With Paramount Global entering key renewal talks with Charter Communications in the second quarter, Lightshed Partners' Richard Greenfield has become the latest equity analyst to question Paramount's ability to carve out the kind of groundbreaking agreement established between Disney and the No. 1 U.S. pay TV operator back in September.

The landmark Disney deal gave wholesale discounts for Charter to resell Disney Plus and other Disney streaming services. The pact will likely serve as “the paradigm for how [Charter] approaches future distribution agreements,“ Greenfield said in a Lightshed blog post.

Paramount Global chief executive Bob Bakish said back in early November that he also wanted to explore similar "hard bundles" with pay TV operators. At the time, another influential equity analyst, MoffettNathanson's Robert Fishman, threw cold water on the plan.

“How incremental to the linear bundle is Paramount Plus?” Fishman asked. “With simulcasts of CBS stations included within the app, including coveted sports rights such as the NFL, we remain skeptical the company will be able to get true wholesale incremental value." 

With Paramount's Charter negotiations now at hand, Greenfield expressed agreement. 

A key Charter objective, he notes, is not to pay for the same content twice.

And while Paramount Plus has exclusive content not carried by Paramount's basic cable networks, Greenfield explains, the current availability of CBS and Nickelodeon on both Charter and Paramount’s streaming service robs the conglomerate of some of its most lucrative bundling opportunities. In fact, four of Paramount Plus' eight trending shows last weekend were from Paramount’s linear TV networks: SpongeBob, Paw Patrol, Survivor and The Neighborhood.

But perhaps most critical to Paramount’s distribution strategy is one key property: the NFL on CBS, which carries historically consistent viewership and the potential to protect other networks.

That was one of the justifications for 2019’s CBS/Viacom merger, which Greenfield says was intended to “use the power of the NFL to protect the carriage of Viacom’s increasingly vulnerable networks.”

However, with NFL available to Paramount+’s lowest-tier, $5.99 ad-supported customers, Paramount is seriously undercutting the earning value of their own channel suite.

"Let’s step back and ask: why are any Paramount networks carried by distributors? Only one reason: the NFL on CBS," Greenfield wrote. "In fact, the entire rationale of the CBS/Viacom merger was to use the power of the NFL to protect the carriage of Viacom’s increasingly vulnerable cable networks. However, with NFL on CBS available on Paramount Plus' low-end, $5.99 ad-supported tier, it has to make distributors wonder why they need to carry the Paramount suite of channels."

Paramount Plus is also available at no additional cost to Walmart Plus subscribers as advertised on the corporation’s website, devaluing the power of NFL programming even further.

By enabling such easy access to sports content via streaming, Greenfield claims that “Paramount has destroyed the value of their content by enabling such easy access to sports content at far too low of a price versus what they expect to be paid for their linear networks by MVPDs.”

Paramount elected not to sell Showtime for $3 billion, and instead incorporated it into their service, offering Paramount Plus to all existing Showtime subscribers.

Paramount has scaled back its production quantity of original content, and according to Greenfield, “is trying to leverage the power of the NFL content that is not exclusive to the bundle,” and therefore lacks the bargaining power needed to tow Paramount.

And he claims that Charter won’t stand for it, likely requiring reduction to affiliate fees paid to Paramount, or for the inclusion of a Paramount Plus Essentials subscription in cooperation with Charter’s networks. If Paramount refuses both of those, Greenfield believes Charter may even drop the networks, a loss of distribution that Paramount can certainly not afford.

Two Q3 earnings reports by major pay TV operators in, and we can already see that cord-cutting is up in a big way.

Comcast on Thursday reported the loss of 540,000 residential Xfinity TV subscribers and 21,000 business pay TV customers, upping its 2020 year-to-date linear video sub losses to nearly 1.6 million.

Also read: Economy, Hurricane Have Comcast Looking Ahead To Tough 4th Quarter

As the graphic from LightShed Partners Group (left) shows, Comcast has lost just over 10.5% of the 18.549 million video customers it had on Sept. 30, 2021 — the firm said it's the first time that the rate of Comcast's cord-cutting has exceeded 10%.

