrous plan to split the company's DVD and streaming segments into different companies likely had an extremely large impact on confidence in the company, and may have impacted revenues more than analysts are predicting. I am not an analyst, so I cannot say for sure what data those who are use, but looking at it from my armchair blogger's perspective, I am going to remain cautious about a $0.96 EPS and $813 million revenue coming out on Monday afternoon.

http://www.marketwatch.com/story/netflix-profit-expected-to-rise-in-tough-period-2011-10-21

The Battle of Blockbuster and Netflix

QUESTION:

Comment on revenue, profit, and loss of key industry players.

SUMMARY:

We all know the rivalry between Netflix and Blockbuster. Netflix is undoubtedly the stronger contender, but for a while there (mid-2000s), it looked like Netflix and Blockbuster were neck-in-neck. Basically, Blockbuster started out as a DVD rental/retailer. It was doing pretty well; it was essentially the only one of its kind and dominated the market. In 2004, Netflix was born, and with it, the rise of DVD by mail. Now, in 2009 Blockbuster tried to jump on the bandwagon and rent out DVDs this way--by mailing them to consumers. But it was just too late. Netflix had already snatched up many of Blockbuster's old clients and created a name for itself in the movie distribution business.

In 2010, Blockbuster filed for Chapter 11 bankruptcy. Bankrupt, essentially defunct, and very sad, Blockbuster was bought by media provider giant, DISH Network. Thus, Blockbuster became an entity under DISH and no longer exists by itself as a company anymore.

OPINION:

It's hard to say whether Netflix bought about the demise of Blockbuster. Would Blockbuster still have gone bankrupt without the rise of Netflix? I think it's safe to say that it definitely wouldn't be making as much money as it was in the 1990s--but primarily due to the rise of piracy and illegal downloading on the internet.

What is most interesting to me, however, is that DISH Network acquired Blockbuster. Why would they want control over a dying company? It's still somewhat of a mystery--DISH believed it could resurrect the DVD rental store, it thought that Netflix was just a trend, it thought that it could compete price- and service-wise with the new Netflix? Regardless, DISH disregarded (or at least discounted) Blockbuster's consistent losses in revenue and decided to go ahead and take over the company. Now, Blockbuster is trying to steal Netflix's customers through Twitter campaigns and the like, but I don't actually think Blockbuster will ever be more profitable or desirable than Netflix.

SOURCES:

http://blogs.wsj.com/digits/2011/09/29/blockbuster-takes-to-twitter-after-netflix-stumbles/?KEYWORDS=blockbuster+netflix

Distributors in the Recession

Picture: The stock prices of Netflix, Comcast, and DirecTV from the end of 2007 to the end of 2009. Source is Google.com/finance

Sources in this blog post:

“Netflix: Quarterly Earnings”

http://ir.netflix.com/results.cfm

“Comcast Investor Relations – Earnings”

http://www.cmcsk.com/earnings.cfm

“DIRECTV Inc. – Quarterly Results”

http://investor.directv.com/results.cfm

Question: How has the recession (2008-2009) affected companies’ balance sheets?

Source Summary:

This blog post will be different from many previous ones because, while other posts discuss articles from some outside source, this question calls for an analysis of balance sheets released by companies at the end of quarters. In order to best do this, I did a comparison of several end-of-year (Fourth Quarter) budget sheets for the three largest distributors, Netflix, Comcast, and DirecTV.

Since the recession happened in 2008-2009, the best method of measuring how the three giants were affected is to compare total assets before, in December of 2007, to assets afterwards, in December of 2009. Netflix lost about $61 million during the year of 2008, but it gained $62 million in assets the next year, bringing their net gain to be $1 million. Comcast lost around $664 million in assets during the two-year period, but since its total assets in the end of 2009 completely dominated Netflix $112 billion to $679 million, Comcast is still in a rather well position. DirecTV was unfazed by the recession, gaining approximately $3.2 billion in assets during the two-year period, but it still had less than Comcast with only $18 billion in total assets.

My Analysis:

Overall, the recession barely damaged the three giants of the media distributor industry. While Comcast did suffer losses, they were relatively small given the grand scale of the entire company’s assets, and the company made a quick recovery the following year. This is rather interesting because many other companies from other industries suffered much greater losses, including the most powerful ones, while distribution is still as healthy as ever, if not more so. To put this in analysis, it seems that, despite lower income and less purchasing, the American public does not want to face living without television. Especially curious is that, while entertaining and moderately informative, there are many alternatives to television that are cheaper and healthier, meaning that a non-essential good is surviving better than some essentials. While this trend is unusual, it is good news for investors and the companies themselves, as media is a good which is almost immune to recession.

