Saturday, February 07, 2009

DVD sales, Video Piracy and Media

Disney and News Corp reported sharp falls in DVD sales in the fourth quarter as consumers pull back on discretionary purchases. Netflix reported solid numbers - consumers are preferring to rent rather than buy. DVDs are the highest margin business for a studio - the disks are almost free and retailers don't take as much of a cut as movie theaters - so this will really hurt.

At the same time, broadband speeds are increasing in the US as the telcos and cablecos slug it out in the market. Consumers are looking to cut costs. Could we be looking at a step change in consumer attitudes towards video piracy? 

Media companies in US face huge challenges. Television stations and newspapers continue to see secular shift of ad dollars away to other mediums. Smart PE folks and Verizon have crushed yellow pages (RHD and Idearc) with debt loads. Radio has too many channels and too many ads on each channel for listener's comfort, and smart PE folks have been at work even here (Clear Channel). Movie studios face falling DVD sales. Cable networks are in relatively better shape, while Internet (Google) continues to take ad revenue share. 

I think CBS (which makes most of its money from television stations and radio) will run into debt trouble, unless it stops paying dividend and issues new equity. Sumner Redstone reportedly had debt troubles last year - if he had to chose between CBS and Viacom, he will let go of CBS. So there might be some M&A involving CBS. Comcast-CBS, regulators permitting?
Cable companies might be a better bet than telcos for their defensive attributes - their triple play product helps consumers save money. Of all the cablecos, Mediacom is perhaps the most interesting, because it is the most leveraged.  Except for Charter of course, which will finally go bust - this is the company that probably exemplifies the credit bubble better than anything else. 

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