The narrative, on a larger scale, matches a similar chart LightShed published late last week (below right) for Verizon Fios TV, which reported a heightened loss of 95,000 customers in the third quarter.

Also read: Verizon and Snap Q3 Earnings Foretell Coming Hard Times For the Media Biz

After remaining largely stable during pandemic-influenced 2020 and 2021, the year-over-year rate of erosion to Verizon’s video customer base began accelerating abruptly in the second quarter.

Updated: Charter Communications, the second largest pay TV operator in the U.S., reported on Friday that it lost 211,000 Spectrum TV customers in Q3, a 4% year-over-year decline in its video base. This is compared to a loss of 121,000 customers in the third quarter of 2021. On Sept. 30 of last year, Charter's rate of year-over-year video attrition stood at 2.3% -- so, not a marked uptick, but an increase just the same. 

Beyond that, with DirecTV’s customer metrics now shrouded from public view following the pay TV company’s spinoff last year from AT&T to a JV run by private equity, our next major signpost will be Dish Network earnings later in November.

In the second quarter, the largest pay TV operators covering 92% of the U.S. market lost a combined 1.925 million subscribers, according to Leichtman Research Group. Look for them to beat that awful benchmark soundly in Q3.

Sustained loss of distribution could be devastating to media companies, who are already looking at a souring advertising sales market. ■

You don't have to look hard these days to find a downer report about the fate of linear television. 

And only a few key earnings calls into the Q3 reporting cycle, the news seems likely to get worse. 

Update: Several hours after this story was filed, Google announced that YouTube had experienced its first quarterly decline in ad sales ever, with Q3 revenue dropping nearly 2% to $7.07 billion. You can read that story here. 

As the first major pay TV operator to offer third-quarter customer metrics, Verizon reported the loss of around 95,000 Fios TV customers. As elegantly showcased by Lightshed Partners, that represented a surge of around 8.8% over the circa-87,000 customers lost to Verizon Fios TV in the second quarter. 

The rate of cord-cutting also increased by a similar .8% rate from Q1 - Q2 for the wireless giant, after it had held largely steady for 18 months (see graphic). 

With Comcast and Charter Communications set to deliver their Q3 reports later this week, expect video cord cutting to quite possibly re-emerge as a key issue. Comcast has lost 512,000 and 520,000 customers, respectively, in the first and second quarters of 2022. 

Meanwhile, Lightshed analyst Richard Greenfield triangulated another early-Q3-season earnings report from Snap Inc., during which strong concerns were expressed about the current advertising sales market. 

Snap Co-Founder and CEO Evan Spiegel spoke at length about navigating "this difficult macro environment that has impacted our advertising business over the past few quarters." 

Responding to both Verizon's and Snap's metrics, Greenfield tweeted over the weekend, "Not a good start to earnings for anyone in the broadcast or cable TV network biz," noting that the Snap report signals a meaningful "pullback in brand ad spend in Q4 as recession fears build." 

Tracking the executive pessimism on its latest "Earnings Scorecard," Lightshed also  found that, among the 69 companies it tracks, mentions of the term "recession" increased to 60 in the second quarter vs. just two in the third quarter of 2021. 

Observing the behavior of one of the video business' biggest advertisers, Procter & Gamble, during its Q3 call last week, we didn't find a mention of the "R" word even once. 

But the company did discuss a "very challenging cost environment, with CFO Andre Schulten noting, "When you think about our marketing spend, we estimate there is still significant opportunity to optimize in the ability to reach consumers more broadly and more effectively at significantly lower cost as our digital reach increases." ▪️

LightShed Media Partners analyst Richard Greenfield has described a decidedly bleak prospect for Sinclair Broadcast Group successfully transitioning its debt-ridden Bally Sports-branded regional sports networks into a direct-to-consumer streaming service. 

It‘s “#GameOver” for that gambit, Greenfield said in a posting this morning. 

