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Last week we skimmed the surface in what needs to be a larger discussion about the headwinds confronting Hollywood. Compounding matters is the fact that 487 original programs aired in 2017. No doubt, that's a ton of in-home and mobile content contributing to the decline in movie theater revenue.
Companies are struggling and a debate is raging over whether ad-revenue dependent media companies can grow and thrive in the age of advertising behemoths like Google ($GOOGL) and Facebook ($FB). Amazon ($AMZN), meanwhile, grew its advertising revenue by 60% with analysts pegging its advertising revenue at $4.5b in 2018 - larger than combined revenues of Twitter ($TWTR) and Snapchat's ($SNAP) ad business. David Carey of Hearst Magazines has some thoughts about the future (audio).
According to reports, once-bankrupt Magnetation is closer to bringing idled operations back online outside of Grand Rapids. This means the company would start producing concentrate in Q2 and pellets (for iron) in Q3. The delay of over a year apparently resulted from lack of compliance with federal Clean Air Act standards and the EPA has prevented new owner, ERP, from operating due to a lack of pollution control equipment. ERP has had to sink $20mm into the facilities to comply. Choice bit, "Clarke said ERP acquired the bankrupt Magnetation without knowing the extent of the problem in Indiana, noting the EPA was still conducting its investigation. He said the plant apparently never met permit standards. 'I'll take the blame for it. Maybe we didn't do all of our due diligence. ... But it wasn't something that was easy to find,' Clarke said, adding that the Reynolds plant was violating at 14 of 18 different potential emissions locations. 'I likely would still have acquired the (Magnetation) assets if I had known. I just wouldn't have paid as much.’” That's a massive admission and some rare humility: we’re impressed. Note that Mr. Clarke just closed his purchase of the Essar Steel project in Minnesota with the intent to “blend” both operations and “become among the major players in the U.S iron ore industry.” This situation - and Mr. Clarke's move towards domestic commodity domination - is something to watch.
What a strange week.
Henrik Fisker of once-bankrupt Fisker Automotive unveiled the Fisker Inc. EMotion this week at the Consumer Electronics Show in Las Vegas in a dramatic attempt to compete with Elon Musk and Tesla's ($TSLA) Model S. Or, more accurately put, he unveiled a pre-production model, because, well, it's CES and that's what people do: build shiny models to show off with bold statements and abstract availability dates. Just ask Faraday Future. Target price for the EMotion? $130k. "With a target price of $130,000, the EMotion won't be a mass-market car, and suggests that Fisker Inc. could go the way of Fisker Automotive." Right. Good luck with that.
Thank you Disney ($DIS) and Netflix ($NFLX): the two are largely to credit (blame?) for the recent resurgence in...wait for it...cassette tapes. Yup, you read that right. Thanks to Guardians of the Galaxy, Stranger Things and 13 Reasons Why, cassettes enjoyed a 74% increase in sales in '17. While this may be hipsterific AF, we don't expect to see this "growth" listed as a "risk factor" in Spotify's coming direct listing.
The resurgence of Nintendo.
Finally, we'd be remiss if we didn't mention once-bankrupt Kodak's ($KODK) foray into cryptocurrency (KODAKCoin). Because the more we read about it, the dumber it sounds and the more the company seems screwed, term loan rally be damned. But, hell, why not? Coming soon to Coinbase account near you: iHeartCoin, JCrewCoin, CenveoCoin, SearsCoin, Bi-LoCoin, etc. After all, there's THIS CHART (followed by a chart of blockchain-related stocks)...
We’ve been wondering why there hasn’t been a MeToo reckoning for finance or biglaw. We've been assuming, frankly, that it was only a matter of time given the head-rolling that's occurred in tech and media. Admittedly, our first thought was, “Well...there have to women to harass." We shouldn’t be so flippant. The numbers are one issue; harassment is entirely another.
Thankfully, this week Bloomberg asked the same question, as did the New Yorker. The answer, in a nutshell, is (reported as) a combination of factors: (i) a prior industry cleanup (laughable); (ii) early sexual harassment training (hahaha, c’mon!), (iii) arbitration requirements that hush things up (sounds like part of it), (iv) the cost-benefit analysis, particularly as it relates to complaining about the very person who sets your comp (ding ding). This behavior happens, no doubt. And the bottom line is that women shouldn’t be put in a position where they even have to make the cost-benefit analysis of coming forward. Period. So, don’t do that.
P.S. Combining client meetings and the gym probably won't help promote inclusiveness.
P.S.S. Law firms like Stroock & Stroock & Lavan and Dechert LLP are showing efforts (here and here, respectively) to take workplace sexual misconduct more seriously.
Odd week for sex. Penthouse Global Media, a company that probably needs no description, filed for Chapter 11 bankruptcy this week. Not for the first time. No worries, though, sex has entered blockchain territory because humans apparently can't be trusted to do things on a consensual basis. That is, if you even need two humans: winning the bad-timing award, CES featured robotic strippers this year. Wait. Even strippers are in danger of being automated into obsolescence?! We suppose the brightside is that robot strippers won't be required to sign blockchain-based NDAs in the event that they cavort with a future President of the United States.
#MAGA!!
