Cable distribution stocks were on a path to reverse their nearly 15% first quarter slide as June 30 approached, with the sector up a modest 4.5% through June 22, but got broadsided later in the month by fears that Comcast, the largest cable distributor in the country, would go on a buying spree. A week later, distribution stocks were up a collective 8%, nearly doubling the gains of the week prior, in part because tiny WideOpenWest agreed to sell off some systems in a pair of deals that in part highlighted just how wide the gap is between public trading multiples and a company’s actual value. 

Comcast stock was on a tear as the second quarter neared a close, up 7% between March 31 and June 22, nearly double its 3.7% rise in Q1. But after news reports on June 23 hinted that Comcast chairman and CEO Brian Roberts may be considering deals to boost its position in the streaming video business, including a “tie-up” with ViacomCBS or an outright purchase of Roku, the stock sank nearly 5%. The fear that Comcast would spend heavily on a big purchase -- some analysts estimated that it would have to spend at least $75 billion on any potential Roku bid -- cast a pall on an industry that had been riding high on substantial gains in its broadband business.

Also Read: Brian Roberts Speaks, Sort Of 

On the flip side of the coin, WideOpenWest stock has been on fire over the past six months -- rising 27.4% in Q1 and another 52.4% in Q2. At its close of $20.71 per share on June 30, the stock was up 94.1% from Dec. 31, when it closed at $10.67 per share.

Another stock that has performed strongly in the first half of the year was Dish Network, which despite pressure to build out its planned 5G wireless network by June 2023, was up 15.5% in Q2, building on a 12% gain in the first quarter. Dish is scheduled to launch its first market in Las Vegas in Q3. The satellite company launched a website -- Project Gene5is -- in June to let interested consumers know when the service will be coming to their town. 

In the meantime, Comcast has slowly crawled back, especially since a handful of analysts came out with reports putting a damper on the likelihood of a big Comcast M&A deal.  In the five trading days between June 23 and June 30, Comcast shares were up 2.3% to $56.78, not exactly their June 22 level of $57.63, but closer. The rest of the distribution sector, however, gained nearly 4% in that week of trading.  

While WOW is too small to make a big dent in the overall prices in the sector -- distribution stocks were up 7.8% in Q2 without WOW -- they may have a bigger impact going forward, as investors start to look harder at the gap between public stock values and private trading multiples. 

Nowhere is that more apparent than in the deal market. In the past year, two major cable systems deals have closed -- Stonepeak Infrastructure Partners $8.1 billion purchase of Astound Broadband and Cable One’s $2.2 billion purchase of Hargray Communications. Each of those deals were valued at 12.5 times forward-looking cash flow. Even WOW’s sale of systems in five markets to Astound and Atlantic Broadband in two separate transactions was valued at 11 times cash flow. In contrast, WOW’s stock has been trading at about 8 times cash flow, while bigger publicly traded operators like Comcast (10 times) aren’t faring much better.

In a research note Wednesday, B Riley Securities media analyst Daniel Day estimated WOW’s stock price would be between $33 and $34 per share if an 11 times multiple were applied. 

“[W]e expect that this morning's announced transactions will be a positive catalyst by highlighting the share price discount to the private market value of the assets,” Day said of the stock price. .    

In mid-June, distribution stocks had already erased the declines in Q1, as investors were still trying to figure out the impact of the pandemic on the overall business. Continued broadband growth in Q1 --- the numbers weren’t announced until late April and early May -- helped drive the stocks in Q2 -- Comcast stock, up 3.7% in Q1 gained another 6.3% by June 22, while Charter erased a 6.7% Q1 decine with a 12.7% gain in the same time frame. The same held true for Altice USA, which was down 14.4% in Q1 but managed to eke out a 4.4% rise by mid-June. Only Cable One, long the strongest performer in the sector, saw signs of levelling off, rising 1.6% in Q2 after a 17.8% decline in Q1. 

Despite the Q2 rise, distribution stocks are still behind 2020, when pandemic-fueled broadband gains helped drive the stocks -- falling a collective 7.6% in the first six months of the year. Comcast and Charter are still ahead of their Dec. 31, 2020 levels -- Comcast is up 10% so far this year and Charter is up 9.1% -- but it was not enough to erase losses at Altice (down 9.3% for the year) and CableOne (down 13.9% since Dec. 31).

FBN Securities media analyst Robert Routh said while investors may fear Comcast spending too much for a programming or tech asset, it could boost multiples by taking a page from an earlier playbook -- swapping systems with other operators to create bigger and more efficient clusters.

It’s a take on former Tele-Communications Inc. president Leo J. Hindery Jr. 's “Summer of Love” in the late 1990s, when TCI swapped and bought systems all around the country in a flurry of deals to better focus the cable company’s operations. 

Routh said a cursory look at a cable systems map could show potential swap candidates for Comcast, Charter and practically every other cable company. Regulatory fears would be virtually eliminated because in a swap, neither party gets bigger (or that much bigger), just more efficient. 

“If Brian [Roberts] doesn’t want to do a deal on the content side, which I can understand at the moment, maybe it would make sense first to do some other deals with Charter and some other cable systems and get more contiguous clusters,” Routh said. “That would be a win-win, and should result in multiple expansion as we saw when it was done in the late 1990s.”  

Still, even without a system swap spree, Routh believes cable stocks should rise in the second half of the year. And he sees trading multiples getting beefier as investors realize the value in systems. 

“People are starting to realize that whether they like [cable broadband service] or not, I don’t know anybody who claims they don't need it,” Routh said. “...I do think we’re going to see multiple expansion as people realize that they [cable operators] are kind of unregulated utilities. They are necessary and even the wireless folks need them for the back hauling of the signal. That’s not going to go away. The question is, where do multiples go?”

For programming stocks, gains in the first quarter that were fueled by a combination of strong positive sentiment over streaming video offerings, and a bit of confusion, began to disappear in Q2. The overall sector rose 15.7% in Q1, goosed by a short-squeeze frenzy in February that swept up stocks like AMC Networks (up 48.6% in that period), Discovery (up 44.4% in Q1) and Fox (up 24.7% in Q1). 

ViacomCBS was the other big Q1 gainer in the sector (up 21.4%) but that was more due to the launch of its much-anticipated Paramount Plus streaming service. By Q2, that confusion had waned, sending the sector into negative territory, fueled by declines at one company in particular -- Discovery Inc. -- that just happens to be involved in a mega-deal.

Discovery shares were up about 44% in Q1, in part riding the short-selling wave but also fueled by sentiment around the successful launch of its streaming direct-to-consumer offering, Discovery Plus. On May 17, Discovery and AT&T announced a $43 billion deal where AT&T would merge its WarnerMedia content business into a separate entity with Discovery. Almost immediately the stock began losing ground. 

Discovery shares fell about 5% on May 17 and at its June 30 close, Discovery shares were priced at $30.68 each, down 14% from May 14. The stock was down about 29% for Q2. For the year, Discovery shares are up about 2% from their close of $30.09 on Dec. 31.

WarnerMedia parent AT&T’s shares were up 7.1% in Q1, but dipped about 3.3% in the second quarter. For the year, the stock is up about 3.6%. 

Routh sees a rebound for programmers going forward, especially in the wake of Amazon’s agreement to purchase MGM studios for $8.5 billion. 

“They’re all looking at what Amazon is doing,” Routh said. "I do think the tech giants are going to look at the content guys. I wouldn’t be surprised if you see bids made by some or all of them. The only downside is time.”

FANG stocks (Facebook, Apple, Netflix and Google) were up about 14% in Q2, led by Google parent Alphabet (up 22% in the period), Facebook (up 18.1%), Apple (up 12.3%) and Amazon (up 11.2%). Netflix was relatively flat (up 1.2%) as some investors continued to be worried about future growth opportunities and competition from rival streaming services. MoffettNathanson media analyst Michael Nathanson issued a report June 29 wondering whether Netflix may have to consider an ad-supported version or buying sports content to drive growth. 

Facebook got a reprieve from some of the intense government scrutiny it has been under this year after a U.S. District Court Judge dismissed suits by the Federal Trade Commission and 46 states concerning the social media giant’s alleged monopolistic practices. While the FTC and the states can file an amended complaint -- and they are expected to -- Facebook stock, up 27.3% in the first half of the year, second only to Alphabet (up 43.1%), like the rest of the sector has been relatively unscathed. 

The COVID-19 pandemic is expected to continue to squeeze advertising revenue at the top cable networks in the first quarter, but the full force of its impact likely won’t be felt until the second quarter and beyond, according to several analysts.

Networks have seen viewership increase as consumers were confined to their homes in the pandemic’s early days. That won’t have as much of an effect on revenue in Q1 (the lockdown was only about two weeks old at the end of the period), but the real impact could be in the second quarter and beyond.

