Business is about the numbers, right? Sentiment has no place in business, right? Wrong. Business floats, or sinks, on a whole sea of sentiment. A very slight change in numbers at one or two companies can change the weather in that sea. That means a whole sector can get caught up in a storm whether any particular company has a problem or not.
Such a storm hit TV stocks on both sides of the Atlantic last week and cost investors a cool $40 billion.
Some big cable companies had slightly disappointing quarters. And some content companies failed to grow as fast they had predicted. They got clobbered. Some TV companies – ITV for example – actually delivered record results. They got clobbered.
The only company to have genuinely disappointed was Viacom, although even that was hardly a surprise. Viacom have sat on the starting blocks as others have got running with their OTT propositions, it has opaque and fractious management and is heavily exposed to the Millennials, the audience most likely to migrate to OTT.
$40 billion is a big number, even in the context of the multi-billion dollar profits the ‘traditional’ media sector still delivers. It tends to suggest ‘the market’ has bought into the sentiment that traditional TV media profit sources; advertising and pay-TV fees, face an existential threat from OTT. That is Netflix, Prime, YouTube (really?) and err – well, that’s kind of it. Most other significant on demand media is linked directly or indirectly to the content and operations of the very media companies that took such a kicking.
Certainly, Netflix is a phenomenon and Prime will probably do OK too. Certainly, there is an audience shift among the young towards them and that puts pressure on the ratings of other players. But – since their OTT model precludes advertising – it also increases the value of the advertising slots that do reach them and the rest of us. Certainly, advertising driven broadcasters need to find better ways to give us their content on demand in return for tolerable – even enjoyable? – exposure opportunities but generally, as economies recover, selling advertising is a good place to be. Just ask ITV.
Meanwhile, pay-TV providers have to do a better job of delivering quadplays and backing them up with great customer service, and maybe accepting margins simply can’t be as aggressive as they have been historically.
On the other hand, the OTT players are likely to come under pressures that will bring their profile closer to the pay-TV incumbents: part of their attraction is low prices but the other part is big bucks original productions. The only way that can hold is if investors are content with long term, structural, low margins. And that isn’t going to happen.
Sentiment changes. Sometimes slowly, sometimes bewilderingly quickly. But change it will.