The WrapPro team on the key takeaways from the third quarter
With the third quarter earning season officially wrapped up, it’s time to take a step back and see how major entertainment and tech companies held up at a time of transition.
For many content-based companies, the focus was on distribution — particularly streaming via an ever-growing number of services that each threaten to encroach on the dominant company in the space, Netflix.
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And for tech companies, the threat of regulatory intervention seems to have taken a backseat to the challenges of bottom-line issues like revenue and growth.
Here are 5 takeaways from Q3 that stood out:
1. Wall Street Isn’t Sweating Looming Threats to Big Tech
When it comes to big tech, Wall Street only cares about two things: money and growth. Regulatory concerns, it seems, are ancillary. That was reinforced this earnings season, with Facebook being the most obvious example. Mark Zuckerberg’s social network has been skewered on multiple fronts in the last few months — including a slew of antitrust probes, a $5 billion settlement with the Federal Trade Commission to cover data security breaches and a widely criticized public decision to not fact check political ads. Still, Facebook has remained largely impervious to the noise, with the company’s stock price enjoying a small bump after posting strong Q3 user growth and topping analyst estimates with $17.7 billion in revenue. On the year, Facebook’s stock price has increased 40%, to about $192 per share.
Amazon, like Facebook, has also been the subject of antitrust complaints from 2020 presidential hopeful Elizabeth Warren. But those threats have done little to scare away investors, with the e-commerce giant’s stock price holding steady, thanks to its $70 billion in quarterly revenue easily topping projections. Meanwhile, Twitter — which has received a fraction of the heat Facebook and Amazon have from Washington, D.C. — was shelled by investors for its underwhelming Q3 sales, sending its stock price shooting down 20% in the aftermath.
The aggregate paints a clear picture: Investors care much more about how these tech companies are performing — and expect to perform the following quarter — than any looming legal or political threat that may hit a year from now. As long as revenue is growing and more users are still coming aboard, Wall Street will worry about any antitrust concerns when the time actually comes.
2. Disney Talks About Its Other Streaming Service
All the ink has rightly gone to Disney+, the long-awaited streaming service that finally debuted this week with 10 million initial signups. But Disney shared more about its plans for Hulu, the streamer in which it now has full control after its acquisition of Fox and buyout of other minority stakeholders. And FX, one of the Fox assets Disney acquired in its $71.3 billion deal, is going to be a big part of that.
Hulu is now the official steaming home for FX, whose more adult-oriented fare wouldn’t play well next to The Avengers and Mickey Mouse on the family-oriented Disney+ service. Not only does that include all current and past seasons of FX series, under the brand “FX on Hulu,” but also will see FX develop content for Hulu.
Four series that were previously in development at FX — “Devs,” “Mrs. America,” “The Old Man” and “A Teacher” — will now be Hulu originals. It’s something FX chief John Landgraf had told us would happen.
3. Streaming Continues to Eat Traditional TV’s Lunch
This trend isn’t exactly new, but it has started to accelerate. Traditional TV, a.k.a. cable and satellite providers, were hit with a record number of net customer losses during the third quarter, with more than 1.7 million people ditching their service. At the same time, Netflix bounced back from an unprecedented second quarter blip — losing U.S. subscribers for the first time ever, thanks in part to its price hikes — by adding another 500,000 subscribers in the U.S. Overall, Netflix added nearly 7 million customers during Q3.
Still, a nugget in Roku’s Q3 performance made it clear the wind is not blowing in favor of cable and satellite providers: Roku viewers streamed 10.3 billion hours of content during the quarter, coming out to about 3.5 hours per day of streaming on average for its 32.3 million accounts. That’s a lot of streaming time. And it’s continuing to grow, with Roku’s streaming hours increasing about 3% quarter-over-quarter. So not only are more viewers cutting the cord and picking up streaming devices, they’re also spending more time watching their favorite streaming services. There’s only so many hours in a day — and less and less of the them are being spent on old-school television.
How can these traditional providers fight back? An increased focus on their cheaper, live -TV streaming services would be a place to start. Dish, for instance, offset its quarterly satellite losses by adding more than 200,000 Sling TV customers. This might mean less revenue per customer, but at least it’s retaining some consumers. This already looks like a difficult reality for AT&T to accept, though, with the telecom raising its AT&T Now monthly fees in October for the second time this year. That move likely won’t help stem its DirecTV losses.
4. Viacom and CBS, Together Again (Almost)
Viacom and CBS are about to become ViacomCBS in a few weeks, when the two mega-media companies re-merge ahead of 2020. Top executives, the ones who remain at least after the latest major shakeup, say they’re ready for the synergies. (They’ve sure said so enough.)
Both CBS and Viacom bested Wall Street’s earnings expectations when they reported numbers this week. Viacom topped on revenue forecasts for its fiscal fourth quarter of 2019. In its Q3, the actual third quarter of calendar 2019, CBS missed on revenue.
Though “Viacom” will come before “CBS” in the new company’s title and Viacom chief Bob Bakish will run the whole thing, CBS is still the bigger piece of the combined pie, which is maybe more the size of a sheet cake. CBS’ current market cap is $14.26 billion, Viacom’s is exactly $5 billion less than that. We’ll let you do the math on what that means when they’re under one umbrella next time earnings roll around.
5. The Movie Theater Isn’t Dead, Yet
Yes, streaming services are popping up left and right, making it tougher for viewers to get up off the couch. But people still loving going to the movies, it turns out. Cinemark’s third quarter attendance 5% increased year-over-year, setting a record quarterly revenue with $73.4 million in sales in the process. AMC set its own Q3 record with 87.1 million tickets sold, helping increase revenue 8% year-over-year to $1.32 billion. Imax’s sales increased 5% year-over-year as well, with CEO Richard Gelfond saying the premium theater chain was “on track for our best year ever at the global box office.”
Obviously, the box office rebound was spurred on by blockbuster releases that moviegoers wanted to see. Cinemark, in its letter to shareholders, pointed to Disney’s “The Lion King” reboot and Sony’s “Spider-Man: Far From Home” as two major releases that helped drive ticket sales.
The fear people won’t leave their homes for shows has intensified in recent years, hitting not just the movies but live entertainment and sports as well. The best way to combat that trend is to offer viewers — who are growing more accustomed to simply ordering movies on Apple TV each day — a compelling reason to actually go out. At least during the third quarter, the studios were able to do that — and the theaters thanked them for it.