Big Media Count On Donald Trump To Jolt The Economy & Encourage Dealmaking


It’s easy to predict what will happen to the TV and movie businesses in 2017. Just figure out what Donald Trump will do as president and how that will affect the economy and regulation.

OK, so it’s not so easy.

The media execs who helped to make Trump a national celebrity are as unsure as everyone else about what he’ll do as president. Yet, strangely, they and their investors – most of whom opposed him in their non-corporate lives — are optimistic.


The Dow Jones U.S. Media Index is up 8.6% since the election (as of December 20), ahead of the S&P 500, which is up 6.1%. Before the election, the Media Index was +4.2%, lagging the S&P’s +4.7%.

Optimists expect the economy generally, and advertising specifically, to benefit from a Keynesian jolt — even if it runs up the government deficit. Businesses and consumers should have more to spend if the administration and Republican-led Congress cut taxes, increase spending for defense and the infrastructure and leave most entitlements alone, the thinking goes.

They also believe that Trump will cozy up to traditional media companies, despite his tirades against their journalists and satirists.

Investors made that bet by bidding up stock prices for many of the largest newspaper and broadcast companies including Sinclair, Tegna, the New York Times and Gannett: Each was down by double-digit percentages this year before the election and up by double digits since then.

That mostly reflects Wall Street’s belief that we’ll see a wave of deals after the new administration and a GOP-controlled FCC allow a single entity to own a major TV station as well as the dominant newspaper in the same market.

Similarly, cable and telco stocks have surged since the election in the belief that Trump’s FCC will reverse tech-industry supported initiatives – notably strong net neutrality protections.


What about Trump’s threat to kill AT&T’s $85 billion acquisition of Time Warner? It will be too hard for his Justice Department to square that with their relaxed antitrust views, the conventional wisdom holds.

If these assumptions are correct, then the new administration will create a verdant environment for additional mergers. As Time Warner showed, it’s a good time to bail out: Big Media companies make most of their profits from pay TV but haven’t overcome the cord-cutting fears that chilled Wall Street in mid-2015.

This year promises to be especially disruptive as digital services including AT&T’s DirecTV Now, Hulu Live, a planned service from Google – and who knows what from Apple and Amazon – challenge traditional pay TV.

Meanwhile, movie execs are waiting to see if studios lock horns with exhibitors over whether new releases should also be available to home viewers.

Anyone who remembers the ashen looks on the faces of political forecasters on Election Night will appreciate that it’s treacherous to make predictions involving Trump – as well as the state of the nation, including the media business.

With all that in mind, here are a few questions industry insiders ponder as they look to 2017:

What will happen to U.S. relations with China?

Hollywood has every reason to worry about Trump’s tough talk about having China classified as a currency manipulator — and possibly launching a trade war.


The U.S. movie market appears topped out. That’s why studios salivate over the opportunity to expand in the world’s No. 2 market. China’s box office sales grew 48% in 2015 and are up 325% since 2010.

Meanwhile, Chinese companies are investing heavily in Hollywood. Dalian Wanda Group led the pack with acquisitions of AMC Entertainment — the world’s largest exhibition chain — and this year’s pickup of Legendary Entertainment and dick clark productions.

So expect a lot of nail biting in February when the U.S. renegotiates China’s film-importation quota. Officially the country allows just 34 foreign films in per year, though it agreed to accept close to 40 in 2016.

And bankers in Hollywood might see the pool of potential investors dry up if the U.S. government looks askance at China’s growing clout over pop culture — or Beijing decides it’s time to do business elsewhere.

Will over-the-top cannibalize cable?

Media execs say that OTT — the clunky name for cable-like streaming video services — will strengthen the status quo by appealing to the 20 million or so households that don’t subscribe to pay TV. That’s been the experience they’ve had with Dish Network’s Sling TV and Sony’s PlayStation Vue they claim, though not with the kind of data that would make the case conclusively.

But 2017 might make the argument obsolete.

People who subscribe to the pricey expanded basic bundle could have second thoughts when they see the burgeoning range of OTT options and low prices.


AT&T startled the industry last month when it introduced its DirecTV Now with more than 100 channels at $35 a month — a price that seemed too low to even make a profit. Hulu is expected to have a competitive offering when it introduces its plan, possibly as early as next month. Google is cooking up a so-called skinny bundle service that would include all of the major broadcast networks.

Other powers including Apple and Amazon probably won’t allow so many rivals have the field to themselves. And incumbents including Comcast and Charter might offer their own inexpensive, broadband-delivered video services in the markets they serve.

(Cable companies entering the OTT market will have to do a much better job appealing to viewers than they have with their TV Everywhere streaming services. To take one admittedly isolated example: If you stream CNBC on Charter’s New York City service you’ll quickly become either crazed or numb from the volume spikes for seven ads that run over and over. Two of them each run six times an hour — hour after hour.)

Will Disney make a mega-deal?

Several indicators point that way, especially if the Trump administration warms to media mergers.

CEO Bob Iger is under the gun: His stock has been down-to-flat in 2016 as investors wonder how Disney’s ESPN-led cable networks, which account for more than 42% of the entertainment giant’s operating profits, can grow in a period of pay TV cord cutting and cost shaving. Even though Disney generates some of the country’s most popular movies and TV shows, Iger said in October that “it’s almost not enough to have all that stuff unless you have access to your consumer.”

Many wonder whether Iger might buy something big. Netflix and Twitter were among the names bandied about this year.

