October 15, 2019

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1 big thing: Streaming wars drive big debt

Data: Moody's; Chart: Axios Visuals

Streaming companies are accruing more debt to sustain heavy investments in content.

  • In addition, their leverage (the ratio of a company's debt to its EBITDA — earnings before interest depreciation and amortization), is higher than it has been historically.

Why it matters: While most analysts agree that the debt loads at most of these companies are manageable for now, some firms are beginning to feel investor pressure to manage rising debt before it gets out of hand.

AT&T is in a precarious position, argues Jonathan Chaplin, an analyst and Managing Partner of New Street Research.

  • "AT&T has the lowest leverage of the four (Comcast, AT&T, Disney and Netflix), but they also don’t grow EBITDA."
  • There have been mixed reports about whether the company wants to dump its DirecTV satellite business, which it acquired for $67 billion in 2015.

Yes, but: "Some companies can justify debt because they have defensible niches and stable cash flow," says Michael Pachter, a research analyst at Wedbush Securities.

  • "Disney and Comcast generate lots of cash and they are growing profits at a quick pace.  Their leverage will fall quickly," says Chaplin. 

Netflix, on the other hand, has seen its free cash flow dwindle this year.

  • Its leverage is the highest compared to many of its streaming rivals and high compared to the industry average.
  • The company, which will spend roughly $15 billion on content this year, is the only company of its major streaming rivals that isn't profitable. It relies on the debt markets to fund its growth.

What's next: Netflix is under increasing pressure to grow its user base if it ever hopes to offset its massive debt.

  • Investors are looking for international subscriber growth when it reports earnings Wednesday to offset any threats from rival streaming services that are set to launch later this year and next.
  • Its stock has taken a beating after the company reported weak Q3 user additions.

The bottom line: The thing that Netflix has going for it is that businesses that is "genuinely raising debt to face the shift in distribution models," argues Chaplin.

  • It's for that reason that investors remain bullish on Netflix, despite the fact that it's burning tons of cash.

Read the full story.

Go deeper: How Netflix burns $10 million a day

2. ESPN's new "Cover Story"


With the death of ESPN The Magazine comes the birth of ESPN's "Cover Story," a 21st century version of a magazine cover story that will air monthly across every ESPN platform.

Why it matters: The new franchise will be the focal point of ESPN's editorial ambitions moving forward.

  • "This may be the most cross-functional team at ESPN that I've ever worked with," says Alison Overholt, ESPN's vice president of storytelling & special projects and the former editor-in-chief of the now-defunct monthly print publication 'ESPN The Magazine.'

Details: Each month on a Wednesday, ESPN will release one cover story.

  • The stories will air on SportsCenter at 6:00 a.m., noon and 6:00 p.m. on the day they debut and will be prominently positioned at the top of the feeds on ESPN's apps and its homepage.
  • They will feel like magazine stories, with the same sort of inside access, written reporting, and magazine-quality visuals that you would find in print.

Some people that you can expect to see anchoring future cover stories include ESPN names like Wright Thompson, Ramona Shelburne and Marc J. Spears.

  • "What makes this distinct is that you will follow one journalist across every ESPN platform," says Overholt. "Only a handful of people are able to do that."

The first-ever cover story will be presented by Mina Kimes, the recently-announced host of ESPN's new morning podcast.

  • Kimes' cover will be about NFL star DeAndre Hopkins, and it will debut tomorrow at 6:00 a.m. ET on SportsCenter and online.

Read the full story.

Go deeper: A special edition of Axios Sports featuring some of Kendall Baker's favorite ESPN The Magazine covers.

3. Pop-up pandemonium

Illustration: Lazaro Gamio/Axios

News companies are taking advantage of the interest surrounding the impeachment saga by building pop-up newsletters, podcasts, and sections solely to cover the day-to-day developments of the impeachment process.

  • Podcasts: Vox Media launched a new weekly "Impeachment, Explained" podcast last week hosted by Ezra Klein. WNYC also launched an "Impeachment with Brian Lehrer" podcast earlier this month.
  • Newsletters: CNN launched an impeachment tracker newsletter that amassed over 11,000 subscribers in a few days, per CNN. The New York Times also launched an impeachment briefing newsletter.
  • Alerts: CNN's digital app impeachment-related app alerts attracted 300,000 subscribers in just a week, a spokesperson said.

The big picture: We've seen this strategy play out with other special news cycles.

  • Game of Thrones: The New York Times, The Telegraph, and even Politico all developed Game of Thrones newsletter that guided readers through the end of the series. About 80,000 subscribed to the Times' eight-edition newsletter, per Digiday.
  • World Cup: The Times and The Washington Post both ran pop-up newsletters around the World Cup.
  • Midterms: Vox, Stat News and others launched pop-up newsletters for the 2018 midterm elections.

The bottom line: If there's an appetite for more coverage, news companies these days can build products pretty quickly to satisfy it.

4. Vox Media now publishes 200+ podcasts

Axios Visuals

Vox Media now has more than 200 active podcasts that it publishes through the Vox Podcast Network, up from 75 in January, executives tell Axios.

  • One of its most popular podcasts, Recode's Pivot with Kara Swisher and Scott Galloway, is moving to twice a week.

By the numbers: Vox Media Studios President Marty Moe told Axios in February upon signing a multi-million dollar deal with Stitcher that Vox Media’s podcast business is an eight figure business.

  • According to Moe, the company is still on track to deliver that eight figure number this year. The company reportedly brings in around $185 million annually.

