Gabelli Portfolio Managers Brett Harriss & Sergey Dluzhevskiy give their 2018 outlook for Content and Connectivity.
Transcript:
Brett: Digital technologies are transforming the world, revolutionizing industries, and playing an important role in nearly every aspect of our lives. (5-6 seconds)
Sergey: Communication, commerce and culture are moving to the digital world, and we believe ubiquitous connectivity and differentiated content available anytime, anywhere, and on any device will continue to define the 21st century. (9-10 seconds)
Brett: In 2018, we expect these secular forces of change to accelerate. (3-4 seconds)
Sergey - Connectivity:
Rapidly rising demand for ubiquitous broadband will keep connectivity providers focused on better monetizing their networks and investing to support higher speeds (with cable expanding DOCSIS 3.1 rollouts, telcos continuing fiber deployments, and mobile operators making first steps towards 5G).
In the US, most network owners should start benefiting from the FCC’s return to light-touch regulatory framework for broadband services (which should enable greater flexibility to pursue new business models) and tax reform (that lowered corporate income tax rate to 21% and expanded bonus depreciation).
We expect consolidation to remain a persistent industry trend in 2018, with companies looking for both in-market M&A opportunities (that typically present greater synergy potential) and convergence deals, that could help firms enhance scope, business models, and innovation ability. A potential T-Mobile/Sprint deal is simply too synergy rich not to be revisited in 2018.
Brett: - Content
In media, we expect much of the same: consumers will shift to OTT platforms and consolidation will continue.
We think 2018 will be the year of the virtual cable bundle. To date, SVOD services like Netflix and HBO Go have dominated the online video market. Virtual cable bundles aggregate traditional cable channels and remain small with 5 services collectively serving 4 million subscribers. We expect large companies like AT&T and Google to dramatically increase marketing for these recently introduced products.
The pressure to merge will only accelerate. Smaller media companies will face increasing pressure from both larger traditional competitors and Silicon Valley behemoths. Potential transactions for 2018 could include: 1) a recombination of CBS and Viacom, 2) the combination of CBS and Discovery-Scripps, 3) Sony separating its film and music division from its technology segment, and 4) Comcast acquiring Discovery-Scripps. While unlikely, it is possible we could see a large technology player acquire a traditional media company in an attempt to accelerate an entry into online television.
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