Bob Iger arrives as Walt Disney Pictures and Lucasfilm's presents "Star Wars: The Force Awakens" World Premiere in Hollywood, California on Monday, December 14, 2015. (Photo: Alex J. Berliner/ABImages) via AP Images

But it’s just as likely that he’d sell. He could do so: Disney is the only Big Media company not controlled by a single family now that AT&T has a deal to buy Time Warner. Iger also is looking to retire and hasn’t had a clear successor since April when then-COO and heir apparent Tom Staggs said he was stepping down.

It would take a large company to afford Disney, which has a market value of nearly $167 billion.

That wouldn’t intimidate Apple, which is about four times bigger measured by market value and has more than $67 billion in cash and short-term investments. Iger already sits on Apple’s board.

Apple shareholders might balk at the idea of a Disney union: The tech company offers no apparent solution for ESPN. And though most companies would love to earn Disney’s roughly 20% return on invested capital, it would be a drag on Apple, which generates about 37%.

Another possibility: Facebook, which is twice Disney’s market size and has $26 billion handy. Its COO, Sheryl Sandberg, sits on Disney’s board and is widely considered a possible successor to Iger.

Who else could make a deal?

Liberty Media’s John Malone is still busy with the companies he either owns or controls. This year he persuaded Lionsgate (where he’s an influential shareholder and board member) to buy Starz (which he controlled). And Charter Communications (which he controls) became the No. 2 cable company by acquiring Time Warner Cable.

The deals give him options. Lionsgate or Charter could consolidate companies that want additional scale to keep up with AT&T-Time Warner and Comcast-NBCUniversal. Malone owns a big stake in Discovery Communications, keeping it in any conversation about potential transactions.

Others that seem ripe for alliances include independent network owners AMC Networks and Scripps Networks. You also have to wonder whether Shari Redstone, now in charge of her family’s media empire, might warm to an offer for ailing Viacom now that she has soured on the idea of merging it with CBS.


Telecom also is ready for change — especially as the industry prepares the upgrades needed to challenge cable companies with speedy 5G wireless broadband: T-Mobile and Sprint probably either need to merge or find a partner who can help them keep up with AT&T and Verizon. Dish Network also might be part of the mix — CEO Charlie Ergen said last month that 2017 would be a year when “interesting things happen.” He offers the No. 2 satellite service, its Sling TV streaming service and potentially valuable airwave spectrum.

What will the FCC do?

Under Trump, tech companies won’t “have a direct pipeline to the White House anymore,” Liberty Media CEO Greg Maffei said last month. He added that Alphabet (Google) Executive Chairman Eric Schmidt “may have to move out of the Lincoln bedroom.”

The quip captured the conventional wisdom that a Republican-led FCC will drop or reverse several major initiatives Chairman Tom Wheeler drove during the last few years. They include tough enforcement of net neutrality rules, open competition for cable set-top boxes and empowering consumers to control the data about their internet use collected by service providers.

Few doubt that’s what the FCC will do if Trump takes the advice of current GOP commissioners or the people who he picked to help oversee the transition there. That helps to explain the double-digit percentage increases since the election in stock prices for Comcast, AT&T, and Verizon — and flattening to low single digits for Netflix. But are those making these bets underestimating the potential impact of a netroots backlash?

A record 45,000 people flooded the FCC with comments — overwhelmingly calling for net neutrality reform — after HBO’s John Oliver broadcast a call to action. Several websites engaged in an Internet Slowdown Day, designed to illustrate how they could be affected by service providers that offer some sites speedier transmissions than others.

By early 2015 pollsters found that more than 70% of Democrats and Republicans agreed with the principles of net neutrality — even though most were unfamiliar with the term.

How will the relationship between studios and exhibitors change?

Something’s got to give. Studio owners including Time Warner and Fox say that they’re determined to offer at least some new films on-demand to home audiences. Theater owners, for the most part, say that they can’t afford to give up their most potent selling point: that they’re the only place people can see hit movies while they’re hot.

The camps are negotiating — but with one important change.

Mandatory Credit: Photo by Paul Sakuma/AP/REX/Shutterstock (6243004a) Exterior view of AMC movie theaters in Santa Clara, Calif., . A Chinese conglomerate announced Monday it will buy a major U.S. cinema chain, AMC Entertainment Holdings, for $2.6 billion in China's biggest corporate takeover in the United States to date. AMC operates 346 cinemas, mostly in the United States and Canada, and says it has 23 of the 50 highest-grossing U.S. outlets China US Cinema Chain, Santa Clara, USA

Dalian Wanda Group-controlled AMC Entertainment has shown that it doesn’t necessarily sing from the exhibition industry’s hymnal. That’s important because its recent deals to buy Carmike Cinemas and UK-based Odeon & UCI Cinemas transformed it from the No. 2 domestic theater owner into the world’s largest.

CEO Adam Aron showed his independent mindedness in September when he took a surprising shot at the National Association of Theatre Owners. Its chief John Fithian challenged Fox CEO James Murdoch’s attack on the industry’s “crazy” 90-day exclusivity restrictions. Fithian said that Murdoch should “take some time to learn how [the movie business] works.”

But Aron released his own statement calling NATO’s response “condescending and gratuitous.” He added that AMC “is willing to work with Fox and our other studio partners to intelligently do what we can to help improve studio profitability and ensure that filmmakers continue to have the freedom to captivate moviegoers, all the while ensuring that the enormous investment by theatre operators can continue to be prudently made and rewarded.”

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