Michael Wolff on Hollywood's Falling Stocks: How Tech Companies Won "Hearts and Minds" and Changed the Game
Traditional media has let the technology oligopoly steal its mojo for no reason — certainly not actual economics.
A version of this story first appeared in the March 4 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
Among the world's many partisan divides, a passionate new one is between the longs and shorts in the media business. It's two sides locked in a bitter war that reflects an ongoing propaganda campaign and self-interested agitprop. It's FANGA (Facebook, Amazon, Netflix, Google and Apple) against Time Warner, Disney, 21st Century Fox, Viacom, CBS, Comcast/NBC (the Congloms). Bolsheviks against the Mensheviks.
So far, FANGA, with its simple mantra —"We are the future, you are the past"— is way ahead. And the Big Media stock prices seemingly are in freefall.
The Congloms are at a further disadvantage: While trying to defend themselves, they also continue to fight a ceaseless, internecine battle of fiefs and ego. Every briefing on the part of a Conglom against the FANGA oligopoly invariably ends up being about the perfidy of other Congloms.
The battle lines are as much philosophical as economic. For the longs, it's a belief in the value of content and brands and the underlying strength of an asset-based business. For the shorts, TV follows print and music into a technological twilight: The Internet has killed the cable monopoly — meaning the game is open to anybody, and the advantage goes to efficient delivery.
In the view of the longs, the rise of FANGA has been enabled by a microgeneration of cheap content. But now, not only will Netflix suffer as it faces the end of its recent cycle of licensing deals, the value of Conglom assets will soar. In the view of the shorts, the Congloms never will get their act together to make an efficient market, will grab short-term cash over a long-term play and have neither the technical nor PR gifts to counter a profound generational shift.
This last point is central. The dominant narrative is about millennial behavior — new sensibility, new savviness, with an unquenchable desire for new functionality. The Congloms protest but seem incapable of making the point that the millennial rush is overwhelmingly to Hollywood product.
In this — infuriating and bewildering to the Congloms — FANGA has beaten the media at its own game by stealing the hearts and minds of business, technology and media reporters. While the Congloms rail against their own employees, FANGA has developed a support system through industry conferences, social media, and the rewards and status it offers the industry press, all focused on that one message: data and functionality are the future, the hoary show-biz model the past.
The success of that mantra has, in turn, created a new kind of longs — call them activist longs — who see the media business, which began its precipitous fall in August on news of softness at Disney's ESPN, as cheap assets and ripe for consolidation. This expected realignment might help create the type of content monolith that gets a fair price from, or chokes, FANGA's ambitions.
The shorts believe the internal and mutually destructive conflicts within the Congloms always will win out. Time Warner CEO Jeffrey Bewkes will never do a deal with the Murdoch family at Fox. Nor will he probably merge with Leslie Moonves' CBS. Likewise, it's unlikely that Moonves and Viacom's Philippe Dauman would remarry. Liberty's John Malone always has worked too much on his own to be an industry savior. And programmers hate cable.
Hence, undefended, old media assets will be absorbed at discounted prices into the rising strength of the tech giants.
That future, however, is sorely challenged if the tech bubble bursts, as, by indications, it might be doing now. Netflix is the bellwether for the over-the-top video industry. It had a 135 percent run-up in 2015 as media shorts doubled down on their position — but Netflix has been creamed so far in 2016.
Still, the long position on Netflix is so much more potentially a windfall than the long on the Congloms. If the Congloms recover, that merely nudges up their multiple. If they falter and fail to consolidate, Netflix's growth could know no limits.
Curiously, while most investment decisions are made on the basis of orderly numbers, the FANGA and Conglom numbers are subject to ever-more opposite interpretations. People are watching less TV and yet more. Digital traffic is soaring, though a third of it could represent click fraud.
The once-mortal battle between broadcast and cable ultimately expanded the TV business, and all boats dramatically rose. That may be the ultimate result of the new three-tier delivery system: broadcast, cable and over-the-top.
But right now, with a finite audience, finite advertising dollars and finite time to watch, the investment outlook is that for one to maximally profit, the other must maximally lose.
Michael Wolff, a Hollywood Reporter contributor, writes frequently about the media business. His most recent book is Television Is the New Television.