Just how much of an impact will be known soon. Most top programmers are set to release results in the next few weeks. The Walt Disney Co. and AMC Networks are expected to release results on May 5, followed by Discovery and Fox on May 6 and ViacomCBS on May 7.

Heading into the earnings season, analysts were a little spooked by what MoffettNathanson principal and senior analyst Craig Moffett called WarnerMedia’s “shockingly bad” Q1 performance reported on April 22.

WarnerMedia Worries

WarnerMedia was hampered by the cancellation of the NCAA March Madness men’s basketball tournament — a staple of its Turner networks — and costs associated with the May 27 launch of its latest streaming product, HBO Max. Turner revenue was down 8.2% in the period, which helped drive overall WarnerMedia sales down 12.2%.

On a conference call with clients, Moffett said the results don’t bode well for WarnerMedia in later quarters, when the pandemic’s full impact will be felt. “You can just imagine how deep the problems there will become,” he said. “I really think you can see the wheels utterly falling off that business by the end of this year.”

Turner notwithstanding, it could be a rough couple of quarters for programmers as a whole. Perhaps the hardest hit will be networks relying on sports programming, which is virtually nonexistent in the pandemic, to drive advertising revenue. Other programmers also are expected to report sluggish results through the first half of the year.

Moffett’s colleague, MoffettNathanson media analyst Michael Nathanson, estimated Disney, Discovery and other programmers could face more difficult times as the pandemic plays out.

“The challenge is we don’t know when things will return to normal,” Nathanson said on the call.

Many analysts believe that the sector is headed for an ad recession that could last a while. At Wells Fargo Securities, media analyst Steven Cahall lowered his estimates for Fox, Discovery, ViacomCBS, Disney and Discovery.

Most of that pain is going to come in the calendar second quarter and beyond. Unlike WarnerMedia, most analysts see at least a thin silver lining for programmers before they enter the dark cloud.

At Fox, for example, Cahall expects cable network advertising to be flat in fiscal Q3 at $276 million, while television advertising revenue should rise 65% to $1.3 billion, driven largely by increased news ratings. The lack of sports won’t really make a mark until Fox’s fiscal Q4, where Cahall estimates cable network revenue will decline 15% and television ad sales will be down nearly 30%. He sees that trend continuing into fiscal Q1.

“We think Fox heads into upfront season in a challenging spot, including weak pricing, less live sports inventory and uncertainty about the NFL season,” Cahall wrote in a client note.

At Disney, arguably the most affected by the pandemic shutting down sports, theme parks, movie and TV production, the outlook is mixed. In a research report, Sanford Bernstein media analyst Todd Juenger reduced ad revenue estimates for Disney’s Media Networks (including ESPN) by 40% in calendar Q2 and by 15% in calendar Q3, followed by a recovery path into 2021 that could either turn into a quick economic recovery or a lengthy recession.

Cahall estimated that ESPN ad sales will dip by 15% in calendar Q2, followed by a 40% decline in calendar Q3 and troubles continuing into the first half of 2022.

“While the early ad reductions reflect a lack of sports including NBA and college, our estimates also include CPM compression, even as sports return,” Cahall wrote.

Direct-to-Consumer Lifeline

One bright spot for Disney could be its direct-to-consumer subscription services Disney+ and Hulu. Disney+ has gotten most of the attention: It had one of the most successful product launches ever in November, and said earlier this month that it has reached 50 million global subscribers. Domestically, the numbers are at about 23.9 million subscribers, but Cahall estimates it could reach 34.9 million subs by 2024, generating more than $2.4 billion in revenue.

For other programmers the road will be equally rocky.

Cahall estimated domestic ad sales would rise 8% at ViacomCBS in Q1 (despite also being affected by the loss of March Madness), but fall 20% in Q2 and Q3 and drop another 10% in Q4. Juenger predicted a “significant” domestic ad revenue decline at Discovery and a mid-teens drop at AMC Networks in the quarter, all due to the current climate.

Analysts did see some bright spots in the various networks’ OTT offerings, with Viacom expected to push its OTT subscribers from about 11 million before the pandemic to 16 million by the end of 2020.

Nathanson said NBCUniversal’s planned launch of Peacock could represent opportunities to increase revenue without having to lay out the expense of creating a standalone offering.

Whatever they decide, to survive, networks and distributors have to prepare for the long haul, Moffett said.

“I think what the market is starting to price in is not a V-shaped recovery,” Moffett said. “The recovery of the market sort of prices in this sort of dystopian future where a handful of companies with really strong balance sheets survive what could turn out to be a brutal shakeout of the macro economy.” 

The Commercial Broadcasters Association (COBA) wants some answers on how the British government's exit from the European Union (Brexit) will be handled and whether there will be a buffer period after that exit.

"Like many sectors, international broadcasting cannot wait until the March 2019 'cliff edge' to undertake any restructuring that may be necessary as a result of the UK’s withdrawal from the EU," COBA said. "Businesses need several months to put contingency plans into place, as this may involve significant changes to their operations."

COBA comprises a host of U.S. players doing business abroad, including 21st Century Fox, NBCU, A+E Networks, Turner, Discovery Inc. and The Walt Disney Co., as well as Sky, for which both NBCU parent Comcast and 21st Century Fox are bidding.

Related: Comcast Ups the Ante for Sky

Without more certainty over whether the transition period will take place, we are certainly concerned that broadcasters will have to reluctantly start restructuring within the next few months, and possibly within weeks for some companies," said COBA executive director Adam Minns. "The UK has a leadership position as Europe’s international broadcasting hub for good reason – no one wants to have to restructure their businesses. But if these changes have to be made, companies will be forced to start the process well in advance of the cliff edge so they have sufficient time to manage the process."

The broadcasters want a "status quo" transition period, pointing out that international broadcasters invest more than $1 billion annually in the UK and support one in 10 UK TV jobs.

A look at how much the top execs at some publicly traded programmers and MVPDs made last year suggests media's CEOs fared well, on balance, compared with 2016.

On an individual basis in 2017, a number of them experienced dramatic fluctuations from the prior year, pendulum swings ranging from a nearly 300% increase for one exec to a nearly 100% decrease for another.

Among 10 whose companies had reported by May 1, half saw increases in total compensation over their 2016 pay, driven primarily by stock options and awards.

In the other half, two CEOs took hits, while two remained steady. (For one, 2017 was his first full year as CEO.)

Bookmark This: Visit MCN's Executive Compensation page to read more about media CEOs' pay, including recent stories detailing their 2017 packages.  

A look at how much the top execs at some publicly traded programmers and MVPDs made last year suggests media's CEOs fared well, on balance, compared with 2016.

On an individual basis in 2017, a number of them experienced dramatic fluctuations from the prior year, pendulum swings ranging from a nearly 300% increase for one exec to a nearly 100% decrease for another. 

Among 10 whose companies had reported by May 1, half saw increases in total compensation over their 2016 pay, driven primarily by stock options and awards.

In the other half, two CEOs took hits, while two remained steady. (For one, 2017 was his first full year as CEO.)

Bookmark This: Visit MCN's Executive Compensation page to read more about media CEOs' pay, including recent stories detailing their 2017 packages.

Wall street analysts are typically concerned about cable programmers’ cash-flow and affiliate fees during earnings season, but these days consolidation is commanding the conversation.

As earnings season begins for big programmers such as The Walt Disney Co., 21st Century Fox and Viacom, investors are concerned about the scale needed for content companies’ plans to stream direct to consumers.

“While advertising and subscriber trends are arguably not set to improve, they’re also not top of mind,” RBC Capital Markets media analyst Steven Cahall wrote in a note to clients, adding that tax reform and consolidation will more probably be the dominant themes. “There’s likely to be as much, if not more, debate around the [Department of Justice] view of media consolidation as there will be around cord-cutting.”

Disney and Fox have already announced their deal plans. In December, Disney agreed to purchase certain Fox assets for $66.1 billion.

Viacom and CBS are reportedly revisiting the possibility of recombining the companies — they split in 2005 — in a move that in the past many believed to be more favorable strategically to the cable programmer than its broadcast cousin.

Related: CBS, Viacom Form Special Committees to Evaluate Possible Merger

But as ratings have declined and cord-cutting accelerates, some analysts believe drafting a viable direct-to-consumer strategy is more important than ever, and consolidation is the only way to get there. “Viacom and CBS simply cannot wait any longer,” BTIG media analyst Rich Greenfield wrote in a recent note. While CBS already has a direct-to-consumer product in CBS All Access, the analyst said that alone isn’t enough.

