🤖How is Tech Doing? (Long Self-Imposed Pain)🤖

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Silicon Valley Bank ($SIVB) recently issued its “State of the Markets” report, reflecting tech-related activity over the first six months of 2019. Suffice it to say, despite a number of potential headwinds, e.g., trade wars and fears of stagnating global growth (particularly in Europe and China), tech continues to thrive. The question is: can that continue? Here are some key charts from the report:

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As we were writing this China announced that it would retaliate with tariffs on $75b more of US goods (with US auto taking a large hit of 25% on cars and 5% on parts).* As you no doubt know, President Trump responded in his usually temperate manner:

…blah blah blah…something fentanyl…blah blah blah. The stable genius and “Chosen One” then moved the US closer to the easily winning the trade war (cough) by imposing 30% tariffs on $250b of Chinese goods and 15% tariffs on an additional $300b of goods. Anyway, it’s safe to say that these headwinds will only get stronger and will have a big effect on tech.** To point, tech names got battered post-tweets:

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Why? Well…

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But, sure, tweets and stuff. Nothing to see here. Anyway, give the presentation a gander: it has some good slides on the state of venture capital, enterprise vs. consumer IPOs, and international developments.

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Meanwhile, The Information came out with this doozy earlier this week:

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đź“şTV Content Distribution is in a State of Fluxđź“ş

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Callback to the Fuse Media LLC chapter 11 bankruptcy filing in which we wrote:

Why is it in bankruptcy? In a word, disruption. Disruption of content suppliers (here, Fuse) and content distributors (the traditional pay-tv companies). Compounding the rapid changes in the media marketplace is the company’s over-levered balance sheet, an albatross that hindered the company’s ability to innovate in an age of “peak TV” characterized by endless original and innovative content.

The company illustrates all of this nicely:

“…the overall pay-TV industry is in a period of substantial transformation as the result of the introduction into the marketplace in recent years of high quality and relatively inexpensive and consumer friendly content alternatives (e.g., Netflix, Hulu and others). The ongoing marketplace changes have resulted in, and will continue to cause, a material decline in pay-tv subscribers and related affiliate fee revenue as a result of a declining number of new subscribers, "cord-cutting" (the cancellation of an existing pay-tv subscription), and "cord-shaving" (the downgrading of a pay-tv subscription from a higher priced package to a lower priced package). Each quarter the Company receives less revenue from its traditional pay-tv distribution partners as the result of the decline in subscribers receiving the Company's networks. And new sources of revenue for the Company, although developing and in progress, have not grown sufficiently to offset revenue declines in the legacy business. As a result of these trends, the refinancing of the Company's debt was not viable.”

The Information recently confirmed (paywall) what Fuse was saying and we all know is true from our own experience with the myriad subscription-related bills we’re all getting: pay-TV is, indeed, in the midst of some substantial transformation. They write:

Cable channels have long been the cash machine for the entertainment industry thanks to a quirk in their business model. Cable and satellite TV firms pay channels fees for each subscriber who has the channels available in their service package, regardless of whether anyone watches the channels. AT&T, owner of DirecTV, is trying to change that—with far-reaching implications for the TV industry’s profitability.

AT&T wants to pay channels based on how many people actually watch, rather than the number of subscribers who have access to the channels. The idea is driven by two major trends. Firstly, a growing number of consumers are canceling their expensive cable and satellite packages in favor of cheaper streaming services. Meanwhile, TV channels are charging distributors like DirecTV more for the right to carry them even as the channels’ audiences are shrinking….

Note:

What a model! Fewer and fewer end users but higher and higher costs nonetheless. More from The Information:

If AT&T can shift to paying for channels based on their audience size, it could reduce programming costs for its DirecTV and phone-based TV service U-verse and potentially lead other cable and satellite operators to follow suit, sparking a revolution in television. For years, cable and satellite services have complained that programming costs were too high. They can account for more than 60% of video-related revenue.

AT&T’s effort to get entertainment companies to agree to get paid for actual viewers of their shows is in its infancy and it faces long odds. “This is probably the greatest negotiating friction in all the businesses,” AT&T Communications CEO John Donovan told The Information last summer when asked about the company’s discussions around so-called engagement pricing.

These efforts — while currently a longshot — are worth monitoring. Content providers and distributors look headed for a collision.

Like #Tech, Corporate Restructuring Has a Gender Imbalance

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Unless you've been hiding under a rock, you've probably noticed the controversy that embroiled Silicon Valley over the July 4th weekend. In a nutshell, some super brave and bada$$ women came forward and accused a variety of high-powered men of sexual harassment and improper behavior. First, The Information reported (firewall) a story backed by the accounts of six women recounting the behavior of Justin Caldbeck of Binary Capital. He soon stepped down (as did his two partners, thus thwarting the close of BC's second fund). Then The New York Times published a piece implicating Chris Sacca (of Shark Tank fame) and Dave McClure of the venture capital firm, 500 Startups. The former had already given up on investing (and Shark Tank); the latter first stepped down as CEO of the firm, then, in a matter of days, stepped down as General Partner as well. Silicon Valley's gender imbalance has been in the spotlight for some time now. Now we're learning more and more why that imbalance exists in the first place. 

Before we get ahead of ourselves, we'll be upfront here: what we're about to say is in no way meant to imply that sexual harassment and inappropriate behavior runs rampant in the restructuring community. But, let's be honest: there is a wild gender imbalance in firm partnership ranks, conference room negotiations, and bankruptcy courts. The industry's most lucrative and prolific restructuring law firm has exactly one woman partner. One of the industry's top restructuring advisory IBs has exactly zero women partners and, yet, that didn't stop the leader of that group from being honored by Her Justice, an organization that provides legal services to NYC women in need. And those are just two examples. Suffice it to say, there are many.

Now there are exceptions to the general rule: AlixPartners LLC, for one, and Greenberg Traurig LLP, for another (see below), in that they are led (or co-led as the case may be) by women. Weil Gotshal & Manges LLP, as another example, includes a number of women partners on its roster. But there should be more. Industry-wide. And charity honorees should be the women who have risen through the ranks - despite the odds - AND cultivated other women to follow in their footsteps. Overall, the industry can do much much better.

Want to tell us we're morons? Or praise us? Cool, either way: email us.