Also read: Sinclair Streaming RSN Plan Slammed by MLB Commissioner Rob Manfred

“Sinclair has tried to convince investors that it can avoid a Diamond Sports bankruptcy by transforming its 14 RSNs from being locked into the legacy MVPD/vMVPDs bundles to a direct-to-consumer, over-the-top streaming service … and that there is a robust sports betting opportunity for the Diamond Sports RSNs to take advantage of,” Greenfield wrote.

The analyst may have gotten the number of Bally Sports RSNs operated by Sinclair's Diamond Sports Group wrong — it‘s actually 21. 

But Greenfield appears spot on when he said that the whole pitch appears based on a “fabrication:” That is, all 14 Major League Baseball teams that have linear TV licensing deals with Bally Sports RSNs are willing to also license their DTC/streaming rights to Diamond Sports.

Last week, MLB Commissioner Rob Manfred damned the plan —  and perhaps, Diamond Sports into eventual bankruptcy — when he said simply that Sinclair doesn‘t “have the rights” it needs to pull off an ambitious DTC plan revealed to investors over the spring. 

Extrapolating further, Greenfield described MLB as being philosophically similar to the NBA in terms of how it manages digital rights. The MLB did decide in 2019 to let its teams negotiate their digital rights themselves. To date, however, only four of the 14 MLB teams that Sinclair partners with have offered up their OTT rights: the Miami Marlins, the Tampa Bay Rays, the Kansas City Royals and the Milwaukee Brewers. 

Also read: Why Sinclair‘s $250 Million Sports Streaming Swing Could Deliver a Walk-off Defeat of Pay TV

Ultimately, Greenfield believes, MLB and NBA teams will work with their respective league and a third-party technology vendor to make their own DTC services, re-negotiating with pay TV operators to preserve whatever revenue is left from the linear ecosystem.

And Sinclair very likely won't be a part of those forward-looking enterprises, he said. 

”Sinclair has no expertise in digital or streaming, has never built a direct-to-consumer subscription business and only covers a portion of the U.S.,” Greenfield added. “Sinclair is actually one of the worst possible choices for the leagues to partner with in digital.”

Classifying Sinclair as an absolute digital beginner is too harsh. 

Not only does the broadcaster‘s portfolio include 185 local broadcast stations, but several digital over-the-air channels, hybrid AVOD/local programming streaming service STIRR, a major investment in ATSC 3.0 tech and the shared local-news service NewsON, plus a better integrated ad-selling infrastructure.

But again, Greenfield's larger point — that Sinclair and Diamond have a tough ninth-inning rally in front of them — holds up. 

Sinclair bought the Fox Sports RSNs from Disney, as well as the Marquee Network and YES Network, in August 2019 for $9.6 billion, putting them under the control of a separate company it owns, Diamond Sports, and selling the naming rights to the channels. 

Much as they did in 2015, when AT&T paid $49 billion for DirecTV, analysts questioned what the heck Sinclair management was thinking paying a such a huge sum of money amid declines for the multichannel video programming distributor business. 

Sinclair was left trying to pay off nearly $10 billion in debt with an RSN business that has annually escalating costs in the form of team contracts, but declining EBITDA from pay TV customers continuing to exit the ecosystem. 

“After Sinclair purchased the Fox RSNs from Disney, we wrote that we expected the newly renamed Diamond Sports RSN group’s EBITDA of $1.6 billion to turn negative by 2025,” Greenfield noted. 

Analyst Rich Greenfield’s research company, LightShed Partners, said it is launching an investment firm--LightShed Ventures--that will focus on the technology, media and telecommunications industry.

It’s first fund--LightShed Ventures Fund 1--will invest $75 million in the seed and series A rounds of private companies in the sector. 

Lightshed Ventures has already invested in Podchaser, Slipstream, Antenna Analytics and another unnamed company. 

“LightShed Partners will serve as the foundation for what we do at LightShed Ventures. Our unique, thematic research remains our life blood. The principles behind our research will underpin our investments. But the research itself is just the start of our flywheel. Everyone knows we have one of the biggest megaphones in TMT to amplify our ideas and strengthen our brand and mindshare,” said Greenfield, general partner of Lightshed.