The Fox deal would strengthen Disney’s programming dominance, adding Fox’s 22 regional sports networks, its 20th Century Fox movie and television production studio, and cable networks FX, FXX and National Geographic, as well as Fox’s 39% stake in U.K. satellite-TV service Sky. With the transaction expected to close by the end of the year — and already receiving a ringing endorsement from President Donald Trump — Disney appears to be taking the more-is-better approach as the content distribution sands continue to shift.

With viewers increasingly moving away from traditional distribution methods for mobile, over-the-top and online offerings, Disney is bulking up its already hefty content coffers to ensure no matter what method viewers use to consume content, they are likely to run into at least one Disney-owned property. As for sports, Fox’s regional sports assets should add fodder to Disney’s planned ESPN Plus OTT offering, scheduled for later in the spring.

Related: It’s Game On for ESPN After Disney-Fox Deal

Fox Takes a New Stance
Fox, in turn, is taking the sniper’s tack as opposed to Disney’s shotgun approach. By keeping its broadcast network and TV stations, perennial news ratings champ Fox News Channel, Fox Business Network and national sports channels FS1, FS2 and Big Ten Network, Fox is honing in on what it believes can still attract robust ratings and ad dollars — live sports and news. It further solidified that stance with its deal to pay about $3.3 billion over five years for rights to 11 NFL Thursday Night Football games.

Whether either, neither or both approaches win the day remains to be seen. But the fundamental truth behind both moves is apparent — traditional TV audiences are shrinking and are not expected to recover soon.

Disney seemed to verify the real impact of cord-cutting when it revealed in 2015 that sports channel ESPN had lost 3.2 million subscribers in the prior 12 months, a figure that rose to a collective 13 million viewers between 2011 and 2017. Since then the losses for pay TV programmers in general have averaged about 3% to 4% per year, although some networks, such as Fox, have experienced far less erosion.

According to Pivotal Research Group senior research analyst, advertising Brian Wieser, using Nielsen Universe data, the median growth rate for Fox networks improved to -1.6% in December from -1.9% in November. Nielsen’s February estimates show an even sharper improvement (-1.2%) compared to the prior month (-1.6%). But according to the Nielsen data, Fox is one of the exceptions.

Those declines have begun to eat into affiliate-fee growth, although some networks are more affected than others. MoffettNathanson senior research analyst Michael Nathanson estimated that calendar Q4 affiliate fee growth would range from 11% at Fox to -6.9% for Viacom. Disney fees should rise about 2.5% in its fiscal Q1, while Discovery Communications and Scripps Networks should gain 3.2% and 5%, respectively.

Less Subs, Less Ad Bucks
Fewer subscribers and declining ratings (Nathanson predicts a 13% drop in primetime C3 18-49 ratings for broadcast and cable in Q4) translates into lower advertising revenue, and in the calendar fourth quarter, total national TV ad sales are expected to fall 2.7%, according to the analyst. Viacom once again is expected to show the biggest declines (-4.5%), with Disney not far behind at -3.6%.

Despite the erosion of core fundamentals, Nathanson urged investors to focus on names that have affiliate-fee pricing power, exposure to live sports and news and unique global content. “These companies are cheap and should likely hold their value when the next wave of worries come,” he wrote.

Apologies to Newton Minow, but TV isn’t a vast wasteland — it’s a jungle. And the jungle just got a lot meaner.

In just the past two years, cable networks, which had grown fat and happy feasting on double-digit affiliate-fee increases and strong advertising growth over the past several decades, have seen the core of their business begin to crumble before their eyes.

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Ad-revenue growth, once a given in the TV business, started to soften about five years ago for the major network groups, as younger viewers took to their laptops, tablets and smartphones to consume content.

After years of reliable double-digit growth, cable network ad revenue fell into negative territory in the first quarter, according to MoffettNathanson media analyst Michael Nathanson.

Skinny bundles and competition from over-the-top services like Netflix, Sling TV and DirecTV have eroded the linear-TV customer base as even once-invincible networks like ESPN have watched their customer shrink. ESPN has lost an eye-popping 12 million subscribers since its peak in 2011, according to Nielsen.

And subscription video-on-demand pioneer Netflix, which expects to spend about $6 billion on original content this year — second only to ESPN — now accounts for 30% of all home entertainment revenue, according to Internet guru and Kleiner Perkins Caufield & Byers partner Mary Meeker.

All of this has exacted a heavy toll on the cable programmers. Since August 2015 — when most cable-network stocks got hammered after it was revealed that Disney lost about 3 million ESPN subscribers in the prior 12 months — the stocks are still down by double-digits. When the dust settled in the summer of 2015, the media sector had lost a combined $60 billion in market capitalization during the period.

Content Stocks Languish
While those notoriously news-driven stocks have had some good days — on Nov. 20, 2015, Disney stock reached $120.07 per share after some investors saw opportunity in the downturn, the closest it has come to its Aug. 4 closing price of $121.69 each — only three of the top 10 network groups have been able to recover from the bloodbath of 2015.

The three that did, CBS, Scripps Networks and Time Warner Inc., have grown for reasons other than strong ratings and ad sales. Time Warner had the largest growth — 25% — mainly because in October, it agreed to be purchased by AT&T for $108.7 billion. CBS has risen on strong retransmission-consent fees, expected to top $2.5 billion by 2020, and the promise of its over-the-top services, CBS All Access and Showtime. Scripps Networks, which grew its ad revenue by 5% in the first quarter, has grown on its low cost of programming and its availability in several skinny bundles.

Collectively, the stocks of the top 10 publicly traded cable networks fell nearly 10% between April 26 and May 31, building on a decline that has been weighing on the industry for the past several months. The stocks have been on a steady decline since February, when the sector was down a collective 7.3%.

The most recent declines are just as troubling in light of other factors, said Telsey Advisory Group media analyst Tom Eagan.

The average price-to-earnings ratio for entertainment stocks was 15.6 times in July 2015, Egan said, just prior to the big sell-off that year. In August 2015, it fell to 12.8 times. Today, it’s 12.3 times.

The delta is even starker when compared to the Standard & Poor’s 500 Index. According to Eagan, the P/E ratio for the S&P 500 was 16.6 times in July 2015, meaning that the average entertainment stock was priced at a 6% discount to the average S&P 500 stock. Today, the S&P 500 is around 17.7 times, meaning the entertainment discount has risen from 6% to 30% in less than two years.

“The most interesting thing is not just the discount, but that the discount to S&P has widened so materially,” Eagan said.

Media stocks have always been event-driven, and cable-network stocks are no different. Eagan pointed to the P/E multiple for the entertainment sector in September 2016, which was about 11.9 times. One month later, after AT&T made its bid for Time Warner, that multiple rose to 13.1 times.

“AT&T making the bid lifted the whole average more than one point,” Eagan said. “But it was short-term nominal inflation. Despite that, they’re still down.”

Deals Won’t Stop the Bleeding
Eagan doesn’t believe that another big deal would erase the deficit. The problems in the sector are much deeper, he said.

Analysts have warned of the bifurcation of the TV market for years, and in the past several months, evidence of it is mounting. In the first quarter, pay TV subscribers declined by 762,000, the largest first-quarter decline ever and more than five times the 141,000 customers lost in the prior year.

The size of the decline, coupled with the fact that the losses weren’t offset by virtual MVPD gains, sends a troubling signal in that it “punishes those networks and companies that are not being carried by vMVPDs and strikes at the heart of a more bullish ‘cord-cutting will stabilize media’ thesis,” Nathanson wrote in a research note, adding that he doesn’t expect any relief in the seasonally weak second quarter.

Networks haven’t been sitting on their hands during this transition.

In February Viacom, which has had its own troubles with falling ratings and disappearing viewership, said it would focus on six core brands — Nickelodeon, Nick Jr., BET, MTV, Comedy Central and Paramount (Spike TV is to be rebranded as Paramount Network) — while placing less emphasis on its 19 other channels. While some have seen the Viacom move as a way of phasing out its less-watched networks, which Viacom denies, it is indicative of a growing trend in the programming business: Less is indeed becoming more.

Within the last year, NBCUniversal CEO Steve Burke has said publicly that the programmer probably would be better off with five or six core channels (it currently has 13 networks), and at Time Warner’s Turner, chairman and CEO John Martin has said all 10 of its networks probably won’t make it to virtual MVPD lineups, but if half do, the programmer will be able to manage just fine. About 90% of Turner’s total affiliate-fee revenue is generated by five networks.

“If we can get four or five, we’re in good shape,” Martin said at the MoffettNathanson Media & Communications conference in May. “If that means you could grow the overall pool of subscribers — because aggregate bundles of networks are being bundled in a way that subscribers like better, so there will be more subscribers — we’ll be fine.”

