Friday, February 26, 2010
Google Akamai Runor Resurfaces
Shares of Akamai (AKAM) are moving higher on renewed speculation that Google may purchase the company. Those rumors surfaced last October, however several analysts stated that the rumors were not credible. See this article from Gigaom which sheds light on the rumor. TMTAnalyst
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Wednesday, February 24, 2010
Cisco Systems developing ultra-high-speed internet access system
People close to the company say it is working with a number of US service providers, who are not named. But the article mentions Cisco customers AT&T (T) and Comcast (CMCSA), and says Cisco is "explicitly allying with the telecom giants" and hoping to benefit from their discomfort with Google (GOOG). Recall Google announced its plans for an experimental 1 gigabit per second fiber network on 10-Feb. Source: Financial Times TMTanalyst
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Gartner: 4Q09 Mobile Phones Sales up 8% & Smart Phone Sales up 41%
Nokia (NOK1V.FH) 2009 global market share was 36.4% vs year ago 38.6%
Sony ericsson 2009 global market share was 4.5% vs year ago 7.6%
Motorola (MOT) 2009 global market share was 4.8% year ago vs 8.7% LG (066570.KS) 2009 LG global market share was 10.1% vs year ago 8.4%
Samsung (005930.KS) 2009 global market share was 19.5% vs year ago 16.3%
Source: Dow Jones, TMTAnalyst Read More!
Sony ericsson 2009 global market share was 4.5% vs year ago 7.6%
Motorola (MOT) 2009 global market share was 4.8% year ago vs 8.7% LG (066570.KS) 2009 LG global market share was 10.1% vs year ago 8.4%
Samsung (005930.KS) 2009 global market share was 19.5% vs year ago 16.3%
Source: Dow Jones, TMTAnalyst Read More!
Google denies report it cancelled China phone event
Citing company spokeswoman Hohne, the company denies a Reuters report that it cancelled an event in Beijing. Reuters reported that the company had dropped the China leg of a regional event to show software developers its Nexus One. Citing a source close to the company, the report said Google will introduce the phone to software developers in Hong Kong and Taiwan next week, but will not stage a similar event in Beijing as developers were originally expecting. - Bloomberg, TMTAnalyst
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Apple Estimates Raised Above Consensus at Bernstein
The firm sees continued upward pressure on margins from the company's mix shift to iPhone and notes the Street is modeling a $100+ drop in average prices for the iPhone over the next two years with a 700bp deterioration margins which they see as aggressive. F10 EPS is raised to $11.99 from $11.67 vs. Reuters $11.76 with f11 raised to $13.73 from $12.72 vs. Reuters $13.43. Target remains $250 with the shares rated outperform. TMTAnalyst
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Monday, February 15, 2010
A Closer Look at the Windowing Debate Reignited by Disney
In the traditional release window model movies are first released in the movie theatres and about four months later on DVD, and about 45 days later on VOD, and then about 18 months later on pay TV. In about two to three years after the movie’s release they are shown on free and ad-supported TV. And might I dare to add a last option of ad supported Internet sites like Hulu a few years after appearing on ad supported TV.
DVD drives the majority of a studio’s sales and a majority of its profits; however, DVD sales are declining, cutting into movie studio profits. As such, the studios have been seeking to shorten the length of time between the movie’s release in the movie theatre and the release on DVD to drive more DVD sales. Naturally, the movie theatres are pushing back on the studios as the compression of the window threatens their profits. If a movie is available on DVD on the same date as in the movie theatre or even a few weeks afterwards, it is likely that some consumers would forgo going to the movies in favor of buying the DVD, leading to lost ticket sales for the movie theatre.
Disney reignited the debate by making the following comments on their recent earnings call:
“And so we really feel that we need to be cautious in terms of the movie business overall, because of the pressure on that very, very important window. And that's why, by the way, we've been in discussions about windowing with the exhibitors, because we feel that it's really important for us to maintain a very healthy business on the exhibition side, and 3D is definitely contributing to that, and a very healthy business on the home video side, which we think is actually in the best interest of the theater owners. A healthy movie business is good for them. They want us investing in innovation, investing in higher quality content. And so mindful of what's going on in the home video side, we feel that it's time, on a case by case basis, movie by movie, to really take a look at how we're windowing the home video product into the marketplace.”
Disney, we believe, raised several window release issues with those comments the first of which is whether the studios will collapse the theatrical to DVD window. We believe that this is highly unlikely for several reasons.