Greenfield started LightShed in 2019 with fellow analysts Walter PIecyk, Brandon Ross and Jamie Roberts Seltzer.

LightShed Ventures said its limited partners include a significant institutional investor and a group of prominent media, telecom, tech, sports, entertainment, music and financial executives.

Greenfield and LightShed have focused on the way technology companies have disrupted traditional industries, including the TV business. 

“We have spent much of our time understanding upstart industry disruptors and have been active angel investors,” said Piecyk.

Rich Greenfield, the analyst who is outspoken in his belief that streaming will demolish the traditional TV business, said he was wrong about his recommendation to sell stock in the Walt Disney Co.

Read Also: Disney Plus Now at 86.8 Million Subscribers

In a post entitled “Upgrading Disney to Neutral: We were Wrong,” Greenfield and his colleagues at Lightshed partners, said he under-appreciated how quickly business would return to “normal” despite the continuing COVID pandemic and underestimated how completely Disney management would throw itself into its pivot to streaming.

“While we cannot fix our mistake, we believe investors will find it valuable for us to analyze why our call went off the rails, particularly in the past couple of months,” he said.

Read Also: Rich Greenfield Urges Investors to Sell 'Money-Losing' FuboTV

In particular, Greenfield said they were surprised that new Disney CEO Bob Chapek has gone all-in on streaming. They were “blown away” that Disney plans to increase content spending to more than $8 billion by 2024.

“Honestly, we felt Disney had given the CEO job to the wrong person,” Greenfield said. Instead Chapek has "impressed us” by leaning hard into the streaming playbook.

Read Also: Analyst Rich Greenfield Launches LightShed Partners

Greenfield also said that Disney has been managing its business to get the most possible subscribers and not prioritizing average revenue per unit or other shorter-term financial metrics. The company is also moving toward unifying its streaming products, putting ESPN into Hulu and pushing the Disney Plus-ESPN Plus-Hulu bundle.

Finally, Greenfield and Co. were surprised that the market no longer cares about the performance of ESPN and Disney’s other traditional TV properties.

“We believed Disney was moving slowly in streaming to sustain the health of those legacy TV assets,” they said. “While virtually every investor we talk to would like to see Disney spin-off its legacy broadcast/cable network assets, especially ESPN as we have suggested, they believe any value from a direct-to-consumer sports streaming business is a net positive compared to the legacy business simply evaporating over the next five to six years.”

Disney stock was down 0.69% to $177.35 in mid-day trading Friday.

While there’s a popular perception that the video streaming market is viciously competitive and full of relevant aspirants, the data tells a slightly more monopolistic story.

Using Comscore data from July, equity research company LightShed Partners found that only five streaming services control 83% of U.S. connected TV usage. 

Netflix, YouTube and Amazon Prime Video combine to control 64%.

“Investors and the press would lead one to believe that there was an intense streaming war underway with the new entrants utilizing their vast libraries of content, lower prices (sometimes even free with ads) and cross-marketing scale leveraging their other portfolio assets to take share from streaming incumbents,” LightShed said in a note to investors. “Yet, streaming share of time spent tells a very different story.”

With yet another major streaming service, Comcast/NBCUniversal’s Peacock, launching without app support from the two most popular streaming TV operating systems, Roku and Amazon Fire TV, could Google finally have an opening to the American living room?

That’s the subject of the latest video business deep dive from the analysts at LightShed Partners. Starting in 2007 with the introduction of the Google TV Ads auction business, through the launches of the original Google TV platform (2010) and Google Fiber telecom business (2012), and including the debuts of Chromecast (2013), Android TV (2014) and YouTube TV (2017), “Google has been trying to make a major push into TV for well over a decade, and up until recently has very little to show for its efforts and investment," said Lightshed, noting that Android TV does have significant international market penetration.

But the LightShed analysts, led by Richard Greenfield, believe that could all change in the next six to 12 months. In fact, the firm describes Google as being “dangerous” to the connected TV incumbents. 

