Tuesday 05/02/19

1. In MEDIA/ENTERTAINMENT-RELATED NEWS, Google continues to dominate digital ads, Netflix has the UK in its sights, Sony suffers and music finds a new gamer audience
2. In CAR-RELATED NEWS, US car dealers have inventory to shift and Tesla buys battery tech company Maxwell
3. In SECTOR-BY-SECTOR NEWS, Aussie banks face a tough time, UK construction slows and food sales lift retail
4. In OTHER NEWS, I bring you an extreme example of helicopter parenting. For more details, read on…

So Google continues ad strength, Netflix ups the ante on local content, Sony suffers from mobile and music finds a new audience…

Digital ads lift Google but shares hit by costs (The Times, James Dean) highlights Google’s continued strength in digital advertising in the fourth quarter which helped Alphabet, its parent company, to exceed consensus expectations yesterday. However, Alphabet’s share price fell as it also talked about rising costs, shrinking operating margins and growing losses at its “moonshot” unit (which is the “riskier” unit that includes things like AI, life sciences and other cool stuff). * SO WHAT? * It would seem that there was some investor disappointment here after Facebook reported a particularly strong performance in digital advertising last week, but I don’t think this is anything to get too concerned about. According to research firm Emarketer, Alphabet (via Google which encompasses Gmail, Android, YouTube, Google Maps and Chrome) will account for a whopping 31.3% share of the $327bn global digital advertising market this year, with Facebook accounting for 20.5%. Digital advertising makes up about 85% of Alphabet’s revenue and almost 100% of Facebook’s. The only real potential fly-in-the-ointment could be Alphabet’s ongoing battle with the European Commission’s Margrethe Vestager, the competition regulator, over the way it operates in Europe. It is possible that the company could be slapped with restrictions and or a chunky fine down the line if Ms Vestager gets her way.

UK broadcasters/Netflix: shriek show (Financial Times, Lex) makes for a really interesting read as it talks about Netflix’s increased focused on the production of local content in the UK being bad news for UK broadcasters. The UK is Netflix’s most valuable market outside the US and if you lump together the amount of money being invested in content by Netflix, Amazon, Facebook and Apple it would equate to four times the amount being invested by UK broadcasters by 2022. * SO WHAT? * At the moment, the BBC is putting a brave face on things saying that there’s no evidence at the moment of viewers abandoning it for streamers BUT it turns out that licence fee cancellations rose for the first time in five years last year. The rise of streaming is making the traditional licence fee model look increasingly outdated as £150.50 per year looks quite chunky compared to what you are paying for subscription to streamers. UK broadcasters are currently trying to 

cobble together their own streaming service where subscribers will get access to a back catalogue and some dramas in response to the threat of Netflix et al. but then again the streamers are also a great source of income for incumbent broadcasters as well (because broadcasters like the BBC make some of their content available on streaming services) so getting the balance right is going to be tricky. This area of the media is going to be a very interesting area to follow as the way people consume content continues to evolve.

Sony losing game as phone sales add to worries (The Times, Alex Ralph) highlights the negative reaction to the company’s third quarter trading update unveiled on Friday as the stock fell by 8.1% on waning PS4 sales, weakness in its mobile phone division and a cut in its sales forecast. * SO WHAT? * I referred yesterday to Nintendo trimming its forecast for console sales – and it’s not surprising that Sony is doing the same thing, especially given that the PS4 was released back in 2013 and now everyone is trying to guess when a PS5 will be released. Given that Sony is also a leading supplier of image sensors used by smartphone makers, it is also unsurprising that it is suffering from the global slowdown in smartphone take-up as other electronic parts makers such as Sharp, Omron and Kyocera are also among those who have had to downgrade forecasts according to Sony shares drop 9% following cut to sales outlook (Financial Times, Kana Inagaki and Alice Woodhouse). It seems to me that the shares peaked in September and everyone’s waiting for the next catalyst.

Music finds a big new audience in video games (Daily Telegraph, Tom Hoggins) is a really interesting article that looks at a 10-minute virtual DJ Marshmello gig that happened in Fortnite over the weekend where developers switched off guns so players within the game could “watch” the concert at Pleasant Park. There were reports that over 10m players were online at the time, which would make it the most attended concert ever. * SO WHAT? * OK, so it’s only one example, but it does give us an idea of a direction that music could go as the worlds of gaming and live music cross over. Live music continues to grow in popularity and the music industry is looking at other avenues of growth, so things like virtual reality gigs are interesting areas with potential. For instance MelodyVR, an app developed by London start-up EVR holdings, sells virtual gigs for £9.99 a pop and can put you on the front row, balcony or onstage. Many of the gigs are pre-recorded but there are plans for more live concerts to be accessible via this means. VR concert-going won’t replace the real thing, but it could broaden access and act as a brilliant advert – as DJ Marshmello said on Twitter after the Fortnite gig: “If you thought that concert was lit, try coming to a real show”.