So far, some have already begun the process of weeding out less watched channels. In February, NBCU shuttered its crime-oriented Cloo network, a month after it had said it would shut down the linear version of Esquire Network, its joint venture with Hearst. Esquire is now available as a digital-only network.

Rise of the ‘Loser Bundle’
It looks as if the “loser bundle” — a term for a package of channels minus the broadcast networks and sports, first coined by BTIG media analyst Rich Greenfield in 2016 — is coming closer to reality.

Networks are also changing the way they look at their audiences. At the same conference, Martin said Turner wants “fans, not viewers,” seeking deeper engagement with, perhaps, a smaller audience.

That mantra is being sung by programming chiefs from Disney — ESPN is launching a direct-to-consumer offering later this year, and will revamp its flagship SportsCenter programming in August to include more updates and exclusive digital content — to Viacom and the Discovery Channel. Viacom CEO Bob Bakish said the programmer was in “very advanced discussions” to be part of a sports-free streaming entertainment package that would retail for between $10 and $20 per month.

At the Sanford Bernstein Strategic Decisions conference in New York last week, Discovery Communications CEO David Zaslav again called for the need for an $8 to $10 monthly video package, without sports channels, similar to what is offered in Europe.

“The rest of the world is a full bundle, a sports bundle, sometimes sports intertwined with a full bundle, and then a skinny bundle,” Zaslav said at the conference. “I believe we will ultimately get there.”

That is a big change from just seven years ago, when programming executives were scoffing at SVOD and OTT upstarts for chasing “digital dimes.” Now, a programming executive without a clear, coherent on-demand and over-the-top strategy is risking a loss of potentially big revenue.

Affiliate fees and retransmission consent are under pressure because of consolidation. And advertising — the other source of network revenue – is under siege as ratings continue to decline.

That could change next year for two reasons: the proliferation of better audience measurement across devices and the carriage renewal cycle. With another year under its belt, the measurement industry may get a better handle on tracking those elusive millennials as they surf between traditional TV, tablets, phones and online viewing. And more importantly, some bigger carriage renewals will come due in 2018 as well.

Eagan noted that AT&T purchased DirecTV in 2015, which could mean that some three-year carriage deals for the largest multichannel video-programming distributor in the country will be negotiated.

“As we get into 2018, a lot of these negatives will start to soften,” Eagan said.

Related > Viewer Watch 2017: Download the Complete Report

With new business models proliferating almost as fast as new consumer-electronics devices at this year’s CES, TV executives are recalling 2016 as a year of landmark changes that will produce even more profound developments in 2017.

“In the last year, there has been more change in the video business than we saw in probably the past five years,” said Matthew Strauss, executive vice president and general manager of video and entertainment services for Comcast Cable. “We’re just continuing to find the competitive landscape shifting. There are more services being delivered over the top to consumers. There is the growth and proliferation of Internet-connected TV devices like Roku, Apple TV or Amazon Fire. And you are also seeing new services that are delivering bundled over the top channels like Sling TV, Sony’s PlayStation Vue and DirecTV Now.”

In response, programmers and operators have introduced a flurry of new products. “In terms of video, this has been one of the biggest for Cox in all the years I’ve been here,” Steve Necessary, executive vice president of product development and management at Cox Communications, said.

Less obviously, operators and programmers continue to make massive investments in their technology infrastructures with important implications for their offerings in 2017 and beyond.

“As a company, we are investing and positioning content to be consumed on more and more platforms every day,” Discovery Communications chief technology officer John Honeycutt said, stressing that the programmer is rapidly deploying new cloud and software-based infrastructures so it can adapt to consumer needs and quickly roll out new services. “We are in the middle of a revolution in our supply chain.”

Related: Old Controversies and New Businesses

DIGITAL-FIRST REALITY

Much of this reflects longstanding changes in consumer behavior and the underlying economics of the TV, digital and media industries.

Vincent Letang, executive vice president of global market intelligence at Magna, said 2016 was the first year digital advertising exceeded total TV advertising in the U.S., garnering 39% of the total ad spend versus 37.4% for TV. Digital advertising is set to exceed total TV advertising worldwide for the first time in 2017, he added.

“We are forecasting that in five years, digital will grow to 56.0% of total advertising [in 2021 in the U.S.] while TV will plateau at 29.9%,” he said. Meanwhile, content creators and distributors are following the flow of money into digital media, fueling rapid growth in consumption of TV shows on mobile devices, computers and TVs connected to the Internet.

“The cliché of how consumers ‘want my content when I want it, where I want it and how I want it,’ is now a truism,” Mike Vorhaus, president of Magid Advisors at Frank N. Magid Associates, said. “Just five years ago, it was hard to find a lot of content. But now, in 2017, I’m really the captain of my media ship in a way that was not true in the past.”

Given ongoing rapid growth in the usage of mobile and connected TVs, it is difficult to call digital video “mature.” But researchers stress that the tectonic changes in how video is consumed and delivered have already made digital media a central part of the TV business.

“After four or five years of talking about alternative ways to access video and watching significant growth in its usage, we are now at a point where it is pretty much established,” Howard Horowitz, president and founder of Horowitz Research, said. “It’s not a fly in the ointment, but part of the business. Digital self-managed access to video content is with us and mostly that is a good thing for all the players.”

DISRUPTIVE GAINS

Others agree. After ticking off a long list of new products and initiatives designed to realign their offerings with newer consumer behavior, Comcast’s Strauss said: “Our third-quarter video results were the best we’ve had in 10 years. We added 32,000 video customers, which is an 80,000 improvement year over year. And if you look at the last 12 months, we are video-positive.”

Some programmers have been buffeted by the changes, which have hurt ratings, but those that have aggressively moved to capitalize on the newer delivery platforms are pleased with the results.

Bernadette Aulestia, executive vice president of worldwide distribution for HBO, noted that the launch of the OTT service HBO Now has allowed the programmer to tap into new markets and see healthy growth in the overall business. “Less than 1% of [the OTT] HBO Now subscribers are coming from our linear multichannel subscribers,” she said.

Executives from Dish Network and AT&T cited similar experiences with their respective OTT channel bundles, Sling TV and DirecTV Now, which are designed in part to tap into viewers outside of the pay TV ecosystem.

“There are about 20 million households in the U.S. that are either not engaged with pay TV or have opted to leave the pay TV ecosystems,” Tony Goncalves, senior vice president of strategy and business development for AT&T Entertainment Group, said.

That doesn’t mean that the industry can sit back and pretend it will be business as usual in 2017.

An acceleration in the decline in pay TV subscribers has caused Magna to revise its estimates of pay TV subscribers downward. There is also a great deal of uncertainty about the ad market.

These trends raise important questions about the changing use of video on various platforms — traditional TV, mobile, Internet-connected TVs, set-top boxes and other technologies. How these trends will impact the health of the industry and the kind of products that get launched in 2017 is the subject of the next story.

The programming landscape has changed dramatically in the past several years, with the advent of subscription video-on-demand and over-the-top players further complicating an already convoluted negotiating process.

Today’s programming executives at large, midsized and small pay TV service providers have to be schooled not only in the economics of traditional linear networks, but also in the nuances of online offerings, over-the-top, TV everywhere and video-on-demand rights.

Programming deals that a few years ago took only a few distribution professionals to hammer out now require dozens, and conversations can get just as bogged down and lengthy over the definition of “Internet” as they do over per-subscriber fees and ratings points. Terms like “stacking rights,” which didn’t exist just a few years ago, are now a regular part of the discussions.

As Mediacom Communications executive vice president of programming and human resources Italia Commisso Weinand put it, brands are becoming less important as younger viewers grow attached to individual shows and disregard the networks carrying them.

While a large contingent of television viewers still watch on the big screen at home — something the networks continue to bank as those subscribers increasingly pay the freight — the business is fragmenting and could splinter even more as time wears on.

Add to the mix the consolidation already underway in the distribution sector, spurred by Charter Communications’s $78.7 billion purchase of Time Warner Cable and Altice USA’s deals to buy Cablevision Systems and Suddenlink Communications, and the soup gets thicker. The mergers have led to a reshuffling on the distributor side of the negotiating table, with the people programmers need to know when they pitch their content changing jobs.

Content negotiations aren’t expected to get any more cordial as the business changes, but Commisso Weinand said they have gotten a little less contentious. Issues like pricing, sports costs and skinny bundles will be at the top of the list of pain points for both programmers and distributors for the foreseeable future. But Commisso Weinand is beginning to see a slight change in attitude.

“Not a lot has changed, however, the cockiness has been tempered somewhat,” Commisso Weinand said.