Also read: Android TV: Everything You Need to Know About the World’s Fastest Growing Video Operating System

For starters, Google is now putting resources into Android TV, a streaming TV operating system that combines an extensive app library (Google’s Play Store) with modern amenities such as voice control (via Google Assistant), and the drawing power of native YouTube integration. Google has successfully licensed Android TV to pay TV operators around the globe for several years, most notably making it the foundation for AT&T’s new priority linear pay TV platform, AT&T TV. 

As the chart below, released by research company Conviva in late May shows, Android TV is decidedly a niche operating system in the U.S. in terms of connected TV use. Roku controls 44% of connected TV viewing hours in the U.S., with Amazon Fire TV ranking a distant second at 19%, according to Conviva. Android TV falls into an “other” category controlling 7% of usage. Google’s minimalist Chromecast platform controls 6%.

But Google is getting aggressive in the U.S. market with Android TV. As Next TV reported in June, Chinese electronics maker TCL has begun selling Android TV-powered smart TVs in the U.S. for the first time. 

Also read: TiVo Stream 4K: Everything You Need to Know About the New Android TV-Based Dongle

TiVo, meanwhile, is building its own late push into connected TV on the foundation of Android TV with its new TiVo Stream 4K device. And not only are other tech partners, such as Xiaomi, building Android TV sticks and dongles for the U.S. market, but as Next TV has also reported, Google is poised to introduce its own Android TV device in the coming months. 

Also read: Google’s Upcoming Android TV Dongle Exposed

According to published reports in journals including XDA Developers, the new device will subsume Chromecast, retailing for around $80. It could carry the Google Nest brand name, and Android TV might be rebranded as “Google TV.” The latest breathless 9to5Google report said the device, codenamed “Sabrina,” has reached the FCC’s hands for review. 

Also read: Peacock’s Strauss: Streaming Service Committed to July 15 Launch With or Without Roku and Amazon

Google’s renewed backing of Android TV comes as Roku and Amazon struggle to carve distribution agreements with programming services—the latest impasse over issues including advertising revenue splits being with Peacock, which will likely roll out nationally on the open internet July 15 without Roku and Fire TV app support. 

The bereft app support follows AT&T/WarnerMedia's birth of HBO Max in late May, which has also been shut out from Roku and Amazon. 

Traditionally, in the pay TV world, it was the distributor/operator who suffered consumer blamed and ultimately backed down in such disputes. And LightShed believes such market leverage dynamics will eventually impact Roku and Amazon, their users fleeing to Google, which is generally easier for programmers to work with and supports more apps. 

Notably, both Peacock and HBO Max have deals for app support across the range of Google platforms, including Android TV. 

“What makes Google such a dangerous entrant into the TV OS/device space is that they do not need to make money (at least today) on taking a cut of connected TV ad inventory or a share of new SVOD subscriptions,” LightShed writes. “Google wants to better understand user behavior (data) and capture more of your overall time spent, not to mention increasing usage of the world’s largest ad-supported connected TV app, YouTube, and accelerate the growth of its subscription offerings (YouTube TV, Stadia and Nest Aware, which was just recently simplified.)

Launched just over five years ago with the introduction of Dish network’s Sling TV, the virtual MVPD business has matured quickly, evidenced last week by Google’s decision to up YouTube TV’s price point to the very traditional pay TV-like level of $65 a month.

Also read: YouTube TV Raises Price $15 After Adding ViacomCBS Channels

In a blog post to its investor clients, research company LightShed Partners took a deep dive into the state of the vMVPD business, which it said now accounts for around 9.3 million U.S. subscribers, or about 11% of the overall U.S. pay TV base of 82 million customers. 

Here are five notable takeaways:

> Rather than becoming a niche product marketed to customers that don’t want two-year contracts or other traditional pay TV trappings, LightShed thinks AT&T will simply get rid of AT&T TV Now. 
“As programming prices have gone up, Sony Vue exited the business in early 2020 and AT&T TV Now appears on its way toward exiting as their sub base dwindles,” a triumvirate of LightShed analysts—Richard Greenfield, Brandon Ross and Mark Kelley—write. 