US car dealers have a lot of inventory to shift and Tesla buys into battery tech…

Car sales have been declining in many parts of the world and Car dealer lots are flush with unsold cars as sales are expected to drop (Wall Street Journal, Adrienne Roberts) shows that this weakness could even affect the US as data released yesterday by WardsAuto shows that the number of unsold vehicles at dealerships at the end of January increased by 4% versus the previous month and were 3% up from January 2018. This is worrying given that many industry forecasters expect sales to weaken this year. General Motors has already stopped production at five of its North American factories this year due to weakening sedan sales and it is possible that other automakers could do the same thing as rising interest rates on car loans and cheaper alternatives on the secondhand market could dent new car sales. * SO WHAT? * While economic confidence is waning in places like China and Europe, you’d expect car sales to be weaker because punters get more cautious about spending on big-ticket items like cars – but a slump in sales in the US against a backdrop of relative economic strength is actually quite concerning. 2019 is still young, so I don’t think it’s time to panic just yet – but it is definitely a situation that is worth monitoring. As I keep saying, things 

could turnaround big time if the US-China thing gets worked out although I’d probably prefer to go with parts makers rather than the car-makers themselves to spread the risk.

Tesla to buy battery technology group Maxwell for $218m (Financial Times, Eric Platt, Arash Massoudi and Richard Waters) heralds a tactical purchase of Maxwell Technologies in an all-stock deal as Tesla looks to strengthen its offering. Maxwell develops electric batteries and supplies the likes of Volvo-owner Geely, Lamborghini and General Motors among others and will add to Tesla’s existing battery capability to keep it ahead of other electric car makers. This acquisition is expected to be completed in the second quarter of 2019 and Maxwell chief exec Franz Fink said that “We believe this transaction is in the best interests of Maxwell stockholders and offers investors the opportunity to participate in Tesla’s mission of accelerating the advent of sustainable transport and energy”. Tesla’s shares fell by 2% and Maxwell’s shot up by 50% on the news. * SO WHAT? * I think that this is good news for both companies but comes at a difficult time in Tesla’s short history given all the shenanigans that went on last year. Battery technology will be key in the race for electric vehicle supremacy at least in the short-to-mid term. Having said that, I don’t think that this is always going to be the case because I get the feeling that once the tech improves to an extent that ranges are comparable with “traditional” cars, batteries will become commoditised and the emphasis will shift back to the car itself.

Aussie banks could be in for a rough ride, UK construction slows and UK food sales boost the retail sector…

There’s trouble brewing down-under in Australian bank chiefs could face criminal charges after report (Financial Times, Jamie Smyth) as a report was published yesterday that revealed how financial institutions and their leaders have overcharged customers for years in their thirst for profit and personal gains after a year-long inquiry. Banks and other financial services companies have even been charging dead people! National Australia Bank has been particularly naughty, but other guilty parties include the Commonwealth Bank of Australia, AMP and ANZ. * SO WHAT? * I expect that this will be a very big deal with major repercussions that will reverberate across the whole 

industry as regulations tighten and fines and prison sentences are doled out. There will no doubt be a cloud over every company that is implicated in this scandal for quite some time.

In news a bit closer to home, UK construction growth close to stalling as Brexit fears build (The Guardian, Richard Partington) tells us what we were already probably expecting anyway – that building projects are grinding to a halt as fears of a no-deal Brexit bite, according to the latest IHS Markit/CIPS UK construction purchasing managers’ index survey. Perhaps more surprisingly, Food sales lift retail spending to seven-month high, says BRC (Daily Telegraph, Helen Chandler-Wilde) shows that consumer spending rose last month after a week December due to strong food sales that hit a seven-month high. This finding was echoed by figures from Barclaycard, which said that supermarket spending increased by 6.8% in January versus the same month last year – the biggest growth rate for 21 months. Comfort eating in the face of Brexit??

And finally, in other news…

I thought I’d leave you today with a positive example of helicopter parenting in Mum spends £10,000 converting helicopter into home cinema (Metro, Richard Hartley-Parkinson https://tinyurl.com/y79tm86g). What a brilliant thing to do!