11:30: Decent first writing session of the day (on the new novel). The new novel, the second in the series, is a high octane mystery thriller featuring former Marine turned Hollywood stuntman, Eddie Ankin, who in book one is accused of murder after he is the last person to see an actress who is later killed in fornt of a live audience on her YouTube channel. The only way to clear his name is to find the real killer. Book 2 movies the action from Los Angeles to New York City, where a friend of Eddie’s turns up dead. Eddie suspects there is a connection between his friend’s death and members of a crew of professional thieves who are planning a massive heist at the Empire State Building.
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Media money: Snapchat crashing. Stock Down 40%.
CEO Evan Spiegel’s warning sends shock across digital advertising as investors flee social media stocks
Courtesy of @lauren_feiner
Snap CEO Evan Spiegel warned of slowing growth in a note to employees made public on Monday.
His message sent a chill across the digital advertising industry.
Analysts pointed to macroeconomic trends that could extend far beyond Snap.
That was all before Snap CEO Evan Spiegel warned late Monday of an environment that’s worsened since his company reported quarterly results in April, when guidance was already disappointing.
In telling employees and Wall Street that “the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month,” Spiegel sent a shock across the digital ad industry and sent investors running for the exits.
Snap, which had previously projected second-quarter growth of 20% to 25%, lost an astounding 40% of its market cap on Monday. Beyond that, Pinterest plunged 23%, Facebook parent Meta dropped 8%, Google lost 6% and Twitter sank almost 4%.
MEDIA MONEY: TWITTER, NETFLIX, and CNN+…OH MY!
News:
Obviously the big news is that Elon musk is buying Twitter. He paid $54.20 a share for a valuation $44 billion. That means Musk is paying more than 3x the average eps for the company.
(At the time of this writing Twitter is trading at 51.69)
This means that Musk is paying 75.2x 2022. eps. Thats compared with industry average of about 20x earnings.
Amazon trades at 46 times earnings
Microsoft trades at 26 times earnings
Meta trades at 35x earnings
That means Musk is paying more than roughly 3x the average eps for the company. So, what are Musk’s intentions for Twitter?
What we know about Musk’s plan so far is that he intends to take the company private because he claims that is the only way that he can make the changes to return the company to profitability and make it competitive within its industry.
Of course Jack Dorsey 2% stake will see him net a $980mm payday thanks to Elon. Perhaps that’s the reason for all the “light and consciousness.”
He talked about making the twitter algorithm open source as a way of showing how the AI works. This not only offers much needed transparency in this company, but if the algorithm can be shown to work more effectively then that is a boon for all algo-driven industries and businesses.
Twitter founder and former CEO, Jack Dorsey had this to say:
“In principle, I don’t believe anyone should own or run Twitter. It wants to be a public good at a protocol level, not a company. Solving for the problem of it being a company however, Elon is the singular solution I trust. I trust his mission to extend the light of consciousness.”
Of course Jack Dorsey 2% stake will see him net a $980mm payday thanks to Elon. Perhaps that’s the reason for all the “light and consciousness.”
Never minding that silliness, what Dorsey muses is worth pondering. Is Twitter “a public good?” And, “not a company”? If so, it begs the question: is twitter a utility? Twitter punches well above its weight in terms of its influence in the public square and public discourse relative to its overall valuation, profitability, compared to other tech companies in the sector. In that case, dows Twitter have obligations beyond its bottom line? If so, is there a way for an individual like Musk to unlock that? It used to be that the news divisions of major media companies were not required to turn a profit. The understanding was that this ensured an independent, strong fourth estate, which is — or was — seen as integral to maintaining a strong democracy. Public discourse and the freedom of speech of course is even more integral, and even more central to the foundations of this country and its core principles. So, as a platform is Twitter responsible to living up to those ideals or is its only obligation to its investors and its bottom line? The answer to those questions and many others will determine what Twitter looks like going forward, its place in our society as a the “digital town square,” as well as its profitability over the long term.
One thing that is overwhelmingly clear is that most people are against censorship. However there is a contingent of Twitter’s more left-leaning employees and users who claim they will be leaving Twitter (over 99% of piolitical donations from employees were to Democrats; that’s beyond group think. That’s cultish). If they do, this could impact the company’s ability to evolve... but I seriouly doubt most will. Anymore than people moved to Canada after the 2004 election after George Bush won re-election. As for the ones that do….good riddance. They are the ones who have run this company into the ground.Whatever this means for the company’s future or its bottom line, this is a win for democracy. All the politicians claiming this is dangerous for democracy are ridiculous.
Almost as ridiculous as the idea that the current CEO, Prag Agarwal, is set to receive $42mm if terminated by Musk. Talk about a golden parachute. I thought we did away with those? Apparently not. Apparently failure in corporate America is still rewarded. Ah well, the rhetoric sounded good.
One thing that is overwhelmingly clear is that most people are against censorship.
In related news, President Trump’s new social media platform, Truth Social, was down 12% in market trading.
