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December 2015

The Year Wall Street Cut the Cord

[Commentary] It was the year Wall Street discovered cord-cutting. Media stocks are headed for their first annual decline since 2008 as investors get increasingly wary of the growing number of Americans who drop traditional pay-TV packages, threatening the business model of an entire industry -- from cable providers to program producers.

Walt Disney Co sparked investors’ angst in August by revealing its ESPN sports network had lost subscribers and cutting its cable-TV outlook, triggering the worst two-day slump in US media stocks in almost seven years. As 2015 draws to a close, the Standard & Poor’s 500 Media Industry Group has fallen 4.3 percent for the year as more consumers migrate to cheaper “skinny” TV packages with fewer channels or watch shows via online services like Netflix. The decline would be even more severe excluding one-off events such as the pending acquisitions of Cablevision Systems and Time Warner Cable, which drove up the shares. Ironically, Disney -- the catalyst for the industry’s initial slump -- will end 2015 as one of the few winners. The entertainment giant, whose “Star Wars: The Force Awakens” recently shattered box-office records, has risen 14 percent this year, beating the S&P 500 Index’s 1 percent gain. Here’s what the stock performances of 2015 reveal about Wall Street’s bets on possible winners and losers in a shifting media landscape.

Super PAC Donors Are Taking Charge

Doug Deason in September found himself without a candidate -- but almost $5 million better off. Deason, the son of Texas tech billionaire Darwin Deason, had given that amount to a super PAC backing Rick Perry before the former Texas governor dropped out of the Republican presidential race. That didn’t mean the Deasons’ funds were wasted. The family got a refund of about $4.5 million and in October decided to throw their support behind Sen Ted Cruz (R-TX), but with a catch: The Deasons haven’t yet given to super PACs backing Sen Cruz. “Super PAC money is irrelevant right now,” Deason said. He said when he eventually donates, he’ll mandate the majority of his family’s funds be reserved for the general election. Wealthy donors have learned their lesson since the 2012 elections, when super PACs spent millions backing unsuccessful candidates in primaries.

Today, they’re seeking to keep a tighter grasp on their funds, in the process further fragmenting an already complicated playing field. The desire for more control has yielded a new model in campaign finance. Rather than one super PAC backing a single candidate, which was the case through 2012, some candidates now have multiple, with each often backed by a single family.

Facebook faces IPO class-action lawsuits

Facebook will face two class-action lawsuits after a federal judge said shareholders could pursue their case against the social network, which plaintiffs claim hid concerns about its growth forecasts ahead of its $16 billion initial public offering. The world’s largest social network cut its revenue forecasts in the middle of its IPO roadshow, ahead of the offering in May 2012, amid concerns that consumers were switching to using the site on mobile, where it was unclear if it could generate the same degree of growth from advertisements.

Mark Zuckerberg, Facebook chief executive, and Sheryl Sandberg, Facebook chief operating officer, are among the defendants at Facebook, being sued by two classes of investors -- retail and institutional. The complaint was brought by three state and local retirement plans in the US, lead by the North Carolina state treasurer and five individual investors. Shares in Facebook collapsed following the IPO, falling almost 50 percent in the first three months, as investors worried that it might never generate as much advertising revenue on mobile as it had from the desktop site. However, improvements to the mobile app and marketers’ fast adoption of targeted advertising on Facebook, helped the company grow mobile revenue and it now generates more than three-quarters of its total advertising revenue from ads on mobile devices. Three and a half years on, Facebook’s stock has now soared almost 180 per cent from its first day of trading

AT&T is doing away with two-year contracts

AT&T has announced that it will stop offering new contracts to consumers during the week of Jan 4. It had been the final holdout among the four national wireless carriers. Verizon and Sprint did away with contracts a few months ago, and T-Mobile killed off contracts in 2013. Instead of signing a contract, AT&T customers buying new smartphones will have to sign up for an "AT&T Next" device payment plan, in which they pay off the cost of their phone over the course of time.

AT&T will officially stop offering contracts on January 8. AT&T customers currently under contract will be grandfathered in -- until they want to buy a new phone from the company. Business customers will still be able to sign up for contracts. The company said in a statement that the vast majority of its customers were signing up for AT&T Next plans, so ending contracts was a logical step. The Next plans tend to be cheaper than the two-year contracts, and they offer customers perks such as no down payment and the ability to upgrade early.

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