Taking the Temperature of Top Media/Tech Companies, August 2-9

Taking the Temperature of Top Media/Tech
Cheyne Gateley/VIP

The VIP Heat Index evaluates the latest moves made by the businesses dominating the previous week’s biggest tech and media headlines: The hotter the score, the better the move is for the company in question. Here’s how the temperature checks stack up for the week of August 2 …

NBCUniversal Turns Up the Heat on Layoffs Amid Restructuring

There are two kinds of damage NBCU is seeking to contain right now: (1) how COVID-19 has battered its business; and (2) the toxic legacy of Paul Telegdy, who was drummed out of the company last week amid allegations of racist and sexist behavior. Credit NBCU TV/streaming chairman Mark Lazarus with eliminating the latter problem and elevating capable leaders like Frances Berwick and Matt Strauss, but his memo citing “creative windowing and scheduling strategies” to come speaks to how diminished the company is as evidenced by its Q2 results. But look for a bigger shoe to drop in the days ahead, as layoffs are expected. It’s unclear how many will be ultimately cast off, though several Telemundo journalists have already been let go. 

WarnerMedia’s Bob Greenblatt and Kevin Reilly Exit in Shakeup Shocker

Just like at NBCU, the sheer scale of the reorg and leadership changes at AT&T’s media division illustrate how high the stakes are in the streaming wars. But jaws dropped all over Hollywood when WarnerMedia chief Jason Kilar dropped Bob Greenblatt and Kevin Reilly from his executive ranks. It was classic Kilar, signaling his signature style for making bold moves. But Kilar has even bigger cuts to make, with deep layoffs on the way. He must also contend with the underwhelming start of HBO Max, which he’s entrusted to his old Hulu pal Andy Forssell. The SVOD still doesn’t have distribution on major connected TV players and saw a low percentage of HBO customers eligible to upgrade to Max for free do so.

TikTok Bid for U.S. Survival Keeps Getting Complicated by Trump

Can the president make the TikTok situation any crazier? Following the July 31 weekend, when Donald Trump flip-flopped on banning the hugely popular video-sharing service, he gave the app a little over a month to close a sale (with one strange stipulation). But then Trump got even more unexpected Thursday night by signing an order that could bar TikTok from app stores if the company does not sell by late September. At this point, Trump has proven he can change his feeling toward TikTok on a daily basis, so nothing appears set in stone for the app. Bottom line: Microsoft still has time to structure a deal that the White House likes, meaning there’s still a chance for the app to live in the U.S. Now comes word that Twitter wants in, but that seems unlikely given a company its size could hardly afford the acquisition price. 

Facebook Counters TikTok with Instagram Reels

Take jabs at Facebook all you want for this unabashed knockoff of TikTok — plenty did in the opening week for Reels, its new 15-second video-loop feature. But Instagram has proven before how effective it is at copying competitors (hey, Snapchat called — it wants its “Stories” back), blunting their rivals’ growth and aiding their own. Reels has little chance of being the next TikTok, but that’s not really the point. Just giving Instagram even a little ability to retain incremental audience share and keeping followers on its own platform longer is all Facebook needs to consider this a win. Then again, plenty of new features have come and gone on social platforms without getting any traction, so nothing is guaranteed.

Disney Streaming Salvation Boosts Stock 11% in One Week 

How on earth does a company manage to lift its stock price even as its business craters? If you’re Disney, you distract from the present by touting the future. Despite woeful Q3 earnings results Tuesday, the stock closed nearly 9% higher Wednesday, after CEO Bob Chapek announced Disney+ subscriber growth and the shift of highly anticipated “Mulan” from theaters to the streaming service. But Disney’s overall revenue in Q3 plunged 42% from last year, while Disney’s parks, experiences and products segment revenue nosedived 85% and the studio entertainment division revenue sank 55%. Meanwhile, the closures of parks, cruises and resorts resulted in a $3.5 billion hit to Disney’s operating income during the quarter.

ViacomCBS’ Streaming Strategy Shows Signs of Life

Before the opening bell Thursday, ViacomCBS reported adjusted earnings sank 16% from last year, and revenue fell 12% during the quarter. But as Disney proved earlier in the week, investors are more concerned about the future of direct-to-consumer strategies than they are about the previous quarter’s financial results. Due to streaming subscription and digital-video ad revenue jumping 25% year-over-year, ViacomCBS shares spiked higher. CEO Bob Bakish said on the earnings conference call that the company would be launching an international streaming service early next year, but the main question is whether these streaming initiatives can grow quickly enough to offset the losses in linear TV.  

Fox Fails to Wow Investors With Q4 Earnings

Much like the rest of the media industry, Fox reported weaker-than-expected Q4 earnings. Growth in affiliate revenues were unable to offset the massive slowdown in advertising revenue during the quarter. Fox boasts a strong balance sheet, but the lingering concern is that there’s still no strategy for streaming in a highly competitive landscape. Some have argued that the success of the company may be too leveraged to the success of Fox News, and shares of Fox tumbled 33% so far this year, as of market close Friday. 

Discovery Proves to Be a Free-Cash-Flow-Generating Machine

What really stood out from Discovery’s earnings announcement Wednesday was the increase in free cash flow to $879 million from $596 million, which far exceeded consensus expectations for $552 million. The company has generated $1.1 billion in free cash flow this year, and analysts predict the media outlet will generate $1 billion in free cash flow over the next two quarters. In addition, after several hints at a potential direct-to-consumer offering, CEO David Zaslav said finishing touches were being put on the upcoming DTC service, and an announcement could be ahead in the near future. Discovery is late to the game, sure, but it gets points just for showing up.

Sony Gets Boost From Pandemic and Reports Solid Q1 Results

It was some good and some bad news for Sony this week, when the company reported fiscal first-quarter earnings Tuesday. With more people sheltering in place, Sony saw sales for its games segment soar 32%, and the segment’s operating profit jumped 68% from last year. But while revenue from the home-entertainment division grew 60%, theatrical revenue plunged 96%, to $6 million. Perhaps most concerning is Sony’s outlook. Sony anticipates operating profit to sink 27% this fiscal year, ending March 2021. The company doesn’t expect profit growth for its games segment and said that marketing costs for its upcoming PlayStation 5 will hurt margins. Nevertheless, Sony stock has been on a strong run this year, with shares up nearly 18% so far in 2020 compared with the broader market’s 3.7% gain during the same time period.

Quibi Tests Ad-Free Offering Abroad as U.S. Product Struggles

Quibi last week quietly launched a free ad-supported tier in Australia and New Zealand. Notably, the company offered a cryptic comment that could be interpreted as saying the ad-free tier may come to other markets if it takes off in Australia and New Zealand. Offering free content is a smart move for the company, as in October it already sold $150 million in first-year ad inventory, but it has faced worries it won’t be able to meet advertiser guarantees. Quibi needs to move quickly to secure more eyeballs: Kantar in a recent report found that 33% of users plan to cancel within three months.