MoffettNathanson LLC, the equities research firm founded by long-time media analysts Craig Moffett and Michael Nathanson, is in talks to be bought out by SVB Leerink, a unit of investment firm SVB Financial Group, according to a Bloomberg News report. The deal is said to be in the very early stages of development and could unravel.  

Moffett, a former media analyst at Bernstein Research, formed Moffett Research in May 2013,  and less than two months later added former Nomura Securities and Bernstein colleague Michael Nathanson to the masthead. The firm quickly established a reputation for insightful analysis in the media, communications and internet sectors and in 2018 expanded into the payments and processing space led by former Bernstein analyst and MoffettNathanson partner Lisa Ellis.

Buying MoffettNathanson would be a departure for SVB Leerink, which has focused on the healthcare industry in the past. But the firm has been expanding its horizons lately, hiring nine former UBS Group investment bankers in May to populate its newly former technology investment banking group. 

Moffett declined to comment. SVB did not immediately respond to a request for comment.

As earnings season for content providers rapidly approaches — most are scheduled to release their quarterly financial results in the first two weeks of November — investors are increasingly wondering if programmers, who have for years exerted their dominance over distributors, are beginning to lose their grip.

Already, two high-profile carriage renewals are in the books — The Walt Disney Co.’s renewal with Altice USA in the New York market and Viacom’s carriage pact with the second largest cable operator in the country, Charter Communications.

Related: Viacom’s Schireson Says Charter Deal Could Be Blueprint

While most analysts had seen those two programmers as prime examples of how quickly the fortunes of once-dominant content providers could change — each were facing shrinking subscriber bases due to cord-cutting and skinny bundles — both were able to hammer out deals without going dark. That seemed especially surprising for Viacom, which already had seen its channels go dark on systems owned by Cable One and Suddenlink (since renewed). Viacom has struggled with ratings declines and was said to be ripe for getting dropped by Charter.

But instead of testing those waters, Charter, according to reports, agreed to carry eight Viacom channels on its most popular tiers, relegating the rest to pricier packages. And perhaps more importantly, Charter extracted a reduction in affiliate-fee pricing some analysts estimated could be between 10% and 15%. That could have been sweetener enough to discourage Charter from experimenting with dropping the channels.

Related: The Pendulum Swings Back

With the Charter deal, Viacom has basically completed the latest round of renewals — MoffettNathanson media analyst Michael Nathanson estimated that Verizon Communications, the National Cable Television Cooperative and one smaller operator are likely next on the renewal calendar for the programmer over the coming three years.

Distributors Gaining Ground
Pivotal Research Group senior research analyst- advertising Brian Wieser said that while it depends on the network, programmers are increasingly getting pushback on carriage of their least popular channels. And unlike in past years, the distributors appear to be gaining ground.

“The writing is on the wall,” Wieser said. “ ‘VH1 Classics for Women, Jazz Version’ as a digital network does not have a future.”

Wieser was joking, but the gist of what he said rings true. The current cast of cable networks was created during a period when distributors wanted more inventory to fill up their 150-plus channel lineups. Also at that time, consumers saw real value in larger channel offerings and were willing to pay for it. Today, less is more as consumers are seeking out smaller bundles of programming.

“I think the future is worse now than what everyone thought it would be a few years ago,” Wieser said.

That shift will likely translate into lower affiliate fee increases and carriage for fewer networks, he said.

“The Discoverys and Viacoms of the world will end up negotiating lower price increases and end up with lower carriage,” Wieser said. He added that fewer channels also means lower costs for the programmer, so they should “end up in the same place.”

Wieser is not alone. Credit Suisse media analyst Omar Sheikh estimated annual subscriber declines for major domestic cable networks of about 2%, while affiliate fee growth would fall from 9% in 2018 to 7% in 2019 and 5% by 2020.

The affiliate-fee erosion comes as the years-long ad market decline continues. In a note earlier this month, Nathanson estimated national TV ad growth will be -10%, with cable down 4% and broadcast down 19% (+1% ex-Olympics).

Wieser predicted a 2% decline in national television advertising, while Sheikh estimated that ad growth would shrink from 4.3% in 2018 to between 2.4% and 2.5% by 2019-20.

