Pivotal's Predictions For Media, Internet And Communications In 2019

Cable hasn’t peaked, but satellite may have. Facebook could get a facelift, and sports broadcasting could come from different sources than in the past.

Those are among the predictions for the media, internet and communications industry for 2019 from Pivotal Research Group analysts Jeffrey Wlodarczak and Brian Wieser.

Cord-cutters are going to keep on cutting, but investors who think fixed 5G will be universally adopted should think again, the analysts said.

The pair released their predictions for the coming year in a note earlier this month. 

Changes At The Top At Facebook?

While most of the Pivotal analysts' predictions revolve around changing consumer preferences and the technology and business landscapes for the companies that deliver content to TVs, they started with a giant social media stock: Facebook, Inc. FB.

Menlo Park's response to global pressure over how it operates could include major personnel changes that could go very high in the company, Wlodarczak and Wieser said.

“Whether that means (either) Mark Zuckerberg or Sheryl Sandberg alter their roles within the company or something more extreme occurs, it seems difficult to imagine that the company’s board will allow a status quo for the Chairman, CEO and COO roles, especially as regulatory scrutiny around the world escalates over the course of 2019."

Cord-Cutting

“Expect 2019 pay TV losses to continue at a similar pace to ’17 and ’18 as consumers continue to rebel against the rising price of pay TV amidst the continued emergence of cheap entertainment alternatives.”

Satellite Declines 

The analysts predict that satellite TV subscriptions will continue to decline, forecasting a drop of 2.5 million customers in 2019 — up from a drop of 2.1 million in 2018.

“Satellite TV RIP outside of rural areas,” they wrote. “Expect another ugly year in 2019.”

'Peak TV' 

Margins will continue to erode for TV content producers, Wlodarczak and Wieser said. 

Content packagers or networks will need to increase their programming spend at a rate that likely exceeds what consumers will pay in order to maintain revenue growth and relevance, the analysts said. 

"This will contribute to ongoing margin erosion, especially as we see national TV advertising gently declining on an ongoing basis.”

The Wide World Of Sports 

ESP Who? As consumers move away from cable and satellite, new providers will step forward to provide the collective sports fix, in Wedbush's view. 

“It seems inevitable that one of Amazon, Google or Facebook will aggressively continue to push for more top-tier sports rights, especially as some major packages are soon up for renewal,” Wlodarczak and Wieser said. 

But see above about Facebook.

“Of course, some leagues may prefer not to associate themselves with Facebook at any price,” the pair said. 

Spending by "deep-pocketed" companies on sports content will inflate its price, the analysts said. 

Sports rights inflation could boost the price of Liberty Media Formula One FWONK stock, which Wedbush rates with a buy, Wlodarczak and Wieser said. 

Improvements in data speeds for cable operators mean that they will likely continue to take market share for data from telcoms, they said. 

Other Predictions 

• “Cable company share buybacks should accelerate materially in ’19, providing a steady wind at the back of stocks.”
• Fixed 5G fails to penetrate the mass market and remains an unlikely major competitive threat to cable data.
• Cable secures a more attractive wireless mobile virtual network operator as Sprint Corp S and T-Mobile Us Inc TMUS continue to work on a merger deal — whether the merger is approved or not.
• Netflix, Inc. NFLX, which Wedbush rates with a Buy, has won the race for over-the-top streaming services and should continue to see healthy subscriber growth in 2019, even with the launch of a Walt Disney Co DIS competitor, in the sell-side firm's view. 
• Comcast Corporation CMCSA, for which Pivotal has a Buy rating, stops disclosing its individual subscribers and switches its focus to “net new customers" — or customer retention. 

"We think that following its sale of entertainment assets to Disney, the newly sports and news-focused Fox will move toward a merger with its corporate sibling News Corp.," Wlodarczak and Wieser said, speculating on M&A in the sector. 

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