The Federal Energy Regulatory Commission rejected a Rick Perry proposal to make wholesale market pricing reforms applicable to certain coal plants and now the industry is aiming efforts at tax credit extenders. And the largest U.S. power grid, PJM Interconnection LLC, is now looking at other alternatives to help aid the industry. Yeah, sure, it sounds like coal needs all the help it can get. Natural gas is kicking its a$$. And insurers are getting increasingly skittish about underwriting the industry. As for mining jobs, President Trump made some lofty promises. After one year of office, the industry has added 500 jobs. BUT, Mepco LLC announced this week that it was going to close a mine near the Pennsylvania-West Virginia border and shed 370 jobs. We're not math experts but 500 - 370 = #MAGA!!
GoPro Inc. ($GPRO) announced extreme guidance this past week. Extremely bad guidance. The hardware-manufacturer-wouldbe-software-developer-wannabe-content-provider-aspiring-drone-player lowered guidance for revenue and gross margin and offsetting measures like job cuts, exec compensation cuts, and discontinued products (discounted drones anyone?). Disputed reports abound that JPMorgan has been hired by Nick Woodman to shop the company. Doesn’t sound like he’ll be doing many guest Shark Tank appearances anytime soon. The company has a $300mm credit facility and $150mm in converts. With negative operating cash flow and and increasingly bad trends, Woodman may soon be fielding pitches from restructuring bankers.
But at least he's still in business. Luma, a home WiFi system maker reportedly had to effectively sell for parts to First Alert. Investors included Andreesen Horowitz, Accel Partners and, get this, Amazon Alexa Fund. Similarly, Eero, the mesh Wi-Fi router startup, laid off 20% of its workforce. It has raised $90mm in VC. Yes, hardware is hard.
But not all tech is "busted" and not ALL hardware is "hard." Apparently 16% of Americans now own a smart speaker. In case you weren't convinced that "voice" may be a VERY big piece of the future. As we noted around this time last year on PETITION, mass adoption of voice has the potential to disintermediate brands and cause more retail distress.
Destination Maternity is churning through management while continuing to insist that Berkeley Research Group is only providing operational improvement services. Fieldwood Energy has a little more time. Neiman Marcus is getting serious about engaging various creditors about its well over-levered balance sheet ($4.9b of debt). Steinhoff International Holdings N.V. is in the market for a Chief Restructuring Officer. Before year end, there were some interesting happenings with Sungard AS that may portend some action to come.
Circuit City. It's back. On Monday, the CEO of Circuit City announced via press conference - at CES no less - the re-launch of Circuit City and the messaging on it is everything you'd expect from a once-brutally-disrupted retailer seeking to re-emerge in 2018. "Social-focused e-commerce?" Check. "AI?" Check. "Web platform?" Check. The website is lit, complete with this highlight, "For the new breed of American workers who we call the “millennials”, we will offer 24/7 Customer Service...." Yeah, sure, good luck with those American workers you call "millennials." Alexa, please block all messaging from Circuit City.
Source: U.S. Bureau of Labor Statistics
The end of the year is replete with "best of" lists. THIS MUST READ list, however, is next level interesting. Among many facts we didn't realize that have implications for the future was: "A fifth of all the Google searches handled via the mobile app and Android devices are voice searches."
Airports (Short Short-Term Parking). Add another revenue stream disrupted by Uber.
Connecticut (Short the Rainy Day Fund). Halfway into the budget year, the state is already $208mm in the red.
The unfunded liability went down (and the snark went up).
We cringed at THIS embarrassment. Honestly, we could snark about this until the cows come home but there's really not much more we can add. Answer here for the non-litigators.
Speaking of lawyering, we thought this bit about insider trading was interesting and serves as a cautionary tale to those who are uber-cavalier about talking themselves up. You know the types. There are industry folks who are so insecure that they feel the need to constantly show off what deals they are working on. Makes good cocktail party conversation. But, a number of these companies have publicly traded equity or securities. While the insider trading laws are murky and ever-changing, we're pretty sure that industry folks don't want to find themselves on the other side of an investigation. Moreover, we're guessing that, at least in a few instances, the mere disclosure is a breach of attorney-client privilege. So, don't do that.
We’ve spent a good amount of time in the last year discussing the second order effects of autonomous cars. But, clearly Google is thinking ahead. This week Waymo LLC, the driverless-car unit of Alphabet Inc., partnered with an insurance-tech startup called Trovto nail down the mechanics of “micro-duration” insurance for riders. This would be “usage-based” insurances, covering riders for very discreet periods of time and very particular use cases. Risk could be assessed based on the duration of the ride (and, presumably, the trajectory?). This could be a game changer as far as insurance revenues go. Choice quote: “As much as 80% of the premiums paid to car insurers are at risk of disappearing in coming decades if autonomous vehicles make driving safer and prompt big changes in car ownership.” Yikes.
Soon there will be additional comps (paywall) available that will demonstrate just how far the value of NYC tax medallions have fallen in the face of Lyft and Uber.
Former employees have initiated a crowdfunding campaign to support Gawker, keep the sites/archive out of the evil clutches of Peter Thiel and "preserve its history." Speaking of never dying, serial entrepreneur Sophia Amoruso announced $3.1mm in seed funding from Lightspeed Venture Partners (big winners in Snapchat) for Girlboss Media.