For one, movie theatres are a great way to gauge the level of interest in movies and how the movie will ultimately perform on DVD. That should help studios determine demand and more accurately forecast DVD production levels. For instance, if a movie flops at the theatre then the studio knows that they should not produce many DVDs to avoid massive returns by retailers. Conversely, the immense popularity of Avatar alerts NewsCorp that they should produce a high number of DVDs so that they do not miss out on sales.
Second, the success of a movie at the theatre helps determine how much a studio charges for the movie on pay and free television because the contracts are tied to the level of box office receipts. The higher the box office receipts the higher the studio charges the cable and broadcast network for the movie.
Lastly, DVDs will be eventually replaced by various forms of electronic sell-thru, permanently cutting into the DVD profit stream for the studios and providing further incentive to keep the theatrical window intact.
A second issue we believe Disney raised is whether an exclusive DVD sell-thru or sales only window should be created, meaning that DVDs will not be available for rental. This came about because the studios believe that Redbox’s $1 per night rental is eroding the economics of the DVD sell-thru business. Warner Brothers has addressed the issue forcing Netflix to agree to a 28-day delay for new releases after they hit the movie shelves. In return Netflix agreed to get more WB movies for its streaming feature and copies of WB movies at reduced cost. WB and Redbox failed to agree to this deal and are embroiled in litigation although there are reports that the two will agree to a deal similar to the one struck with Netflix– Redbox is also in litigation with Universal and Fox. We note that Redbox does have a deal with Disney, through Paramount, and with Sony and Lionsgate whereby Redbox obtains their movies on the same day they hit the shelves, in return for significant payment commitments from Redbox.
This new window could likely stem the decline in DVD sales in the near-term but longer-term it will be meaningless as the world moves to digital.
How about the 45 day DVD to VOD window? Time Warner has tested collapsing the DVD/VOD window and stated that DVD sales were not hurt. Other studios have disagreed. DVD profits are much more significant in both absolute dollars and in margins for DVD vs. VOD and thus studios have a vested interest is preserving that window.
In all, we believe that the theatrical window likely collapses by one day per year but never all at once. Some measure of a collapse can be sustained by all parties because over 90% of a movie’s ticket sales are generated in the first four weeks in the theatres. Hence, the theatres can agree to a partial collapse overtime provided that the studios continue to deliver blockbuster hits and new technologies like 3D continue to drive increased profits for the theatres. Indeed, that is what has been happening over the past few years as per the following exhibit.
See previous write-ups on media stocks at tmtanalyst.com
As for the DVDs, their sales likely approaches zero, asymptotically, overtime as digital distribution models take hold and remove DVDs for the windowing argument entirely.
Read More!
DVD drives the majority of a studio’s sales and a majority of its profits; however, DVD sales are declining, cutting into movie studio profits. As such, the studios have been seeking to shorten the length of time between the movie’s release in the movie theatre and the release on DVD to drive more DVD sales. Naturally, the movie theatres are pushing back on the studios as the compression of the window threatens their profits. If a movie is available on DVD on the same date as in the movie theatre or even a few weeks afterwards, it is likely that some consumers would forgo going to the movies in favor of buying the DVD, leading to lost ticket sales for the movie theatre.
Source: Cointstar 2Q09 Earnings presentation
Disney reignited the debate by making the following comments on their recent earnings call:
“And so we really feel that we need to be cautious in terms of the movie business overall, because of the pressure on that very, very important window. And that's why, by the way, we've been in discussions about windowing with the exhibitors, because we feel that it's really important for us to maintain a very healthy business on the exhibition side, and 3D is definitely contributing to that, and a very healthy business on the home video side, which we think is actually in the best interest of the theater owners. A healthy movie business is good for them. They want us investing in innovation, investing in higher quality content. And so mindful of what's going on in the home video side, we feel that it's time, on a case by case basis, movie by movie, to really take a look at how we're windowing the home video product into the marketplace.”
Disney, we believe, raised several window release issues with those comments the first of which is whether the studios will collapse the theatrical to DVD window. We believe that this is highly unlikely for several reasons.
For one, movie theatres are a great way to gauge the level of interest in movies and how the movie will ultimately perform on DVD. That should help studios determine demand and more accurately forecast DVD production levels. For instance, if a movie flops at the theatre then the studio knows that they should not produce many DVDs to avoid massive returns by retailers. Conversely, the immense popularity of Avatar alerts NewsCorp that they should produce a high number of DVDs so that they do not miss out on sales.
Second, the success of a movie at the theatre helps determine how much a studio charges for the movie on pay and free television because the contracts are tied to the level of box office receipts. The higher the box office receipts the higher the studio charges the cable and broadcast network for the movie.
