Hollywood Torrent: TV networks are having a rough quarter

Good afternoon from New York, wherever you may be. Media companies just had their worst week on the stock market since last September thanks to a bunch of quarterly financial reports that inflamed investors’ concerns about the future of the TV business.

Companies that rely on cable networks (Time Warner, AMC Networks and Viacom) sold fewer ads during the first quarter of the calendar year. That’s a problem when you rely on advertising for a huge chunk of your revenue. Things are about to get worse (or better!). Disney. and Fox, two of the largest media companies, report this week; analysts and investors will fixate on the performance of cable networks like FX and ESPN.

Fox should have a good quarter. Despite all of the cultural problems at Fox News, the network is delivering huge ratings every night. FX, meanwhile, has a number of popular shows on the air right now. Disney is another story since ESPN continues to struggle (relative to past performance, at least).

Whatever happens this week, cable networks are likely to post their first quarterly decline in advertising sales since 2010, when the U.S. was still recovering from an economic recession. That is a very big deal, as my generally optimistic editor noted on Twitter this week.

Ad sales are in decline for a simple reason: fewer people are watching live TV. Advertisers still want to advertise on TV (even though they’re spending more and more money on Google and Facebook). TV still attracts tens of billions of dollars in ad dollars. But satisfying advertiser demand is hard to do when the viewership of your networks is in decline. You sell advertisements based on an expected audience. When that audience is smaller than you forecast, that can hurt sales.

This has been true for a while, but the numbers keep getting worse. Marketers are growing impatient, especially since TV networks are charging them a lot more money for fewer viewers. As we enter the upfront marketplace, where TV networks try to sell advertisers on their upcoming shows, those advertisers may not tolerate huge price increases given inexorable audience erosion.

Making matters worse, pay-TV operators reported a decline in subscribers in the first quarter. Fewer subscribers aren’t going to watch more TV, so that affects viewership (and ad revenue) as well.

This earnings season hasn’t been as bad as the media meltdown in August of 2015, but it ain’t great. Keep an eye on Disney earnings. As Disney goes, so go many other large media companies.

Marvel hits another home run

Guardians of the Galaxy Vol. 2 grossed $145 million during its opening weekend in North America, the second biggest opening of the year after Beauty and the Beast. The movie has already surpassed $400 million at the worldwide box office, well on its way to topping its predecessor, which grossed $773 million. Marvel is already planning a third film in the franchise.

The positive response to this sequel portends another good summer for Disney, per Anousha Sakoui. The studio will release a couple more sequels — Cars 3 and another Pirates of the Caribbean movie — later in the summer. Disney was the box office champ last year, and there’s no reason to think it won’t be this year.

Marvel’s May release marks the unofficial beginning of summer movie season (unless you want to begin with Fate of the Furious in April). Other big movies set for release this season include Wonder Woman, Transformers: The Last Knight and another Planet of the Apes movie. So, yes, strap in for another summer of sequels. If you crave an original movie, Christopher Nolan’s historical epic Dunkirk opens July 21, while a number of smaller comedies and horror movies will appear through the summer.

Film school friends Fenton Bailey and Randy Barbato have brought drag to the masses with Ru Paul’s Drag Race and DragCon.

Strong reviews for Alien: Covenant.

HBO has tasked four different writers (or groups of writers) with developing spin-offs to Game of Thrones. George R.R. Martin, who wrote the books on which the show is based, is involved in a couple of the groups.

Showtime’s Billions wrapped its second season last night. It was as enjoyable as the rest of the season.

The Writers’ Guild and the major studios averted a writers’ strike. (Feels like forever ago, doesn’t it?)

Twitter, YouTube and Hulu take New York

YouTube plans to fund more than 40 original shows and movies this year, spending hundreds of millions of dollars on six shows that will be available for free to all users of the ad-supported site. The rest of the shows will be available exclusively to subscribers of YouTube Red.

YouTube is investing in original programming to convince marketers to shift more ad money to the web from TV. Premium shows with big stars merit big commitments from sponsors, or so the thinking goes. Comedian Kevin Hart, talk-show host Ellen DeGeneres and the comedy duo Rhett & Link are all big stars, and are all making shows for YouTube.

YouTube’s original programming strategy is best described as evolving. YouTube is making shows with online stars (like Rhett & Link) and big celebrities (like Ellen) who thrive on the platform. Their popularity is undeniable, but whether any of these shows is good enough to get casual users to watch original programming on a site best known for clips is unclear. Whether or not the shows are good, YouTube is spending more money on original programming than ever before. It’s bound to bring in more advertising money.