There have been changes, though, among many of the top content-acquisition executives at pay TV providers, so it’s a good time to take a look at who these “gatekeeper” executives are and to check in with some of them in sidebar conversations.

Spotlight on Mediacom's Italia Commisso Weinand: Tough but Fair

AT&T/DirecTV |Dan York
Chief content officer

York has come full circle with AT&T following its July 2015 purchase of DirecTV.

He first worked for AT&T in 2004 as president of content and advertising sales. He left in 2012 to take over programming negotiating duties at DirecTV as chief content officer and returned to the telco last year after it bought DirecTV in a $48.5 billion deal.

A seasoned executive who knows how both sides of the table work — prior to his first go-round with AT&T, York had served stints with InDemand and Home Box Office — York wields considerable clout as the top programming dealmaker for the largest MVPD in the country, with 26 million video customers.

AT&T has an iron in several content fires, which should make York’s days chock full of activity – it is migrating video customers off its U-Verse platform (which York helped form) onto DirecTV; DirecTV is readying an OTT service called DirecTV Now for launch by the end of the year; and AT&T has said mobile video, with its myriad and complicated programming rights issues, is a top priority in the future.

Key Lieutenants: Michele Barney, vice president of content and programming; Todd Mathers, senior vice president of content and programming; Rob Thun, senior vice president of content and programming

Comcast |Greg Rigdon
Executive vice president, content acquisition

Comcast has cut some landmark programming deals over the years — its comprehensive 10-year carriage deal with Walt Disney Co. in 2012 is largely considered the template for the industry — and Greg Rigdon has been in on many of them.

Looking forward, the content chief will have the chance to make history again, possibly, as Comcast’s programming deals with 21st Century Fox are expected to come due at the end of the year. Besides potentially laying new ground with iconic Fox cable networks like Fox News Channel, FX and FX Movies, the negotiations will also give Comcast the opportunity to revisit Fox’s YES Network regional sports channel, the home of the New York Yankees. YES has been dark to Comcast customers in the New York area since November 2015, over pricing and rights disputes. Some observers have said that Comcast has been waiting for all of its Fox deals to come due before addressing its YES challenge.

Prior to joining Comcast in 2010, Rigdon was executive vice president, programming, business development and strategy, at Charter Communications. He also previously held senior roles in programming strategy, business affairs and commerce, at AOL.

Key Lieutenants: Jennifer Gaiski, senior vice president, content acquisition, Comcast Cable; Sarah Gitchell, senior vice president/deputy general counsel, Comcast Cable; Justin Smith, senior vice president, content acquisition, Comcast Cable

Charter Communications |David Ellen
Senior executive vice president

Ellen came to Charter in July, through a portal that has been common for many company executives in the past two years: service at Cablevision Systems. As senior EVP, Ellen is in charge of corporate functions, including programming, news and sports networks, strategic policy development, regulatory compliance, human resources, communications and security. He will also oversee the legal support for those units.

Charter completed its purchases of Time Warner Cable and Bright House Networks in May, quadrupling its subscriber base to 17.4 million customers from around 4 million. With that added heft, Charter is expected to enjoy considerably lower programming costs. Charter itself has said that about half of the expected $800 million in synergies from the merger will be the result of programming savings.

The company has tried to enjoy some of those synergies already: It is being sued by at least three programmers — Fox News Channel, Univision Communications and Showtime — that have claimed Charter’s interpretation of the merger allows it to pay lower rates until the end of the year.

Ellen has plenty of help. Charter recently beefed up the programming ranks, adding another Cablevision alumnus, EVP of programming acquisition Tom Montemagno (see below), earlier this year. Allan Singer, who served as SVP of programming for about five years, left earlier this year, citing an unwillingness to relocate from his Denver home to Charter’s Stamford, Conn., headquarters.

Ellen served as general counsel for Cablevision for several years, working closely with CEO James Dolan on all aspects of the business, before leaving shortly after the company’s purchase by Altice USA. Ellen had also led Cablevision’s successful defense of its cloud-based DVR product as well as the legal strategy supporting the rollout of in-home streaming of its cable services to IP-enabled devices.

Prior to Cablevision, Ellen was general counsel at Barry Diller’s Internet conglomerate IAC and at Eureka Broadband, a New York-based telecom company. Before that he was a special counsel at the Federal Communications Commission, working on the implementation of the Telecommunications Act of 1996, and served as a law clerk for Judges Stephen Breyer and Judge Ruth Bader Ginsberg when they were on the U.S. Court of Appeals, and for Justice Sandra Day O’Connor during her time on the U.S. Supreme Court.

Charter Communications |Tom Montemagno
Executive vice president, programming acquisition

Montemagno is the latest former Cablevision executive to join the Charter fold, signing on Sept. 6 to head up overall programming negotiations and reporting to Ellen.

Montemagno spent 27 years at Cablevision, most recently as executive VP of programming, and over the past three decades has served in several other roles, including senior vice president of programming acquisition and as the operator’s lead negotiator with content companies.

At Charter, Montemagno oversees negotiations with its full range of content providers, from the major multichannel media companies and regional sports networks to local broadcasters and niche international programmers. The negotiations increasingly extend beyond traditional “linear” programming rights to include video-on-demand and out-of-home streaming rights on multiple platforms.

Dish Network |Warren Schlichting
Executive vice president of marketing, programming and media sales

A veteran advertising and media executive, Schlichting oversees the acquisition and renewal of all programming content for Dish, including national broadcast networks and cable channels, Latino content, local broadcast stations and premium services such as HBO, Showtime and Starz. Additionally, Warren oversees Dish’s national marketing efforts and Dish Media Sales, the company’s advertising-sales division.

Schlichting took over the programming negotiation reins from current chief financial officer Steve Swain, who temporarily served as programming chief after EVP of programming Dave Shull left in 2014.

Schlichting has upheld the Dish tradition of aggressive programming negotiations fostered by its founder, chairman and CEO Charlie Ergen. Dish hasn’t been afraid to let channels go dark as it tries to negotiate better rates and expanded rights with content companies.

In the past month alone, Dish brought back NFL Network and NFL Red Zone, signing a new deal Aug. 2 after the nets were dark for seven weeks, and lit up broadcaster Tribune Media’s 42 stations in 33 markets on Sept. 3 after 12 weeks of darkness. Longer term, Dish signed multiyear deals with Turner networks like CNN and Cartoon Network in November (TBS and TNT were not set to expire) after a few weeks of darkness, and renewed with 21st Century Fox’s Fox News Channel and Fox Business Network after a nearly one-month blackout in January 2015.

Prior to joining Dish in 2011, Schlichting led Comcast’s advanced advertising efforts on multiple media and ad delivery platforms including broadband, interactive television and video-on-demand. Before arriving at Comcast, he was CEO of Hiwire, a Los Angeles-based technology company that provided online ad replacement software for Clear Channel and other radio station groups. He also served in executive positions for Morgan Stanley and the William E. Simon private equity group.

Key Lieutenants: Josh Clark, vice president of programming, Dish Network; Andy LeCuyer, vice president of programming, Dish Network; Izabela Slowikowska, vice president of international programming, Dish Network; Melisa Ordonez, director of programming acquisition, Dish Network; and Ankit Bishnoi, head of content acquisition for Sling TV

Spotlight on Cox's Andrew Albert: Engineers on Board

Cox Communications |Andrew Albert
Senior vice president of programming

Albert oversees all video programming provider relationships and content acquisition, including the negotiation of program carriage agreements with major content producers such as The Walt Disney Co., Turner Broadcasting System, NBCUniversal, Viacom and Fox. He is actively involved in setting the company’s video product strategy, including the deployment of TV everywhere, video-on-demand and high-definition services, as well as the company’s multicultural programming strategy.

Albert joined Cox Communications in 1995 as director of programming and was promoted to executive director of programming in 2002. In 2003, Albert was promoted to vice president. He was promoted to his current role in 2013. Prior to joining Cox, he served as director of programming and director of budgets and financial analysis for TeleCable Corp. in Norfolk, Va.

Prior to that, Albert was in the Financial Management Program and served as a sales and marketing analyst at General Electric.

Key Lieutenants: Suzanne Fenwick, vice president, content acquisition; Mark Gathen, vice president, content acquisition; Chris Tygh, vice president, content acquisition

Altice USA |Michael Schreiber
Chief content officer

Schreiber is responsible for Altice USA’s programming- related developments, negotiations and agreements covering all content platforms and reports to co-president and chief financial officer Charles Stewart.

Prior to Altice, Schreiber served as senior vice president, content acquisition for Comcast, where he led the execution of new media and digital content deals. Prior to his role at Comcast, Schreiber worked at NBCUniversal, most recently as vice president, business development, digital distribution, where he assisted in the founding, development and launch of Hulu.