Lastly, DVDs will be eventually replaced by various forms of electronic sell-thru, permanently cutting into the DVD profit stream for the studios and providing further incentive to keep the theatrical window intact.
A second issue we believe Disney raised is whether an exclusive DVD sell-thru or sales only window should be created, meaning that DVDs will not be available for rental. This came about because the studios believe that Redbox’s $1 per night rental is eroding the economics of the DVD sell-thru business. Warner Brothers has addressed the issue forcing Netflix to agree to a 28-day delay for new releases after they hit the movie shelves. In return Netflix agreed to get more WB movies for its streaming feature and copies of WB movies at reduced cost. WB and Redbox failed to agree to this deal and are embroiled in litigation although there are reports that the two will agree to a deal similar to the one struck with Netflix– Redbox is also in litigation with Universal and Fox. We note that Redbox does have a deal with Disney, through Paramount, and with Sony and Lionsgate whereby Redbox obtains their movies on the same day they hit the shelves, in return for significant payment commitments from Redbox.
This new window could likely stem the decline in DVD sales in the near-term but longer-term it will be meaningless as the world moves to digital.
How about the 45 day DVD to VOD window? Time Warner has tested collapsing the DVD/VOD window and stated that DVD sales were not hurt. Other studios have disagreed. DVD profits are much more significant in both absolute dollars and in margins for DVD vs. VOD and thus studios have a vested interest is preserving that window.
In all, we believe that the theatrical window likely collapses by one day per year but never all at once. Some measure of a collapse can be sustained by all parties because over 90% of a movie’s ticket sales are generated in the first four weeks in the theatres. Hence, the theatres can agree to a partial collapse overtime provided that the studios continue to deliver blockbuster hits and new technologies like 3D continue to drive increased profits for the theatres. Indeed, that is what has been happening over the past few years as per the following exhibit.
See previous write-ups on media stocks at tmtanalyst.com
As for the DVDs, their sales likely approaches zero, asymptotically, overtime as digital distribution models take hold and remove DVDs for the windowing argument entirely.
Read More!
Monday, February 8, 2010
Sprint 4Q09 Preview
Sprint is scheduled to report 4Q09 results on Wednesday Feb. 10th prior to the market open. Conference call is at 8:0am.
Consensus is calling for revenues of $8 billion, Adj. EBITDA of $1.41bn, 17.6% margin, and GAAP EPS of ($0.19). For the shares to rally, revenues should top $8.30billion, Adj. EBITDA should exceed $1.5 billion, and GAAP EPS should come in above ($0.12).
On the wireless side, expectations are for service revenues of $6.4 billion, service EBITDA of $1.10billion, 17.2% margin, and total net adds of (10k). Service EBITDA should decline by 300bps from 4Q08 due to competition for postpaid subscribers. Downward pressure on voice margins due to the intense competitive landscape also contributes to the margin decline. We expect postpaid net adds to continue to decline, pre-paid net adds to grow but at a decelerating pace, and churn to stabilize.
The wireline business should see revenues of $1.4 billion and EBITDA of $340 million.
As per 2010 guidance, we expect management to highlight cost saving efforts through the announced layoffs, expectations for a moderation in capex spend, and potential for free cash flow growth. We expect continued net add subscriber losses of 400k with the mix constituting of a pre-paid net gain of 1.8 million subscribers and a postpaid net loss of 2.2 million subscribers.
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Consensus is calling for revenues of $8 billion, Adj. EBITDA of $1.41bn, 17.6% margin, and GAAP EPS of ($0.19). For the shares to rally, revenues should top $8.30billion, Adj. EBITDA should exceed $1.5 billion, and GAAP EPS should come in above ($0.12).
On the wireless side, expectations are for service revenues of $6.4 billion, service EBITDA of $1.10billion, 17.2% margin, and total net adds of (10k). Service EBITDA should decline by 300bps from 4Q08 due to competition for postpaid subscribers. Downward pressure on voice margins due to the intense competitive landscape also contributes to the margin decline. We expect postpaid net adds to continue to decline, pre-paid net adds to grow but at a decelerating pace, and churn to stabilize.
The wireline business should see revenues of $1.4 billion and EBITDA of $340 million.
As per 2010 guidance, we expect management to highlight cost saving efforts through the announced layoffs, expectations for a moderation in capex spend, and potential for free cash flow growth. We expect continued net add subscriber losses of 400k with the mix constituting of a pre-paid net gain of 1.8 million subscribers and a postpaid net loss of 2.2 million subscribers.
Read More!
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