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AT&T and Time Warner launch WatchTV, with new unlimited data plans

AT&T and Time Warner launch WatchTV, with new unlimited data plans

The dust has barely settled on the legal ruling that is paving the way for AT&T (T) to combine with Time Warner (TWX), and we are alread hearing of new products and services to stem from this combination. No surprise as we are seeing a blurring between mobile networks and devices, social media and content companies as Apple (AAPL), Facebook (FB), Google (GOOGL) and now AT&T join the hunt for original content alongside Netflix (NFLX), Amazon (AMZN), and Hulu, which soon may be controlled by Disney if it successfully fends of Comcast to win 21st Century Fox.

While we as consumers have become used to having the content I want, when I want it with Tivo and then the content I want, when I want it on the device I want it on with streaming services, it looks now like it will be “the content I want, when I want it, on the device I want on the platform I choose.” All part of the overlapping to be had with our Connected Society and Content is King investing themes that we are reformulating into Digital Lifestyle – more on that soon.

In short, a content arms race is in the offing, and it will likely ripple through broadcast TV as well as advertising. Think of it as a sequel to what we saw with newspaper, magazine and book publishing as new business models for streaming content come to market… the looming question in my mind is how much will today’s consumer have to spend on all of these offerings before it becomes too pricey?

And what about Sprint (S) and T-Mobile USA (TMUS)…

 

Taking advantage of the recent approval of its merger with Time Warner, AT&T on Thursday announced WatchTV, a new live TV service premiering next week — and initially tied to two new unlimited wireless data plans.

WatchTV incorporates over 30 channels, among them several under the wing of Time Warner such as CNN, Cartoon Network, TBS, and Turner Classic Movies. Sometime after launch AT&T will grow the lineup to include Comedy Central, Nicktoons, and several other channels.

People will be able to watch on “virtually every current smartphone, tablet, or Web browser,” as well as “certain streaming devices.” The company didn’t immediately specify compatible Apple platforms, but these will presumably include at least the iPhone and iPad, given their popularity and AT&T’s long-standing relationship with Apple.

The first data plan is “AT&T Unlimited &More”, which will also include $15 in monthly credit towards DirecTV Now. People who pay extra for “&More Premium” will get higher-quality video, 15 gigabytes of tethered data, and the option to add one of several “premium” services at no charge — initial examples include TV channels like HBO or Showtime, and music platforms like Pandora Premium or Amazon Music Unlimited.

&More Premium customers can also choose to apply their $15 credit towards DirecTV or U-verse TV, instead of just DirecTV Now.

WatchTV will at some point be available as a $15-per-month standalone service, but no timeline is available.

Source: AT&T uses Time Warner merger to launch WatchTV, paired with new unlimited data plans

Washington’s Attack on Online Advertising Revenues Disguised as Tax Reform

Washington’s Attack on Online Advertising Revenues Disguised as Tax Reform

When we look at the creative destruction associated with our Connected Society investing theme, on the positive side we see new technologies transforming how people communicate, transact, shop and consume content. That change in how people consume TV, movies, music, books, and newspapers has led to a sea change in where companies are spending their advertising dollars given the consumer’s growing preference for mobile consumption on smartphones, tablets and even laptops over fixed location consumption in the home. This has spurred cord cutters and arguably is one of the reasons why AT&T (T) is looking to merge with Time Warner (TWX).

Data from eMarketer puts digital media advertising at $129.2 billion in 2021, up from $83 billion this year with big gains from over the air radio as well as TV advertising. As a result, eMarketer sees, “TV’s share of total spend will decline from 35.2% in 2017 to 30.8% by 2021.”

That shift in advertising dollars to digital and mobile platforms away from radio, print and increasingly TV has created a windfall for companies like Facebook (FB) and Alphabet (GOOGL) as companies re-allocate their advertising dollars. With our Connected Society investing theme expanding from smartphones and tablets into other markets like the Connected Car and Connected Home, odds are companies will look to advertising related business models to help keep service costs down. We’ve seen this already at Content is King contenders Pandora (P) as well as Spotify, both of which use advertising to allow free, but limited streaming music to listeners. Outside the digital lifestyle, other companies have embraced this practice such as movie theater companies like Regal Cinema Group (RGC) that use pre-movie advertising on the big screen to help defray costs.

As we point out, however, in Cocktail Investing, investors need to keep tabs on developments in Washington for they can potentially be disruptive to business models and that could lead to revisions to both revenue and earnings expectations. Case in point, current Ways and Means Committee Chairman Kevin Brady recently acknowledged that there “may be a need” to look at some of the revenue raisers to complete his 2017 tax reform proposal. One item was revisiting the idea to convert advertising from being a fully deductible business expense – as it has been for over a century – to just half deductible, with the rest being amortized over the course of a decade.