Altice USA |Alan Dannenbaum
Senior vice president, programming

A Comcast alumnus, Dannenbaum works with Schreiber on programming-related developments, negotiations and agreements across all platforms.

Dannenbaum spent more than 20 years at Comcast in various roles before forming his own business, Dannenbaum Consulting, in April 2015. He had joined Comcast in 1993 as associate general counsel. He also served as executive VP of Satellite Services Inc., from 2009 to 2014.

Spotlight on Verizon's Ben Grad: Giving the People What They Want

Verizon Fios |Ben Grad
Executive director of content strategy and acquisition

Ben Grad leads Verizon’s companywide content acquisition efforts with major content providers and sports rightsholders, and manages financial and strategic analysis for the telco’s key content-related initiatives. He is responsible for content acquisition and strategy for Fios, including developing Fios’s multiplatform content offering.

Prior to joining Verizon in 2007, Grad was head of strategy at Fuse, where he assessed programming and new business opportunities. Previously, he was a member of Time Warner’s Corporate Strategic Planning Group, where he developed and assessed new digital distribution opportunities for Time Warner divisions. He also negotiated agreements and developed strategy at eLabs, Universal Music Group’s digital group.

Key Leaders: Tricia Lynch, executive director of content strategy and acquisition; Michelle Webb, executive director of content strategy and acquisition

Mediacom Communications |Italia Commisso Weinand
Executive vice president, programming and human resources

With nearly 40 years of experience in the cable industry, Commisso Weinand served stints with Comcast, Tele-Communications Inc., Times-Mirror Cable and Time Warner Inc. before joining her brother’s cable company, Mediacom, in 1996 as VP of Operations. One of the most respected programming executives in the cable industry, she is known for a tough but fair negotiating style and has helped engineer some of the landmark deals in cable, including a 2014 Walt Disney Co. pact that gave Mediacom access to authenticated WATCH and video-on-demand products, the ABC broadcast network and cable channels like SEC Network, ESPN Goal Line and ESPN Buzzer Beater.

Key Lieutenants: Barry Paden, group vice president, programming; Joseph Appio, vice president of programming; Glenn Goldsmith, consultant; John Woods, vice president, advanced programming

National Cable Television Cooperative |Judy Meyka
Executive vice president of programming

It may cater to small operators, but the National Cable Television Cooperative represents nearly as many cable customers as the biggest of the big operators — Comcast — with its 850 members tallying about 20 million subscribers across the country. Meyka, who has served stints at large operators like Media One, AT&T Broadband and Adelphia Communications as well as programmers like iNDemand in her 23 years in the business, is the group’s chief programming negotiator.

That experience helps Meyka bring a new perspective to the organization, and in her time there she has completed deals with multiple major programming partners and secured new agreements with independent programmers and new-to-market content providers.

That can come in handy because although the co-op has negotiating heft, not every member has to sign on to every deal. NCTC members range from larger operators like Cox Communications, with about 4 million customers, to tiny family-owned operations with just a few dozen customers, all with different programming needs.

While pricing continues to be the biggest issue around negotiating time, bundling, online, TV Everywhere and mobile rights have become increasingly important aspects of negotiations for all NCTC members.

That was evident in recent deals with AMC Networks, where NCTC was able to avoid a blackout by hammering out a deal that didn’t force members to carry all six AMC channels on their most popular tiers — and got a more modest price increase.

When it comes to user demand for video news online, two contradictory new reports suggest news buffs either (a) want more or (b) tire of it quickly and favor online articles.

The conflicting reports, which surfaced this week, should make it easy for programmers and operators evaluating how deeply to dive into online news, documentary and non-fiction content distribution to postpone any decisionmaking. With two very different perceptions of the value of online video news delivery, the reports -- one by The New York Times and one from the Reuters Institute for the Study of Journalism -- underscore the uncertainty.

It's worth looking at users' appetite for online video in the context of longitudinal studies, such as Cisco's semi-annual Video Network Index, which expects that video will consume about 80% of broadband delivery capacity within the next few years. Video news will make up a small part of that stream, but no one can yet guess how much, or how little.

(Evaluating new reports is especially delicious when multiple, contradictory outlooks materialize simultaneously, presenting widely different perspectives and predictions.)

Add to the background a third report on the related topic of marketers' growing romance with video. Animoto, a New York-based online video producer, said in its 2016 Social Video Forecast that nearly two-thirds of marketers plan to use video in their campaigns this year, with Facebook and YouTube the primary distribution outlets. In various ways, news content is involved with all of these platforms.

Also underscoring the potential demand is a dispute that has emerged between Web-centric publishers and the five networks that run the video pool covering the upcoming national political conventions.

A dozen print and online publishers that carry extensive video news content, including the Washington Post, The Los Angeles Times, Wall Street Journal, BuzzFeed and Vox.com, are appealing to obtain pool video at affordable prices, according to a WSJ report. CNN, ABC, CBS, Fox and NBC contend that non-members of their pool will have to bear the higher costs of production at the conventions and other events. The non-TV streamers have asked the White House Correspondents’ Association to intervene in their effort, possibly by creating a new digital video production pool, according to the Journal report.

The New York Times's take on the video news outlook is optimistic, coming in a story that chronicles newspaper and magazine publishers' efforts to accelerate their video output. It quotes Michael W. Ferro Jr., chairman of Tronc -- the company formerly known as (Chicago) Tribune Publishing -- as saying: “Right now we’re doing a couple hundred videos a day. We think we need to be doing 2,000 videos a day.”

That would amount to nearly three-quarters of a million videos per year, far more than any TV newsroom cranks out. The Times article goes on to profile a handful of producers who are handling video creation and editing video assets for newspapers and magazines, including those from Gannett, Hearst, Time Inc. and the Huffington Post. The goal is to raise the revenue from ads, since video commercials are seen to be more valuable than text/graphics ads.

The bulk of the Times report is on automation tools that can make video production faster and cheaper, although the story acknowledges that such systems can "commoditize" content and turn off viewers.

And that concern surfaces in the newly released Reuters Institute for the Study of Journalism  report, which is decidely less rosy, finding that online news consumers are ambivalent about watching video news. Only 5% said they watch, rather than read, digital news stories. While 59% of online news readers look at articles, only 24% spend time on video.

Just a few days before those numbers surfaced, in a move that would seem aligned with the report's conclusions, Facebook announced that it is cutting news-oriented content from digital publishers and will increasingly prioritize user-generated content in news feeds.

The Reuters Institute report updates a study released earlier this year from the same group, which found that most young Internet users (under age 35) are significant consumers of online news, but don't expect social media to deliver it. Overall, the news junkies said it is "quicker and more convenient" to read, rather than watch; that pre-roll ads turne them off; and that "videos take too long to load."

Taken together, the dueling data and conflicting visions make it tough to determine where video news and other documentary content fit into the evolving online mix.

I'm frequently skeptical about the hyped forecasts and the questionable motives of much research -- especially when there's an apparent investment motivation to produce buoyant predictions. But this video cacophony raises costly perspectives on not only where to spend money, but how news will reach our democracy. That such contradictions still exist this far into the digital development era should raise all kinds of "caution" signs -- although it is equally easy to plunge ahead because opportunities still seem promising.

Most technology forecasts are about as reliable as today's gauges of the November 8 U.S. election results. Which is to say, "directional" at best, more likely "inconclusive."  With so many unexpected factors ready to affect the situation -- in politics as in business -- it's hard to make plans based on questionable forecasts and wishful thinking.

Set-top box data on viewership is becoming an increasingly important tool in programming carriage negotiations, Comcast Cable CEO Neil Smit told an industry audience Thursday, adding that while it hasn’t totally swung the pendulum in favor of distributors, it has given them a new tool to determine a network’s worth.

 “What’s happening is we’re going into the conversations with much more data, and more facts and we’re better informed over the value prop of the content and that makes a big difference,” Smit said at the MoffettNathanson Media & Communications conference in New York. “Good content is always something we’re going to want more of; comprehensive content and across more platforms.”

Smit stopped short of claiming that the pendulum has swung in favor of distributors over content providers, but added that as programming is spread out over several different platforms its worth can be diluted.

“As it goes out across OTT players and whatnot, it can diminish the value to us because it’s less concentrated,” Smit said.

Smit said he believes OTT isn’t going away any time soon, but said it “I think there are going to be a handful of players revolving around the space,” Smit said.  “We haven’t seen a model yet that is as profitable for us as packaging video within our footprint with HSD or phone or home security. We think the best return for our dollar is delivering within our footprint.”

While new OTT services seem to come on the scene every day – Hulu, of which Comcast is a part owner, recently announced plans for its own OTT service – Smit isn’t convinced an out-of-market play is in the cards for the operator.  