Current Events - DirecTV

DirecTV May Lose Fox Cable Channels In Contract Fight

Question: What are some current events in your industry? What is the impact of these events on the industry?

Summary: There is a possibility that DirecTV will lose the rights to broadcast Fox regional sports networks as well as some cable channels (including FX and National Geographic) this November due to a contract-renewal dispute. These disputes are becoming more and more commonplace due to the rising levels of competition within the television industry. Network owners are able to set higher prices, because there are more companies that want to enter contracts. Furthermore, traditional distributors are seeing a decrease in the expected growth of subscriptions due to newer venues for media such as Netflix and Hulu.

Fox broadcast network and Fox news will remain untouched until the end of the year and end January, respectively. Part of the problem in the current negotiations is that News Corp. (which owns Fox) wants to bundle these services to the regional sports networks, which will allow them to ask for a higher price - as much as a 40% increase on the side of consumers.

Analysis: This article is very rich in some major concepts of media and business:

1) High competition allows for high prices.

2) The entrance of online media into the market has created significant problems for traditional media.

Because of the higher competition, network providers are seeing the opportunity to increase their revenues by demanding higher prices from their customers. Since the products they are selling have very high brand loyalty (such as Fox news or Fox regional sports), they have a lot of leverage over service providers to extract the price that they want - especially since for these providers giving up a network means loosing customers to their competitors that choose to pay the new, higher, price.

However, now the competitors are not all equal. Traditional service providers face the challenge of competing against online media. Companies such as Netflix and Hulu (as well as possibly YouTube and Amazon in the near future) do not have the same amount of costs as do the traditional service providers since they do not need as much physical presence. This allows them to increase their profit margins or to keep the price of their products lower than that of traditional broadcasters while buying access to networks at the price demanded.

Question: What non-US companies are key players in the industry?

Summary: The most global media company in the world is a German based corporation named "Bertelsmann AG".

Bertelsmann is an incredibly broad media company, providing not just radio and television (through its subsidiary RTL), but also newspapers and magazines (through its subsidiary Gruner + Jahr, the largest magazine publisher in Europe), and books (through its subsidiary Random House). It operates Direct Group Bertelsmann, which operates "media clubs, bookstores, online activities, publishing imprints and distribution companies in over 16 countries." It also operates an outsourcing service provider called Arvato, a subsidiary largely distinct from its other, more media-centered subsidiaries.

The company employs over 100,000 people in 50 countries worldwide, making it "the worlds most international media company".

RTL, the company's radio and television subsidiary, accounts for 35% of its revenue, is the largest source of income, partially the product of a plan to expand its television services internationally. RTL now provides services in 11 countries, including production companies in the United States.

Analysis: Bertelsmann is the most international media company, true, but it is certainly not the largest media company in the world. It still has a long ways to go before it catches up to the likes of Disney, which is currently the largest media conglomerate in the world, or even AT&T, the largest telecommunications provider in terms of revenue ($124 Billion vs. Bertelsmann's $15 billion).

What kind of opportunity does it have to expand? While breaking a company like Disney or AT&T off its throne, especially here in the US, is far too much to hope for anytime soon, Bertelsmann does have a great ability to take advantage of new, important markets, which could make it a much larger conglomerate - primarily, digital media. It owns the largest book publisher in the world, Random House. As the digital media slowly but surely eats away at the publishing profits, an entrance into e-books could save some of the lost revenue. Owning Random House also gives it a tremendous jumping point with material to publish, and a large market familiar with the name. It could also enter the digital movie streaming service; Netflix is scheduled to begin offering its services in two European countries in the first quarter of 2012. By establishing itself as a homegrown competitor, Bertelsmann could provide a successful service in Europe.

Sources: http://www.bertelsmann.com/bertelsmann_corp/wms41//customers/bmcorp/pdf/Annual_Report_2008_final.pdf

http://www.bertelsmann.com/

http://mashable.com/2011/07/15/netflix-europe-2012-report/

The Global Media Giants

Question: Which companies in your industry are most global? What has been the key to their success in other countries?