The sounds you just heard was jaws dropping at the thought that this might happen and what it could mean to revenue and earnings expectations for Facebook, Alphabet, Twitter (TWTR), Snap (SNAP), Disney (DIS), CBS (CBS), The New York Times (NYT) and all the other companies for which advertising is a key part of their business model.

Other jaws dropping were those had by economists remembering the 2014 IHS study that showed the country’s $297 billion in advertising spending generated $5.5 trillion in sales, or 16% of the nation’s total economic activity, and created 20 million jobs, roughly 14% of total US employment at the time. Those same economists are likely doing some quick math as to what the added headwind would be to an economy that grew less than 1 percent in 1Q 2017 and how it would impact future job creation should an advertising tax be initiated. It’s hard to imagine such an initiative going over well with a president that is looking to streamline and simplify the tax code, especially when one of his key campaign promises was to lower tax rates.

As we talked on the last several Cocktail Investing Podcasts, there are several headwinds that will restrain the speed of the domestic economy – the demographic shift and subsequent change in spending associated with our Aging of the Population investing theme and the wide skill set disparity noted in the monthly JOLTs report that bodes well for our Tooling & Retooling investment theme are just two examples. Our view is incremental taxes like those that could be placed on advertising would be a net contributor to the downside of our Economic Acceleration/Deceleration investing theme.

That’s how we see it, but investors in some of the high-flying stocks that have driven the Nasdaq Composite Index more than 17 percent higher year to date should ponder what this could mean to not only the market, but the shares of Facebook, Alphabet, and others. In our experience, one of the quickest ways to torpedo a stock price is big earnings revisions to the downside. With the S&P 500 trading at more than 18x expected 2017 earnings, a skittish market faced with a summer slowdown and pushed out presidential policies could be looking for an excuse to move lower and taking the wind out of this aspect of the technology sails could be it.

Previewing AT&T (T) Earnings and Watching Capital Spending Levels for Dycom (DY)

Previewing AT&T (T) Earnings and Watching Capital Spending Levels for Dycom (DY)

After today’s market close when Connected Society company AT&T (T) reports its 1Q 2017 results we will get the first of our Tematica Select List earnings for this week. This Thursday we’ll get quarterly results from both Amazon (AMZN) and Alphabet (GOOGL) with several more to follow next week.

Getting back to AT&T, consensus expectations call for the company to deliver EPS of $0.74 on revenue of $40.57 billion for the March quarter. As we have come to appreciate, these days forward guidance is as important as the rear view mirror look at the recently completed quarter; missing either can pressure shares, and mission both only magnifies that pressure. For the current (June 2017) quarter, consensus expectations are looking for AT&T to earn between $0.72—$0.79 on revenue of $40.2-$41.3 billion.

Setting the state for AT&T’s results, last week Verizon (VZ) issued its March quarter results that saw both its revenue and earnings miss expectations. Buried in the results, we found decreased overage revenue, lower postpaid customers and continued promotional activity led to a year on year revenue delicate for Verizon Wireless. The culprits were the shift to unlimited plans and growing emphasis on price plans that likely led to customer switching during the quarter.

If AT&T were still a mobile-centric company, we’d be inclined to re-think our investment in the shares, but it’s not. Rather, as we’ve discussed over the last several months, given the pending merger with Time Warner (TWX), AT&T is a company in transition from being a mobile carrier to a content-led, mobile delivery company. As we’ve seen in the past, consumers will go where the content is (aka Content is King investment theme), and that means AT&T’s content portfolio provides a competitive moat around its mobile business. In many ways, this is what Comcast (CMCSA) established in buying NBC Universal — a content moat around its broadband business… the difference is tied to the rise of smartphones, tablets and other mobile content consumption devices that have consumers chewing content anywhere and everywhere, and not wanting to be tied down to do so.

For that reason, we are not surprised by Comcast launching Xfinity Mobile, nor were we shocked to hear Verizon is “open” to M&A talks with Comcast, Disney (DIS) and CBS (CBS) per CEO Lowell McAdam. In our view, Verizon runs the risk of becoming a delivery pipe only company, and while some may point to the acquisitions of AOL and Yahoo, we’d respond by saying that both companies were in troubled waters and hardly must-have properties.

With AT&T’s earnings, should we see some weakness on the mobile side of the business we’re inclined to let the stock settle and round out the position size as we wait for what is an increasingly likely merger with Time Warner.

 

We’re Also on the Look Out for Datapoints Confirming Our Position in Dycom (DY)

As we listen to the call and dig through the results, we’ll also keep an eye on AT&T’s capital spending plans for 2017 and outer years, given it is Dycom’s (DY) largest customers (another position in our Tematica Select List). As we digest that forecast and layer it on top of Verizon’s expected total capital spending plan of $16.8-$17.5 billion this year, we’ll look to either boost our price target on Dycom or revise our rating given we now have just over 8 percent upside to our $115 price target.