While YouTube is aping Netflix with a large supply of shows on-demand, Twitter is investing in live programming. The social media site announced more than a dozen different live shows it will stream in the coming months, part of a plan to have live video streaming 24 hours a day. Buzzfeed is producing a morning news show, while sports leagues are producing regular shows about baseball and basketball.

The many travails of Twitter are well-documented. It has struggled to add users at the same rate as Facebook (or Instagram). It has done a poor job of policing trolls. Its ad sales are lackluster. But this new programming strategy makes a ton of sense. YouTube is trying to capture TV ad dollars by mimicking Netflix, with premium shows that people watch on-demand. News flash: Netflix doesn’t sell ads. Most networks that specialize in premium dramas most people watch on-demand don’t sell ads. Those that do, like FX and AMC, are the exception.

There’s nothing wrong with producing premium shows, but it ignores a big reason advertisers like buying spots on TV. TV aggregates a huge LIVE audience — millions of people captive, watching at the same time. That is the advantage TV maintains over YouTube and Facebook when those companies talk about billions of views (that aren’t synchronous and are often just for a few seconds). A couple million people watching for an hour is still better than 10 million people watching for three minutes at various points over the course of a week. Twitter wants to prove it can amass millions of live viewers as effectively as TV.

Hulu introduced a new live TV service, and said its adaptation of The Handmaiden’s Tale is the streaming service’s biggest hit yet. Hulu has yet to score an original hit that rivals those of peers Netflix and Amazon. This could be it.

Disney created a new online video network, merging Maker Studios with its other editorial brands. Just three years after buying Maker for more than $700 million, Disney has all but killed it. A cautionary tale.

Evan Shapiro is leaving as the head of Seeso, a paid video service he ran within NBC Universal. Seeso commissioned original series from some of the leading voices in comedy, including Community creator Dan Harmon, and licensed re-runs of Saturday Night Live and Monty Python. But it hasn’t caught on as intended.

Seeso was an intriguing endeavor in many ways. A major media company (Comcast) tried to create a new video brand (instead of leveraging the name of an extant cable networks) and it cost just $4.99 (much less than Netflix or HBO Now). It hasn’t worked.

Board rooms

Sinclair Broadcasting announced its acquisition of Tribune Media, combining two of the largest owners of local TV stations in the U.S. The deal was only possible after the FCC eased rules governing how many stations a company could own.

Fox almost bid for Tribune to block Sinclair since Tribune owns so many of its local affiliates. Many media pundits expect Sinclair to create a new conservative TV channel that rivals Fox News.

Comcast and Charter, the two largest U.S. cable operators, have agreed to work together in the wireless business to compete with the nation’s largest mobile providers, AT&T and Verizon. The two companies plan to re-sell wireless service over Verizon’s network, and will now negotiate together to get better prices. They have also agreed to work together on any new deals with a wireless provider.

CBS had a decent week. Though it too reported a decline in U.S. advertising sales, strong growth in other revenue segments lifted the stock of the owner of the nation’s most-watched network.

Facebook, meanwhile, had a great quarter. It reported a 17 percent jump in monthly users to 1.94 billion. But the company also cautioned revenue growth would slow down because it doesn’t want to drive away users with too many ads. (Instagram has no such problems.)

Music is back, apparently

Kobalt, the start-up that collects royalties for performers and music companies, raised $75 million from investors led by Hearst Entertainment Inc. — the latest vote of confidence for a industry on the mend.

The deal values Kobalt at $775 million. Though the company still loses money after 16 years in operation, Kobalt has benefited by positioning itself as a purveyor of technology solutions instead of a traditional record label or music publisher, promising artists a larger share of their royalties and greater freedom over how they release and promote their music.

The funds will allow Kobalt to develop technologies it can use to lure more clients needing help managing their music such as tracking usage of songs online, determining how much an artist is due and enforcing copyright. While the rapid growth of Spotify and Apple Music has lifted sales across the music industry, they have also made the collection of royalties — especially for songwriters — more complicated.

Hearst sees an opportunity in music, encouraged by the recent increases in industry revenue. Neeraj Khemlani, president of Hearst Entertainment, is betting on streaming continuing to grow, lifting businesses like Kobalt along with it.

Comcast almost invested $25 million in Fyre Festival, a failed music festival. Bullet dodged. ``Billed as a super-exclusive escape on an idyllic tropical beach’’ the festival marketed itself with Instagram models and lured acts like Tyga and Pusha T. When guests arrived, they found cheese on bread in the place of gourmet food and a tent city in the place of villas.

Warner Music struck a deal to license its music to YouTube, the first major label to strike a new long-term deal with the record industry’s bete noire. After months of negotiating, Warner decided further stalemate was fruitless. The company already tried yanking its music off YouTube to punish the site for not properly tracking copyright infringement. It didn’t work.