“We get the best return out of the capital we’ve already invested into the network where we pass 45 million to 55 million homes where we’re only 42% to 43% penetrated,” Smit said. “We see a lot of growth in that.”

A combination of fear, loathing and uncertainty converged on cable programming stocks in two extremely volatile days last week, sending investors stampeding toward the exits in a massive market correction that some analysts said could be a sign of things to come.

The Walt Disney Co. chairman and CEO Bob Iger inadvertently sparked a sell-off after his comments during an earnings conference call on ESPN refuting some reports that said the Worldwide Leader in Sports had shed 3.2 million subscribers in the past 12 months (he said losses were “modest”). More importantly, Disney took down guidance for its cable networks (of which ESPN is a huge part), stating that instead of high single-digit percentage operating-income growth through 2016, the cable segment would report mid-single-digit percentage growth.

Iger’s comments came just as the market was digesting a flurry of negative news: a sector-wide slump in ratings and ad sales; the growing popularity of over-the-top video; the resultant increase in cord-cutting; and, worst of all, no currency to measure that viewer shift.

It was enough to create a mini-panic in the media sector of the stock market. At one point, every major cable media stock was down at least 10% on Aug. 5. The media sector lost a combined $60 billion in market capitalization during the period, according to Bloomberg.

PANIC STRIKES

“Yesterday was probably one of the most challenging days media investors have ever had — literally,” RBC Capital Markets media analyst David Bank told CNBC Aug. 6.

He wasn’t really exaggerating. The one-day drop for the sector on Aug. 5 was one of the worst since 2008, when the advent of the Great Recession sent shares across all sectors down by double-digit percentages. When the market closed on Aug. 5, Discovery Communications led a parade of losers, falling 12.1%; followed by Disney, down 9.2%; Time Warner Inc., down 9%; Viacom, down 7.5%; AMC Networks, down 7.2%; and 21st Century Fox, down 7%.

The declines also bled into non-programming stocks. Comcast, which owns programmer NBCUniversal but derives more than 60% of its revenue from its cable-distribution operations, fell 5% on Aug. 5 to $59.81 per share. Other cable distributors followed suit, with Charter down 1.5%, Time Warner Cable down 1% and Cablevision Systems down 1.2%.

The bloodbath continued on Aug. 6, with Viacom plunging 14.2% ($7.31 each) to $44.10 per share after reporting a sharp 9% decline in domestic ad revenue in its fiscal third quarter. For the other stocks, the losses weren’t as heavy, but they continued, with Fox down 6.4%; AMC Networks down 4.2%; Disney down 1.8%; and Time Warner Inc. down 1%. Discovery gained some ground, up 3.5% on Aug. 6, but not enough to erase the previous day’s losses. The stocks began to claw back on Friday, with Viacom and Fox up about 3% each and others rising about 1%.

Investors have been skittish about over-the-top video, declining ratings and falling ad revenue before, but those fears seemed to reach a peak after hearing Iger talk of possible weak spots in what most had believed was ESPN’s otherwise impenetrable armor.

Bank told CNBC that Iger’s comments were among the biggest factors in the selloff. Coupled with Disney’s stature as one of the most broadly held media stocks in the world, they created a perfect storm.

“I think the average media investor knew there was some vulnerability to the cable bundle,” Bank told CNBC. “But if even ESPN is vulnerable, if the gold standard is vulnerable, then maybe everybody else is vulnerable.”

But BTIG media analyst Rich Greenfield, who has warned of the perils of OTT and SVOD to the distribution sector for years, said the worst has yet to come.

“I would just stay away,” Greenfield told CNBC of Disney on Aug. 5. “As you look at the future, the cable bundle is starting to become unhinged. Consumers are just giving up on multichannel television.”

Bank added that Iger’s comments were nothing new to longtime media investors. The possible effects of cord-cutters, over-the-top competitors and poor ratings have been hot topics for years. And today’s sell-off could be tomorrow’s buying opportunity. Already the stocks started to claw back slightly on Friday, with Viacom and Fox up about 3% each and others rising about 1%.

But the 48-hour stretch between Aug. 5 and Aug. 6 seemed to feed into a growing herd mentality among media investors, who stampeded away from what they perceive as a danger.

In a note to clients, MoffettNathanson principal and senior analyst Craig Moffett said the sell-off is another indication of a change in sentiment among media investors. Whether it’s based on fact doesn’t really matter.

“Almost every investor with whom we have spoken has described an almost palpable sense that sector sentiment has changed, some would say perhaps permanently,” Moffett wrote.

CONTENT’S REIGN OVER?

After years of hearing that “content is king,” some believe sentiment is beginning to shift gradually toward distributors, which have had their own pressures with over-the-top services and cord-cutting. But while the change in viewing habits, up to now, has mainly affected cable operators, satellite and telco-TV service providers, investors are beginning to realize that the disintegration of the pay TV bundle could have an equally devastating effect on programmers.

Distributors are not taking the threat lying down. Content companies, which have offset ad revenue and ratings declines by cutting distribution deals with OTT players, are now beginning to feel the pushback from pay TV distributors.

Charter Communications CEO Tom Rutledge recently told analysts that when content companies make the programming they sell to cable companies available in other spaces in pursuit of ancillary revenue, they risk diminishing the value of those offerings.

“No trend goes unchecked forever,” Rutledge said.

Dish Network chairman and CEO Charlie Ergen said although distribution is gaining some leverage, Netflix is the “most powerful content aggregator in the world today,” mainly because of its cost structure.

Netflix pays for programming at a fixed price, while Dish pays on a per-subscriber basis. That disparity, Ergen said recently, has caused Dish to change its approach to content deals.

“We have to now look at each content deal and decide whether, long-term, that content-to-content deal makes sense for us,” Ergen said on a recent call with analysts. “When somebody comes in and says, ‘I want a double-digit rate increase,’ and they’ve had double-digit viewership declines, we don’t think that math works for us.”

The shift in viewing habits — people are watching more programming on different devices and platforms inside and outside the home — has been going on for years, as has the cry for a new measurement metric to track just how many people are watching. Measurement companies are responding: Nielsen is expected to unveil its Total Audience Measurement product by the end of the year, and ComScore and Rentrak both have products tailored to tackle the change, but so far nothing solid has been released. If the programming sector sell-off continues, will that speed development of a new measurement currency?

“The primary beneficiaries of the sell-off of the entertainment stocks are the measurement stocks,” Telsey Advisory Group media analyst Tom Eagan said. “Essentially, declines among the programmers might finally convince them to come to an industry consensus on a crossplatform metric or currency.”

CHART: To see how major content stocks fared during the downturn, click here.

The advertising market is expected to continue to be lukewarm at best in the second quarter, as declining ratings are expected to continue to drive down overall ad revenue.

Most of the top content companies are expected to release calendar second-quarter results in the next few weeks. In two separate reports, MoffettNathanson senior research analyst Michael Nathanson and Evercore ISI Group media analysts Vijay Jayant and David Joyce agreed that the ad market would continue to be tepid for broadcasters and cable networks alike. In the past, cable networks were able to offset ad-sales declines with strong affiliate-fee increases, but that gap is narrowing, the analysts said.

Overall, Nathanson predicted that national ad spend will be down between 2% and 3% in the second quarter, what he called the weakest growth in a non-recessionary quarter for the sector.

DOWN 8% IN KEY DEMO

Last year’s lower upfront base and tepid scatter markets are contributing factors, Nathanson said in a research note, but the steep decline in TV ratings is the main culprits. Aggregate C3 primetime ratings in the coveted 18-49 year-old demographic were down 8% in the second quarter, according to Nathanson, with broadcasters dipping 4% and cable networks declining 9%.

While the analysts may differ slightly on their predictions — Joyce and Jayant estimated that Viacom’s domestic revenue would fall 7.2%, while Nathanson foresaw an 8% decline — they agreed that compelling content is what is separating the winners from the losers. And for both broadcasters and cable channels, that means event programming and sports.

For some networks, tough comparisons to the prior year will hurt growth — for example, NBC had the Winter Olympics in second-quarter 2014, and ESPN had the FIFA men’s World Cup at the same time last year.

Others will benefit from event sports and entertainment programming to differing degrees. Joyce and Jayant predicted that Fox would get a boost from some FIFA Women’s World Cup matches in the second quarter, but not enough to offset greater overall ratings declines. AMC, which aired the much-awaited finale of Mad Men during the calendar second quarter, should see a 17.9% increase in ad sales, the two analysts believe.

Viacom, which has been plagued by ratings declines across the board, should expect domestic ad revenue to dip 7.2%.