 

Tematica Select List Bottomline on AT&T (T) and Dycom (DY)
  • Our price target on AT&T (T) shares remains $45; should the shares remain under $40 following tonight’s earnings, we’ll look to scale into the position and improve our cost basis.
  • Heading into AT&T’s earnings call, our price target on Dycom (DY) shares remains $115, which offers less than 10 percent upside. This earnings season, we’ll review customer capital spending plans to determine addition upside to that target, but for now given the pronounced move in DY shares, up more than 18 percent in the last month, we’d hold off committing fresh capital at current levels.

 

 

Time Warner Shareholders Say “Yes” to AT&T

Time Warner Shareholders Say “Yes” to AT&T

As we noted yesterday, Time Warner (TWX) shareholders met yesterday to decide on the $86 billion merger with AT&T (T). As expected Time Warner shareholder approved the proposed merger and coming out of that meeting, Time Warner anticipates the transaction closing before the end of 2017.

Time Warner’s CEO Jeff Bewkes said in a statement that “78% of our outstanding shares” voted in favor of the merger, “and of the shares voted, 99% were cast in favor of the proposal.”

Pretty much a non-event, but one that removes one more hurdle in the proposed merger. We remain fans of the combination as it moves Connected Society AT&T into the Content is King tailwind, and we’ve seen how that investment theme has benefited Tematica Select List’s Disney (DIS) as well as Comcast (CMCSA) following its acquisition of NBC Universal.

  • With merger and synergy details from the proposed merged companies still pending, we continue to rate T shares a Hold, with a $45 price target. All things being equal, we’d look to revisit our rating on the shares below $40.
Look out DirecTV Now, here comes Hulu’s live TV streaming service complete with ESPN

Look out DirecTV Now, here comes Hulu’s live TV streaming service complete with ESPN

The race to replace broadcast TV with streaming services has become even more competitive with Hulu tossing it’s hat in the ring alongside the soon to be launched DirecTV Now from AT&T that is likely to benefit from the announced Time Warner acquisition. To drive viewers, it’s all about the content and increasingly proprietary content like we’re increasingly finding at Netflix and Amazon. While the Disney relationship brings ESPN into its fold, it sounds to us like Hulu needs to get that balance sheet going.

Hulu said today it has partnered with Disney and 21st Century Fox for its upcoming live TV streaming service, launching next year. The deals involve Fox’s news, entertainment, sports, and other properties, along with Disney’s portfolio of networks from is ABC Television Group and ESPN, among other things. In total, the two agreements will bring more than 35 TV networks to Hulu’s live TV service.What this means for consumers who are considering cutting the cord with pay TV is that they’ll gain access to two of the top broadcast networks, Fox and ABC, on Hulu’s new streaming platform.In terms of sports, the two deals will include Fox Sports networks (Fox Sports 1 and 2), BTN, ESPN networks, including ESPN1, ESPN2, ESPN3, ESPNU, ESPN-SEC, and Fox’s regional sports networks in dozens of markets. Meanwhile, other popular cable TV channels will also be included, like Disney Channel, Disney XD, Disney Junior, Fox News, Fox Business, Freeform, FX, FXX, FXM, National Geographic and Nat Geo Wild.

Source: Hulu’s live TV streaming service will have channels from Fox & Disney, including ABC, ESPN & more | TechCrunch

AT&T CEO puts DirecTV Now at $35/month, but…

AT&T CEO puts DirecTV Now at $35/month, but…

AT&T has been all over the news the last several days, and the news flow continues today when fresh from yesterday’s conference call to discuss the merger with Time Warner,  CEO Randall Stephenson shared its soon to launch DirecTV Now video streaming service will cost $35 per month. Details were rather sparse and we expect more when the official launch happens “next month.”

We expect many comparisons to offerings from Sling as well as pricing relative to Netflix and Hulu, but we suspect it will be far cheaper than the video services offered by Verizon’s FiOS, Comcast and others. As potential chord-cutters, we are anxious for the details!

Speaking at a Wall Street Journal conference today, AT&T CEO Randall Stephenson reportedly told attendees that DirecTV Now will launch in November at a price of $35/month. That puts the service $15/month above the starting point for the competing Sling TV live-TV streaming offering, and about the same price point for the barest-bones versions of Sony’s PlayStation Vue service.Where DirecTV Now appears to be trying to compete is on content. According to reports — again, this has not been officially announced or confirmed — Stephenson says that DirecTV Now will offer 100 channels.

Source: AT&T CEO: DirecTV Now Streaming Service Will Cost $35/Month, Launch Next Month – Consumerist