CNN+
Speaking of going down, the failed experiment that was CNN+ has come to an ignomouus end. The streaming service CNN+ closes after being on the market for a month. You have to look to Quibi for that spectacular of a failure that fast. A $300 million dollar investment down the drain. I suspect David Zaslav took a whole six seconds to make the decision to shutter that turd. Despite all the supposed overlaps and synergies, it still seems as if Hollywood is flailing in the tech world. And Big Tech appears to be struggling to unlock value in Hollywood. Going forward, what does this mean for traditional media companies like Warner Bros-Discovery?
Another business asking those same kinds of questions these days is the reigning streaming king, Netflix the stock dumped 35% on Monday.
Netflix
It is important to remember that last Octoner the company was at its highest share price. That may be because the market is in a bubble and we are now seeing a correction or it may be that Netflix was overvalued given the trends of competition within the industry, specifically among other streamers, as well as rising costs Given all that, I would expect that their fourth quarter earnings will not likely to be much better.
Netflix spent $17 billion on programming
So where is all this headed?
Netflix has already said it intends to cut expenses. Okay. Makes sense. Where? How much? Does that mean production? Programming? Netflix spent $17 billion on programming in 2022. Even for someone whohas worked in the industry for a couple of decades now, that number is a bit mind-boggling. Still, production and programming is the lifeblood of streamers, of Hollywood. That said, WB-Discovery just anounced thatt the TNT and TBS divisions are out of the originl scripted business. Obviously, that’s not in the cards for Netflix, but as Hastings indicated, they will cut waste. Writer and producer Deals not earning out. Probably going away. Overpaid, egomaniacal, useless (marketing) executives…probably going away. And good riddance. At this point its good money after bad. They’re not getting it done. Has there been a Netflix show in the past 5 years thats really captured the zeitgeist? Squid Game. That’s about it. And they didn’t know what they had there, so its still a fluke. Let’s see how Season 2 fares.
The bigger question is will there be a change in management? Ted Sarandos is the top dog when it comes to content at the company. Will he see a change in his day-to-day duties? Or will blame fall to one of his other lieutenants? Bela Bajaria is the Global Head of Content for the past two years, having succeeded Cindy Holland who was the chief programming executive since Netflix’s initial foray into original programming. However given the average development and production cycle, we won’t really begin to see Bajaria’s slate until some time the end of this year. But, this is Hollywood kids and when it comes to heads rolling, all bets are off.
Other changes coming to Netflix….Ads.
Yup. You read that right. The original ad-free, built-for-binging, streaming service, is claiming that advertising may be the only way to unlock the future value of the company. That is a major reversal from Netflix’s core strategy since it began mass producing original programming. Will users accept an ad-supported version? How will this affect other streamers in the industry. After all, it is largely based on the success of Netflix’s streaming model that led most trad media companies to launch their own versions from Disney+ to HBOMax to Peacock. They all got in on the action, and now the industry leader is potentially changing course. Is this the death of the binge model?
Finally, if Netflix’s share price keeps falling will they become a takeover target? Whatever happens, it will have implications for the entire industry.
YouTube
Speaking of ad-supported, a platforms, let’s take a moment to talk YouTube. The Alphabet owned video sharing platform seems much better poised to exploit advertising than even vanguard streaming companies like Netflix. Why? Well, the past several years have seen YouTube grow into a robust platform with tons of programming offerings, primarily in the form of user-generated content. Users are used to the ad-supported format. They’ve accepted it and it is lready factored into how they consume content on the platfom. This has led to higher CPM rates for popular content creators, which in turn has made advertisers feel more comfortable spending their ad dollars on the site. Additionally, YouTube, likem Netflix also offers a premium paid version of the service that is ad-free. One of the major costs to the company is the $17billion they’ve spent on programming. It’s hard to correlate the ROI for any one show since Netflix has always been based on a subscription model. Regardless, that is a lot of cash out the door. Now compare that to YouTube that shoulders none of those costs as the content on their platform is 99.99% user generated. Consumer-generated content versus hollywood scripted series and movies on a cost-comparison basis strictly in terms of production expenses gives YouTube a competitve advantage over its industry peers. Now that Netflix (and Disney) are stumbling does that mean we will see the emergence of YouTube as the dominant streaming platform?. Also, because of the ad-supported nature of the platform any increasing costs (of production) do not have to be passed on to the customer. The same cannot be said of streamers like Netflix which is raising its monthly fees, passing its rising costs onto its subscribers. (Netflix and Disney+ have both raised subscription fees).
Tech stock prices (as of this writing):
Twitter 51.83
Meta 185.78
Snap 29. 77
Pinterest 19. 95
Netflix 208.91
Amazon 2,910.00
Google alphabet 2454.56
Apple 162.20
Earnings calls today:
Microsoft
Alphabet (Google)
As we head into the market open, the Dow futures is at 33, 768.00 trending down 197.00.