Summary: Five major "Global Media Giants" exist in our media industry as of today. Those five giants are "Time Warner (1997 sales: $24 billion), Disney ($22 billion), Bertelsmann ($15 billion), Viacom ($13 billion), and Rupert Murdoch's News Corporation ($11 billion)." The two golden rules those companies have followed in order to achieve success are the following:

1) "Get bigger so you dominate markets and your competition can't buy you out. "

2) "Have interests in numerous media industries, such as film production, book publishing, music, TV channels and networks, retail stores, amusement parks, magazines, newspapers and the like...firms that do not have conglomerated media holdings simply cannot compete in this market. "

Analysis: At a first glance those two rules might seem simple enough to follow, but the key queiostions are - how do you "get bigger"? And how can you obtain and keep "conglomerated media holdings" afloat? There are answers to those questions - of course there are - but not a single one out of tose five companies is going to "spill the beans" and reveal all of its secrets.

What I found interesting, however, was that all of these companies started becoming what we now call "media giants"around the same time (1990s) - Time Warner (1992), Disney (1995), Bertelsmann (1994), Viacom (1994), and Rupert Murdoch's News Corporation (1995).
That made me wonder whether it's even possible for the other, newer, companies to reach that same level those five giants have reached, or possibly even overthrow them sometime in the near future...

Sources:http://www.fair.org/index.php?page=1406

Netflix: The Most Global Industry (In The Americas)

Articles in this blog post:

“Netflix Expands to Latin America Countries”

“Netflix to Stream Films and TV Abroad”

“Netflix Launches in Canada”

Question: Which company in your industry is most global? What has been the key to their success in other countries?

Article Summary:

Starting on September 5 this year, Netflix began selling subscriptions to their online video streaming service in various nations in Latin America, starting with Brazil and expanding to 43 nations in Latin America, including Mexico, Argentina, and islands in the Caribbean. This service, which costs about $9 a month, only includes unlimited streaming and offers popular shows and movies in English, Spanish, and Portuguese.

This venture into the global market is not the first time Netflix left the United States in order to attract more customers. Last year in September Netflix made their first foreign venture by setting up their unlimited streaming service for use in Canada, though they did not invest in letting Canadians order unlimited DVDs by mail, which was included in all US Netflix subscriptions. For the most part this venture has paid off, as Netflix announced recently that it had gotten one million Canadian subscribers in less than a year since the company expanded there. However, there have been no further announcements of whether Netflix wants to make streaming available in any further countries.

My Analysis:

The interesting trend in the field of media distribution is that, while several companies are faring well in the United States even with the recession, little progress has been made towards creating a multinational corporation. In England, which is very similar to the US in regards to language, wealth, and hobbies, popular companies like Comcast and DirecTV are unheard of, despite being giants in the industry here. As such, Netflix’s transition into countries outside the United States is welcome – while it still is limited to the Americas, it shows a significant effort to increase their viewer base, make more money, and give people in those countries a greater consumer surplus.

Netflix has been hailed several times for being innovative in the industry and growing at a substantial rate. With the transition of going from being in one country to two to almost 50 in the course of a couple years, and the good report of one million customers when being in Canada for only a year, Netflix is once again showing its potential as a major contender in the form of media distribution. The key to this success is that they have a product relatively easy to produce – after all, most movies and shows already exist on Netflix, not many changes are needed to show them in another country – and incredibly easy method of distribution compared to tangible goods since everything is online. While the change from being in the Americas to overseas would require a big investment, I feel that Netflix has the potential to become a truly global corporation on par with the likes of McDonalds for being able to efficiently produce a relatively cheap but valued good.

Outsourcing and Overseas Manufacturing

QUESTION
Do players in your industry manufacture overseas? What aspects of their operations do they outsource?


SUMMARY
In the media industry (particularly for media providers), it is near impossible to "manufacture overseas," as the companies usually provide services rather than products. For example, Netflix recently began offering its services to customers in Canada and Latin America, but all services are provided by Americans in the United States. On the other hand, Verizon is a good example of a media company that outsources to other nations in "Europe/Middle East/Africa, Asia/Pacific, and Latin America." But Verizon outsources its customer service, not its production. In short, different media companies choose to operate solely in the US or all over the world depending on the types of services they provide.

OPINION
For some companies, it is profitable to outsource operations such as customer service. (This is why there's often a foreign employee on the other end when you call your cable provider for help in the middle of the night.) Having customer service employees in different parts of the world also ensures that the proper language and time zones are represented--meaning more customers can receive help.
Verizon, self-described "global leader in communications," has buildings in different countries so that its customers can always reach a representative when there's an issue. Netflix does not provide this service because it operates mainly within the US, and its services are very different (Netflix doesn't do phone/internet/wireless).
Some companies would benefit from establishing overseas bases but other would not. Traditional providers like Time Warner, Comcast, and Verizon would stand to benefit from outsourcing customer service. Other companies, such as Netflix, Redbox, and Hulu, don't need to outsource because they provide a service that isn't usually consider a necessity (whereas television/cable is crucial to most people's comfort). In other words, online media providers don't need to manufacture abroad/outsource, but more traditional media distributors oftentimes do to help the bottom line.