> Even after its $15 price spike, YouTube TV is still a bargain relative to traditional pay TV. 
“Even $65 for YouTube is far cheaper than off-promo pricing from any MVPD (cable or satellite), when you factor in no box fees, unlimited cloud DVR, no broadcast TV or regional sports network surcharges, taxes, etc, not to mention superior user interfaces’ however, the price differential has been cut in half as more and more channels have been stuffed in,” LightShed said.

> Expect Hulu to raise its vMVPD prices soon.
“While Hulu Live has yet to raise price in 2020 (expect it soon), its pricing is up 37% since launch, having started $5 more expensive than YouTube TV (if Hulu Live goes to $65, its pricing would be up 63% since launch),” the firm noted.

> Hulu with Live TV was created with the intention of bolstering the program licensing market, not so much becoming a directly profitable business.
“Broadcast and cable network executives loved the idea of vMPVDs, as they offered new competitors to cable and satellite that would pay premium rates for broadcast networks and cable networks…, LightShed writes. “In fact, Hulu’s former joint owners Disney/Fox/NBC forced Hulu to launch a vMVPD so that they could drive subscribers and subscription revenues in their wholly-owned businesses, while Hulu booked off-balance sheet losses…”

> The vMVPD business has stopped growing.
“After four years of amazing growth, the vMVPD category lost subscribers for the first time in Q1 2020 and will likely lose subscribers again in Q2 2020, primarily due to the lack of sports programming,” the report added. 

Controversial media analyst Rich Greenfield has joined four former BTIG colleagues to create LightShed Partners, a telecom, media and technology research firm that will provide clients research and analytical information on public and private companies in the space.

Greenfield will be joined in the new venture by former BTIG technology analyst Walter Piecyk and former BTIG media analyst Brandon Ross, former BTIG telecom analyst Joseph Galone and former BTIG VP of media and tech equity research Mark Kelley. Together the partners have more than 20 years of TMT research experience and have worked together for more than a decade.

Greenfield has been a media analyst for quite awhile himself, covering the space for Goldman Sachs for eight years before moving on to Fulcrum Research in 2003 and Pali Research in 2007. He joined BTIG in 2010.  At BTIG, Greenfield has been a big proponent of streaming media and the continued dismantling of an antiquated programming model.

Greenfield had said that he and Piecyk would split from BTIG to start their own firm in July. At the same time, BTIG said it would collaborate with the new firm “on a variety of important strategic initiatives.” 

According to a press release, LightShed will initially offer tiered, subscription research for institutional investors like its first client, venture capital giant KKR.

LightShed added that it has also struck a strategic relationship with KKR, a long-time TMT investor that has deployed $26 billion in TMT transactions since 1983. KKR will work closely with LightShed’s founders as they build their research platform for TMT investors globally.

“LightShed is the culmination of our team’s decades of work analyzing the tectonic shifts in TMT, from the earliest stage startups to publicly-traded industry behemoths. We have always pushed boundaries in our research and this new enterprise will allow us to be even more creative in helping our clients identify trends ahead of the broader market,” Greenfield said in a press release.

[embed]https://twitter.com/RichLightShed/status/1171455751971196928[/embed]

At launch, LightShed also offers its subscribers and corporate clients a library of historical analysis going back to 2006 via its website www.lightshedtmt.com.

“The LightShed team pioneered the blog format for institutional research and will continue to innovate research techniques and mediums, both to educate our clients and to interact with the key TMT industry executives,” Piecyk said in a press release. “While others are busy mailing PDF’s, we will be seeking to leverage popular, user friendly modes of communication, multimedia and new web technologies to push the LightShed platform even further and provide differentiated content to our clients.”

LightShed said it will also provide premium subscribers with opportunities and special events that give them the ability to engage with executives and thought leaders in the industry.

“In our experience, nothing is more valuable to investors than sitting face-to-face with industry executives to understand how they think about their business and the rapidly evolving TMT industry landscape, whether it be a legacy industry giant, an established disruptor or a pre-seed startup,” said Ross said in a press release.