The Data Demand Changes in Media Ownership Rules*
By: Marci Ryvicker, MBA, CFA, CPA
As a sell-side equity analyst, I spend the majority of my time with data. I gather data. I analyze data. I forecast off of data. I talk about data. And while this might sound a little lonely and somewhat boring, I actually find data to be quite fascinating. Data helps me make the right decisions – in both my professional and personal lives.
What I have learned – both professionally and personally – is that people tend to use data differently. I consider myself a very objective user of data. I do not walk into a project with a predetermined solution. I do not try to get the data to “fit” any type of norm. I let the data guide my ultimate response and decisions. Yes, data needs to be filtered and outliers removed. And yes, there is oftentimes a subjective way to interpret data. But I do this as honestly and objectively as I can. Unfortunately, I have found this to be a unique quality, as it seems most people I encounter tend to “interpret” data in a way that makes them either look good, sound smart, or reinforce their chosen thesis regardless as to whether the data truly supports the veracity of that thesis.
What has been most uncomfortable (and sometimes downright surprising) has been my observations regarding how data is “used” in Washington D.C. Given the partisanship of so many issues, it feels to me like data is not used, but rather abused – not always, but enough times to, again, make me uncomfortable.
Perhaps what has been most perplexing to me is how data has oftentimes been ignored when it comes to some of the industries that are so tightly regulated. I don’t understand why regulations that were created in a 1990’s era are the “right” regulations for what is now the “Internet Era” – or perhaps more accurately, the “Mobile Era”. While multiple industries have fallen under this curse (so I call it), the one of particular focus that lies near and dear to my heart is the broadcast industry. And when I talk about broadcast, I include both television and radio. These industries are clearly regulated on behaviors predicated from the 1990s.
But if you open your eyes, pay attention to what is going on around you, and LOOK AT THE DATA (any data really), you will immediately conclude that the consumer today is nothing like the consumer of the 1990’s. Google (1998) and Amazon (1994) were in their infancy and simply a search engine and online book store, respectively. There was no iPhone (2007), no Facebook (2004). Netflix (1997) didn’t stream at all – Netflix SNAIL MAILED you DVDs….Today, these companies are literally taking over much of what had been the “media norm” back in the 1990’s.
I can show this to you in terms of advertising (see the chart below) as well as TV subscriptions (see the other chart below). I can also show you in terms of stocks (which happens to be more my language anyway).
Incremental Advertising Revenue and Pay TV Subscribers, 2012-2017E
Sources for all data: Company data, MAGNA and Wells Fargo Securities, LLC estimates
Broadcast Industry vs. FANG Stock Price Performance, 2017YTD
Note: FANG represents Facebook, Amazon, Netflix and Google/Alphabet
Source: FactSet and Wells Fargo Securities, LLC
Going back to broadcast – I just don’t understand how one can justify the current rules – specifically the national AND local ownership rules – at a time when the “media” marketplace has completely opened up to new entrants, who are literally devouring consumers’ attention and time daily.
Why is there a national ownership limitation for broadcast when companies quadruple the size can own assets across the United States with no worries, issues, or barriers?
Why is there a limitation on the number of stations an operator can own in particular markets when again, companies quadruple the size can own cable assets, cable networks and broadcast stations in a single market? This does not make sense to me.
As I have done my work on the broadcast industry (for the past 16 years I might add), it has been very obvious to me that the very regulations that were created to protect the citizens of this country could actually wind up harming them by putting the broadcast companies out of business, in my view, ultimately hampering the citizens of this country. We remind you that the ONLY media that provided accurate information after the Boston marathon bombing (2013) was LOCAL NEWS.
Let’s look at some data, shall we? Advertising is still a major component of broadcast revenue, and the data shows us that in the current environment, that advertising revenue is at risk – which means investment in content is at risk – which means local news for our citizens is at risk. While we cannot blame “everything” on the strict regulations, we can certainly say with a high degree of confidence that these regulations have absolutely hampered this industry.
Broadcast Ad Revenue Growth vs. Total Ad Revenue Growth vs. Nominal GDP Growth
Source: FactSet and Wells Fargo Securities, LLC estimates
Now, there is a faction within Washington D.C. that certainly agrees with my view that the media landscape needs to be updated for the current times. FCC Chairman Ajit Pai has been very vocal in his view that regulations of the 1990s should be left for the 1990s. This doesn’t apply just to broadcast, it is also being applied to broadband (a topic for another piece I am sure) and other industries.
I wholeheartedly agree with the FCC’s 86-page “Order for Reconsideration”. I applaud the proposed elimination of the 8 voices test, the JSA (joint service agreement) attribution rule, and the newspaper/broadcast cross-ownership rule. I also applaud the flexibility with how the FCC will review the Duopoly Rule on a case-by-case basis. Again, I look at the data everyday -data that clearly demonstrates this broadcast industry needs to consolidate to be strong and to invest in innovative ways to distribute news that the younger generation might not otherwise get.
We all know deregulation is going to be a bumpy road faced with legal challenges. But the data suggests rationale heads should prevail.
Marci Ryvicker is an Equity Research Analyst covering Media & Cable with Wells Fargo Securities, a wholly owned subsidiary of Wells Fargo & Company.
Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a U.S. broker dealer registered with the U.S. Securities and Exchange Commission and a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, Wells Fargo Bank, N.A. and Wells Fargo Securities International Limited, authorized and regulated by the Financial Conduct Authority.
* Article originally published in “Changing Channels – Revising the Rules on Media Ownership”, Inside the FCC, November 2017.
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