SOURCES
http://www22.verizon.com/jobs/whoweare_vzbglobal.html
http://ir.netflix.com/#
http://www.webosroundup.com/wp-content/uploads/2011/04/verizon-world-phones.png

Global Media

France Telecom, Deutsche Telecom Launch Joint Purchasing Venture

Question:

What non-US companies are key players in the industry?

Summary:

France Telecom and Deutsche Telekom announced on Friday a new joint venture called Buyin through which they hope to save millions of euros per year on purchases of telecoms, network, and software equipment. The companies have previously worked together in U.K on a joint venture called Everything Everywhere. Buyin will start operation in Paris and Bonn this Monday (Oct 17, 2011). This plan was first announced in March and is predicted to save at least 3 billion euros by 2015, in part due to partnerships with competitors in the market.

Analysis:

Global involvement by media broadcasters differs greatly. For example, according to its website, Comcast provides service exclusively in the United States. This is a trend followed by many cable companies. DirecTV has a slightly wider geographical range, offering service to the US and latin america. Newspapers/journals, such as the Wall Street Journal and the Economist have a global presence despite being focused and associated primarily with one location. This difference may be in due to the difference in purposes that they serve - the latter category deals in large part with affairs that concern businesspeople around the world, while cable is targeted more to people within a specific geographic region.

The two telecommunications companies dealt with in this article likewise have a huge global presence. As mentioned, while they are based in France and Germany, respectively, they have worked on a project in the U.K.. The two are some of the largest telecommunications companies in the world. France Telecom services countries in Europe, Africa, and the Middle East, while Deutsche has a world-wide presence. T-mobile, a name most Americans are familiar with, is owned by this German media company. Since telecommunications is meant to make communication easier across the world, it makes sense that the large players would be strong internationally. This distribution of globality supports the idea that its the purpose of a specific branch of media that influences whether many companies within it deal internationally and to what extent.

Note: All information was found on the official sites of the companies mentioned.

Differentiation in the Media Industry

Question:

How do companies in this industry differentiate themselves from one another?

Note: 

This post is essentially exactly what I wrote for my section of the draft paper. It's about how different media providers market their services/products (specifically how they choose to price them).

Summary*:

This article sums up Netflix's new marketing move: dividing online streaming and DVD sales into two separate services, each for $8 instead of the 2-for-1 package for $10. Customers, shareholders, and stockholders were not happy. Netflix stock dropped after the announcement, and the vast majority of Wall Street Journal readers said in an online poll that the marketing move will harm the company.

The most intriguing quotation in the article came from Wedbush Securities analyst Michael Pachter: "...streaming-only customers are more profitable to Netflix than its DVD customers. But he believes that state of affairs won't last as studios charge Netflix more for the digital licensing deals it relies on. 'On the DVD side the studios have zero ability to raise price. [...] On the streaming side, the studios have 100% leverage.'"

Opinion:

There are many companies that offer similar services to those of Netflix. I will describe their differences here (in almost identical language to the opening paragraph of my Marketing section draft).

Since Netflix, Inc. was founded in 1997, companies in the media distribution industry have all been following its example by offering easy DVD rental delivery to their customers. The fad today is to offer online streaming of movies and television programming for a monthly or yearly fee. Netflix was the first to do this, charging $10 per month for both services—DVDs and streaming. Blockbuster caught on—too little, too late—and began offering the same delivery service in 2004, also for $10 per month.

Redbox, founded in 2002, lets customers rent movies from kiosks in supermarkets and drugstores and return them in any convenient kiosk for as little as $1 per DVD. Websites, such as Amazon.com (e-commerce) and Hulu.com (online streaming) have also caught onto this trend: In 2011 Amazon launched Amazon Instant Video to customers already paying the Amazon Prime fee, and Hulu introduced Hulu Plus for $8 per month, to offer more services and maintain a higher profit margin.

Sources:

http://www.amazon.com/gp/help/customer/display.html/ref=hp_3757_wipiv?nodeId=200572880

http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/09/blockbuster-files-for chapter-11-bankruptcy-sets-plan-to-reorganize.html

http://www.hulu.com/plus

ttp://ir.netflix.com/

http://www.redbox.com/history

https://www.blockbuster.com/signup/m/plan

http://www.theklaus.com/images/portfolio/editorial_cartoons/Netflix_Defeats_Blockbuster.jpg

*http://online.wsj.com/article/SB10001424053111903374004576581000189433470.html