Soft 4th Quarter? Olympics Losers? $0 CPMs? and More Wall St. Reports - 8-24-12

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Media and Advertising

With the end of the London Olympics 2012 and looking ahead to the Rio Games in 2016, analysts were scurrying around, attempting to declare who the losers were (NBC was the clear winner). In his weekly Madison and Wall report, Pivotal's Brian Wieser attempted to quantify how hurt competing media owners were in the wake of the Olympics.

His findings? "But how much can the Olympics Games hurt competing media owners? Not by as much as many may think, and nowhere near as much as a weak economy," wrote the independent media analyst. His analysis basically sees about $150M of up-for-grabs inventory taken away from some scatter budgets - really "a drop in the bucket" for any given quarter's scatter marketplace. He's also concerned by the fact that other money isn't apparently showing up, a sign that the upcoming quarter might be weaker than analysts expect.

Media and Marketing Data

BMO's Dan Salmon attended the Digiday Exchange industry conference and treated investors to a rundown of events and take-aways from management meetings. At a high-level, Salmon reported that pricing pressure remains "acute" across the industry. One participant, Yieldbot's CEO Jonathan Mendez even went so far to predict $0 CPMs in 5 years. Whether that comes to fruition or not, the big idea is that pricing is moving away from straight CPMs and towards performance pricing.

The industry is more enthusiastic about the future for online video ads as a way to siphon brand dollars online - an underpinning of the analyst's OUTPERFORM rating on YouTube's parent, Google (GOOG).

From the media conference, it appears the trend for agencies to hire new talent from marketing data firms is picking up steam. "Both Mac Delany, VP Brand Relations, Audience of Vivaki (owned by Publicis, Market Perform, €41 target) and Barry Lowenthal, President of The Media Kitchen (owned by MDC Partners, Outperform, $19 target) agreed on this point in their panel giving 'The Buy Side View'," BMO's media analyst wrote.

Lastly, Salmon commented on what he called a "frenemy dynamic" emerging in marketing data. Acxiom (ACXM) and other established providers of digital data continue to sell their offline data to third-party data providers like eXelate (which bundles the data together with online specs). Salmon sees "increasing friction in coming years as these companies' services increasingly overlap with the "digital native" start-ups in competition for the approximately $50 billion of global marketing data and intelligence spending."

IAC/InterActiveCorp

IAC/InterActiveCorp (IACI) was in the news twice this week regarding acquisitions. Early in the week, the online media conglomerate announced it had acquired Felix, a provider of performance-based advertising solutions for the small business market. The acquisition target helps local businesses use the Internet to generate qualified telephone leads. While Barclays' Mark May believes the purchase price to be immaterial to IACI, the new acquisition will enhance the firm's CityGrid division.

And then later in the week, Reuters broke the story that Barry Diller's firm has emerged as a bidder on the New York Time's property, About.com. The topically-driven, human search engine would bring IACI 90M monthly users and according to the analyst, would complement IAC's other businesses (like Ask.com, Dictionary.com). May sees 5 potential synergies for an acquisition: 1) incremental users and ad inventory could enhance IAC's relevance, 2) About.com could leverage the terms of IAC's Google contract, 3) IAC could use About.com's content across its content network, 4) About.com could leverage promotion across IAC's network of properties and 5) cost savings typical in consolidation of business operations. While the Barclays' media researcher can't substantiate the rumored $300M bid, he does like IACI shares and has a $63 price target on the stock.

eBay

The PayPal juggernaut continues to sign up new point-of-sale (POS) partners. The eBay division announced a deal with Discover Financial Service, an agreement that would bring its payment technology to 7 million merchant locations in the U.S. alone. "This partnership further builds on other recently announced partnerships with Verifone, Equinox, and Igenico, to bring PayPal's POS offering closer to ubiquity on more than 40Mpayment terminals worldwide," wrote Barclays' Anthony DiClemente in a note to investors.

The analyst stressed that eBay is sticking firm to its margin guidance on PayPal, even though the company expects these retail deals to be dilutive to transaction margins. Questions remain regarding adoption and the analyst explained that the firm is confident the tie-in between online and offline, coupled with its "superior data", would make PayPal's digital wallet successful with consumers.

DreamWorks

DreamWorks Animation Skg (DWA) signed a distribution deal this week with NWSA's Twentieth Century Fox for domestic and international theatrical distribution of DWA computer-generated films. In an update missive to investors, Janney's Tony Wible dissected the deal. He likes the economics: an 8% distribution fee for most of the release windows.

Calling the agreement a "good deal" for DWA, the media analyst also wrote that the strategic benefits of such a tie-up with Fox are far greater than the economic benefits. According to Wible, this distribution deal aligns DWA's economic interests with a competitor, eliminating overlapping release windows. That said, he's still rates the shares SELL, as he's concerned about "decay in film performance" and cannibalization issues with NFLX. He expects estimates to move lower. His price fair value estimate on DWA is $14.50.

Groupon

As we wrote about in last week's Wall Street Media Business Report, hardly any analyst liked what Groupon (GRPN) had to offer this quarter. And Mark May from Barclays followed up this week with a post-earnings downgrade of the local online retailer. Moving the stock to Underweight and the price target from $15 to $4, the analyst described what he called an "unexpected change" in Groupon's business model.

In 2Q12, Groupon's revenues were dominated by product sales (not deals) and they have a smaller (1/3) the gross margin of Groupon's core biz. The analyst is also concerned that slowing customer growth will compel the firm to ratchet up marketing spend.

Liberty Media, Starz and NBCU

SNL Kagan was grinding the rumor mill this week with an article speculating about the future of Starz once it gets spun out of Liberty Media (LMCA). Analyst Richard Greenberg said that "Comcast's NBC division is the ideal buyer of Starz." According to Greenberg, NBCUniversal needs a pay TV outlet so that it can discontinue licensing movies out to HBO and use Universal Pictures content for itself.

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