The big picture: Over the past year, Vox Media has develop its own podcast network, that it can use to distribute its own content, as well as eventually distribute others.

  • Vox Media acquired two companies this year to help bolster its podcast business, Epic Magazine and New York Media. It plans to integrate franchises from both companies into its podcast network in 2020. 

What's next: The company is hosting its first-ever Podcast Upfront Tuesday in New York City where it will announce several new shows and updates to its podcasting slate. 

5. NBC will be exclusive seller of Apple Stocks and Apple News

NBCUniversal has extended its partnership with Apple News to now be the exclusive seller of ads in Apple Stocks, as well as Apple News, executives tells Axios.

Why it matters: The multi-year partnership means that NBCU can sell ads against all the stories in the main feed of Apple Stocks, as well as Apple News for several years. Other publishers can still sell ads again their own articles.

Details: NBCU struck its exclusive Apple News sales partnership with Apple in January of 2017, and as part of its renewal, it now expanding to sell Stocks exclusively as well.

  • NBC can also sell ads exclusively against all publisher content on both apps via audience targeting.  

By the numbers: Krishan Bhatia, NBCU's EVP of Business Operations & Strategy, declined to say how much money the company makes off of its Apple New partnership, but "it's a very meaningfully-sized business compared to what we do on Youtube, Twitter or Snapchat."

  • According to Bhatia, the number of advertisers on the platform has doubled over the past year from over 100 to "multiple hundreds."
  • 12 NBCU brands publish on Apple News, ranging from "SNL" to "CNBC."
  • The company says NBCU editorial content has driven more than 42 million hours of engagement since January 2018.

Be smart: Bhatia has found that the verticals that sell well on Apple News are the same that tend to frequent print magazines, like financial services, luxury, and entertainment.

  • "It's a highly-scaled audience with high engagement in a premium content environment. The average user spends over an hour per month on it."

Yes, but: While NBCU is making money, most smaller publishers Axios has spoken with say they aren't. It's common to hear publishers say they get millions of monthly views on Apple News, but rarely make any real money off of them.

  • Apple News does let publishers sell ads against their own content, and keep 100% of revenues they sell themselves, but it takes a cut of ads they sell on behalf of publishers on its platform.

6. Satellite broadband's boom

Illustration: Aïda Amer/Axios

While satellite pay-TV services are in a death spiral, modern satellite-powered broadband services are raising big investments and a lot of high expectations. Axios' Kim Hart, Miriam Kramer and I write.

What's new: A new crop of satellites are being launched to beam down broadband services to wider swaths of populations on Earth.

  • The nascent services by SpaceX, Amazon, OneWeb and ViaSat are all planning to launch fleets of satellites soon to get enough low-Earth orbit satellites into space fast enough to provide a broadband alternative to terrestrial services from the likes of Verizon or Comcast.

Why it matters: The satellite industry is undergoing a sea change.

  • Satellite TV was popular in the '80s and '90s as subscription channel bundles became more sophisticated — and before the advent of the consumer internet.
  • Now as streaming over super-fast broadband is supplanting pay-TV, the next generation of satellite fleets is banking on building a business by providing the same service that is ultimately killing its satellite predecessors.

Go deeper.

7. Media battles worth watching

Illustration: Sarah Grillo/Axios

Several highly-visible fights are playing out in the media space right now.

  • The big picture: They all represent bigger tensions that the industry is currently grappling with, including the #MeToo movement, free speech, and polarization.

1) NBC News execs vs. Ronan Farrow: NBC News president Noah Oppenheim and NBC News Chairman Andy Lack are on the defense over allegations they engaged in a cover-up to hide sexual misconduct by former "Today" show host Matt Lauer.

  • Why it matters: The number of reports over the past year that have detailed attempts to dismiss or bury sexual harassment allegations at big media companies shows that the industry has a long way to go before it's ready to face a true cultural reckoning.

2) Sen. Elizabeth Warren vs. Mark Zuckerberg: The battle between Facebook’s chief executive and the 2020 Democratic presidential candidate is escalating as the election inches closer.

  • Why it matters: An ad by Warren's campaign that says Facebook has endorsed President Trump (before admitting the claim is a lie) "is having its intended effect: raising tough questions about Facebook's policy of allowing politicians to make any claims they want," Axios Ina Fried writes.

3) Fox News vs. Fox opinion: Longtime Fox News anchor Shep Smith announced on Friday that he is stepping down from his position as Fox News after 23 years.

Editor's note: NBC is an investor in Axios and Andy Lack, chairman of NBC News and MSNBC, is a member of the Axios board of directors.

8. 1 last thing: Elizabeth Warren and Splinter

Illustration: Sarah Grillo/Axios

Private equity's newest political headache came last Thursday, when G/O Media shut down Splinter News, Axios' Dan Primack writes.

  • One day later, Elizabeth Warren placed the blame squarely on G/O Media owner Great Hill Partners.
  • She claimed private equity firms are sucking "value out of our companies, putting people out of work, and wiping out newspapers and digital news outlets like @Splinter_News."

Why it matters: Warren's plan to change private equity likely wouldn't impact Great Hill Partners' ownership of G/O Media.

  • Great Hill Managing partner Chris Gaffney confirmed to Dan yesterday that its purchase of G/O Media this past spring was all-equity, adding that there was no assumed debt, nor had any been put on G/O Media since the purchase.
  • Warren's plan focuses on leverage, making private equity funds liable for portfolio company debt.