Some analysts have predicted that distributors could use this newfound clout to finally break the bundle, or at least cease carrying networks they no longer feel are worth the trouble, but Wieser doesn’t see that happening on a wide-scale basis yet. He pointed to the recent Charter-Viacom and Disney-Altice deals, which allowed the distributors some carriage flexibility.

No Wholesale Exodus
Sources familiar with the Altice-Disney deal have confirmed reports that Altice won’t carry ESPN Classic as part of its Disney deal, in return for raising the minimum carriage bar for its other networks.

Other analysts such as Sanford Bernstein’s Todd Juenger have worked out the math to justify dropping channels. But even Juenger, who has believed the content business has been in structural decline for years, doesn’t predict a wholesale exodus from ESPN, whether the math works or not.

The economics look better as the fees increase. In a recent note Juenger estimated that dropping ESPN and its $11.44 per month per customer in affiliate fees would make sense even if Charter lost 42.5% of its customers. But he didn’t think any distributor was likely to drop bigger content owners.

“The problem, of course, is no [multichannel video programming distributor] wants to risk (yet) touching Disney (or Fox, Turner, CBS),” Juenger wrote. “Rightly or wrongly, the fear is that too many subscribers care too passionately about certain networks in those families.”

As the National Football League gets set to kick off the 2017 season, analyst Michael Nathanson of MoffettNathanson Research is predicting that ratings will be up in primetime, reversing last year’s surprising declines.

THE SPORTS ISSUE:Engineering a Monday Night Comeback at ESPN: Q&A With Burke Magnus

Nathanson sees NBC’s Sunday Night Football rising 5% in total viewers and ESPN Monday Night Football up 11% based on stronger matchups on their schedules.

Down the road, Nathanson said, there could be a shakeup in NFL rights deals, mainly because the Walt Disney Co.’s ESPN is paying much more -- $1.9 billion per year -- for its Monday Night Football package than Comcast’s NBC pays for Sunday Night Football -- $960 million -- even though the Sunday night generates much higher ratings because it gets better matchups.

The NFL is also giving better matchups to shore up its Thursday Night Football packages on NBC and CBS, diluting MNF, he says. Rights fees for those Thursday games are also cheaper than ESPN’s MNF.

When those deals expire in 2021 and 2022, “Disney would be wise to drop MNF and focus on all their energy and resources on securing the preferable SNF package, which is now nearly $1 billion cheaper and includes three Super Bowls,” Nathanson said. “This would then potentially force NBC into bidding for either the CBS AFC package or the Fox NFC package.”

That bidding would drive up the fees and open the door to new bidders for MNF, including either Turner or a digital player like Facebook, Amazon, Google or Apple.

THE SPORTS ISSUE: Sports Streaming Picks Up the Pace |OTT Players Could Change Television’s Sports Game

The season starts Thursday night (Sept. 7) with the champion New England Patriots taking on the Kansas City Chiefs..

Last season's NFL ratings were down 12% up through Election Day (Nov. 8, 2016). They were down 5% the remainder of the season. Reasons for the declines included increased interest in political news, bad matchups resulting in more blowouts and even quarterback Colin Kaepernick’s decision to kneel in protest during the national anthem.

Despite the ratings drop, ad revenue wasup 3% last year to $.35 billion for the NFL season including the playoffs and Super Bowl, according to research company Standard Media Index.

Nathanson noted that for TV, the NFL represents a big chunk of both ratings and revenue. Last year, NFL game and other football programming — including the Super Bowl -- represented 60% of Fox’s live plus same day P2+ GRPs. It was close to 30% for NBC, ESPN and CBS.

The season, Nathanson said, based on pre-season power rankings of the 25 best matchups, nine are headed for CBS, eight for Fox and seven for NBC. ESPN has only two of the top 25 matchups. CBS also has the largest share of the bottom 25 matchup, he noted.

On Thursday night, the average power ranking of the teams involved has improved. NBC’s schedule shows the biggest improvement. CBS’s power ranking is unchanged and the NFL Networks matchups are weaker than last year.