While in the past, networks were able to fall back on rising affiliate fees and retransmission-consent revenue to offset ad-sales declines — 2014, when affiliate-fee revenue surpassed ad revenue in overall dollars for the first time, was a watershed year for the sector — that growth is beginning to level off.

Affiliate-fee growth is expected to continue, Nathanson added, but overall revenue from affiliate fees will decline as pay TV subscribers fall.

“We believe that the next wave of negative revisions for the sector could manifest itself in a slowdown in affiliate fees,” Nathanson said.

In a June note to clients, Nathanson said affiliate-fee revenue, which has risen at a double-digit clip for the past five years, will climb 9% in 2015 and by 2018 will increase an average of 7%.

Retransmission-consent fees, he wrote, which have grown an average of 67% between 2010 and 2015, will rise just 16% between 2015 and 2020.

Nathanson didn’t factor in the impact of over-the-top services on affiliate-fee revenue, but OTT is also expected to have a small impact on ratings declines.

Jayant and Joyce think Dish Network’s Sling TV OTT service could have as many as 250,000 customers, while CBS All Access (the broadcast network’s OTT offering) could have as many as 300,000 subscribers. Standalone online offering HBO Now could have about 400,000 customers, according to Joyce and Jayant, but again isn’t expected to make much of an impact on ratings.

The analysts said OTT offerings over the past two years have allowed cord-cutters and cord-shavers to be partly responsible for fully-distributed cable networks in losing between 3% and 5% of their distribution.

Traditional viewing has declined: the top 25 cable networks saw viewership dip about 10% season to date, on par with the 7% decline in 2014).

But there’s evidence that people aren’t watching less — they are watching more, at different times.

“Perhaps stabilization is the new up, until, of course, better measurement on multiple screens is available and accepted,” the analysts wrote.

And it’s not just different screens. More and more viewers are watching programming when it is most convenient for them and when longer viewing windows are considered ratings rise dramatically.

RISE IN C7 SALES METRIC

Broadcaster CBS has been a big proponent of moving to a live-plus-seven-day (C7) measurement window, counting viewership up to seven days after a show originally airs. Joyce and Jayant predicted that CBS, which already sells about 30% of its ad inventory in C7, will increase that to more than 50% of its inventory this year.

The numbers appear to back up the practice. According to the analysts, ratings can in some cases more than double in C7 compared to live plus same day ratings in the coveted Adult 18-49 year-old age demographic. For example, TNT’s Rizzoli & Isles drama series normally gets a 0.6 live-plus-same-day rating, but its C7 rating is 1.3 — a 117% increase.

Other shows, such as A&E’s Duck Dynasty (0.9, 1.7 for an 89% increase) and Discovery Channel’s Deadliest Catch (1, 1.6, 60%), see healthy increases as well.

This is not just a cable phenomenon: according to Jayant and Joyce, a June 25 episode of Fox’s Wayward Pines saw ratings in the 18-49 demo double to 2.4 in C7, compared to 1.2 for live plus same day. CBS’s Under the Dome saw a 69% increase between C7 (2.2) and live plus same day (1.3) on June 25.

Buoyed by more content and greater consumer awareness, the Cable & Telecommunications Association said eight months into its educational efforts, it is charting significant progress toward its goals of boosting TV everywhere sign-in and usage across the cable industry.

CTAM has launched a consumer awareness communications tentpole initiative, outlining the significant benefits and value proposition of TVE -- an ever-growing collection of programming, across all genres and including live news and sports, at no additional costs to verified viewers -- to a broad audience, using social and earned media channels.

The move comes as Netflix and Amazon continue to add subscribers and other over-the-top providers are joining the fray.

For cable operators, it’s a simple problem with a maddeningly complicated answer: How to let paying subscribers know they already have access to favorite shows on favorite devices?

To fortify a collection of current, approved promotional assets for media placement, CTAM has built a secure e-form that makes it easy for content providers and MSOs to participate.  

The core messaging emphasizes the ease of the sign-in process to verify customer status and clarifies how the content can be accessed earlier than other online and mobile platforms. The communications promote current TVE programs to encourage non- or infrequent users of Apps and websites to learn about how it works and what’s available. The approach brings the platform to life by illustrating the viewing possibilities, which are illustrated with a “You Could Be Watching TV” theme (youcouldbewatching.tv) and #youcouldbewatchingTV hashtag.

“Netflix didn’t invent this. Cable providers are offering a better product, with more diversified programming offering that includes live sports and news, all at no additional costs,” said CTAM president and CEO John Lansing.

Underscoring the drive was  Fox Networks’ “Stream It and Dream It Sweepstakes” promotion that ran last month, touting authenticated streaming apps as FOX NOW, FXNOW, Nat Geo TV, BTN2Go, and FOX Sports GO. The two-week initiative, which also granted non-subscribers a two-hour temporary pass to access the content on Fox Broadcasting,  FX Networks, Fox Sports 1, BTN, regional sports, National Geographic Channel and Nat Geo Wild, sought to drive TVE awareness and usage that also offering participating users/viewers a chance to win $25,000.

The endeavor, aligning with CTAM-led tactics, paid dividends resulting in a unique reach of 3 million and 56 million total impressions, boosting promotional value for Fox Networks and distributors, whose combined bases exceeded 100 million homes, according to the marketing group. 

The outreach is being managed by CTAM and The Lippin Group, which are working toward educating consumers and promoting available TVE content. The results thus far have yielded the placement of TVE streaming highlights in mainstream TV and lifestyle sections in newspapers, including The New York Times and U.S.A. Today..

“We have also gained with influencers and bloggers reaching 25-to-39-year-olds,” said CTAM senior vice president of communications and marketing Anne Cowan. “This is a group that loves to watch online.”

When CTAM initiated its education campaign last April its stated goals were to drive aided awareness of TVE, which was only at a 20% level, to 65% in January, as well as push usage of cable subscribers familiar with the platform to 55%. Through mid-October, a study conducted by Hub Entertainment Research, indicated that aided awareness had climbed to 54% of the survey group, while 49% said they had used TVE to view TV content at least once over the past six months.

Moreover, CTAM wanted 75% of its 23 member companies participating in the TVE space to adopt the sign-in recommendations developed by a steering committee in conjunction with OATC, NCTA, CableLabs, Adobe and member partners. Through mid-October, all CTAM TVE companies are using some to all of the best practices, at an average of 52% overall.

“We set out at the beginning of the year to have a measureable impact on awareness and usage of TV everywhere – and given this unprecedented industry participation and support, we have done just that,” said Gemma Toner, senior vice president of business insights and strategy, Cablevision Systems and CTAM chairwoman.  “This initiative from CTAM, designed to drive usage and awareness among consumers, will help to elevate this product category now and into the future.”

Recent HUB Research showed that 61% of millennials reported that access to TVE services made them feel more positive about the TV provider and 56% said the same about the network they’re watching.    

“TVE users ascribe greater value to their cable packages, with millennials, the most-at-risk group, having the most positive reaction to TVE,” said Lansing.

CTAM isn’t the only group proclaiming TVE’s rising metrics.

Adobe data indicates that authenticated content starts soared 388% in the second quarter, over the corresponding year-earlier period.

Comcast-owned advanced advertising company FreeWheel reported last month that verified viewers leaped 368% year-over-year, with 46% of all video ad views on long-form content (20 minutes or more) and live content coming from behind authentication walls.

Still, CTAM recognizes much more work needs to be done as Netflix and extant players gain more traction, and others are poised to enter the marketplace.

Distributors and networks own TVE brand development aside, the industry will also be working toward improved verification for kids, families and Hispanics. There will also be a CTAM drive toward the development of extending sign-in periods, and having subs secure access across a programmers’ suite of networks. For example, after a user signs in to watch HGTV, she would then have access to the other Scripps Networks Interactive services: Food Network, Cooking Channel, DIY, Travel Channel and Great American Country.

Also on the docket: CTAM will present TVE-focused executive panels at the Television Critics Association (TCA) Winter Tour in January. It also has engaged in a partnership with the NCTA to deploy a pavilion at INTX (formerly The Cable Show), one of five pillars at the industry gathering with and toward further forging excitement about the growth of TVE throughout the entertainment industry. 

A late-summer tentpole consumer event is in the early planning stages.

CTAM’s progress comes as EchoStar is taking stabs at TVE with an ad campaign touting retail sales of its place-shifting Slingbox devices. The creative trades on a made-up coalition called “Can’t Watch Anywhere Pain” or C.W.A.P. tagline, which takes aims at the programming holes in the cable industry’s TVE lineup.

 The officials quickly engaged the challenge. “In my view, [EchoStar] views our TVE as a threat,” said Cowan. Lansing added: “That’s great. Game on.”