Advertising & Media (Desperate Times Call for Desperate Measures)

It's one thing to see a flying car whisk by a Coca-Cola ($KO) sign in Blade Runner 2049. Or Vin Diesel crush a Corona ($BUD) before crushing a skull in Fast and the Furious 2049 (how many of these are there?). Or Mark Wahlberg mention a motorcycle he likes in Big Daddy. It's pretty obvious that those are placement ads. But its an entirely different story when a large corporate partner like Proctor & Gamble ($PG) purchases a plot line and dialogue. That isn't so obvious. But so it is. This week, Variety reported that P&G has done precisely that in a "unique advertising pact" with American Broadcasting Company ($DIS). The network will create an episode of "black-ish" that will - as a central plot device - discuss a P&G-produced short film and its implications on race merely because that's "an issue that the advertiser is trying to burnish." Well, ok, then.

Cord-cutting is getting aggressive and we get that Disney needs to act in-kind to ensure revenues. ESPN is under siege, Netflix ($NFLX) has a head start on stand-alone streaming, and even Star Wars toys have underperformed. But how this is handled will be a bellweather of things to come.

For instance, Instagram influencers are under strict guidance from the FTC on how to handle sponsored posts. Failure to comply has gotten various influencers - the Kardashian's being one notable example - in hot waterRemember the Fyre Festival? Riiiiiiight. To what degree are P&G and DIS required to alert viewers that the dialogue they are listening to is paid for? To the extent there is an alert, should it be noted at the bottom of the screen at the time of the dialogue (makes sense) or noted in the end credits (doesn't make sense). This may very well be another instance where regulation has to play catch-up to innovation.

Meanwhile, there's been a notable rise in corporate venture capital (CVC) arms over the last several years. What we haven't noticed, however, is the blatant weaponization of the CVC's distribution channels to help scale product. Yet. We wouldn't be surprised to see a rise in (shameless) native plugs of new apps or hardware in future mainstream broadcast content. And that - on the basis of scale opportunity alone - could be a real competitive advantage for corporate-backed startups relative to venture-backed startups. Query, however, what that would do to the viewing experience. Netflix ($NFLX) and HBO ($TWX) don't serve ads for a reason. Yet. We'd be shocked, though, if it doesn't come eventually (our money is on NFLX first). 

P.S. Elsewhere in advertising, Amazon is coming ($AMZN) and coming fast with ad revenue growing faster than Google ($GOOGL) and Facebook ($FB). 

Amazon is Coming for Your Ad Revenue

Companies are struggling and a debate is raging over whether ad-revenue dependent media companies can grow and thrive in the age of advertising behemoths like Google ($GOOGL) and Facebook ($FB). Amazon ($AMZN), meanwhile, grew its advertising revenue by 60% with analysts pegging its advertising revenue at $4.5b in 2018 - larger than combined revenues of Twitter ($TWTR) and Snapchat's ($SNAP) ad business. David Carey of Hearst Magazines has some thoughts about the future (audio).

Toys R Us is Getting Desperate

When in Doubt, Talk Augmented & Virtual Reality

Retail.AR. People are really trying to make virtual reality a thing. Facebook cannot sell the Oculus Rift but, hey, sure, Toys R Us will obviously rebound from bankruptcy thanks to VR and AR. We can't wait for the inevitable press stories about how kids are projectile vomiting in the pop-up Times Square store. Mark our words: it's coming. 

Amazon (We Repeat: How Many Bankruptcies Will Result From it?)

Beast...this kinda sorta ought to do away with the showroom concept. This Prime Wardrobestuff ought to do away with certain clothier's sales and, eventually, the curated subscription clothing services like Stitch Fix and about 1000 others we constantly see advertised in our Facebook news feeds (thankfully?). Oh, and some more mall traffic. Speaking of Amazon, this is the best piece we've seen on the latest M&A deal: a must read.

Notable (FTI Consulting, LeEco, Skip Barber Racing School)

Some movement within FTI Capital Advisors. In other news, there is an entity called FTI Capital Advisors.

LeEco is a sinking ship - in the US at least.

Looks like the Skip Barber Racing School had to step on the breaks to park in bankruptcy court. No, we're not proud of this joke...not at all. Our eyes are set on the beach, dudes.

How AppleAlphabetAmazonMicrosoft and Facebook make their money - broken down in chart form.

What the Pros Say (3/26/17)

  • International Retail. Hey! Not to be defensive or anything but there's absolutely nothing "usual" about this newsletter, Baker McKenzie! In fact, ya'll didn't need to fly abroad to INSOL to know that "technology disrupters" are impacting things: you just have to read us every week! What you miss is that all of the examples you site - Uber, Alibaba and Facebook - are "platforms" matching end users with service/product providers, see, also eBay, Amazon. We highly recommend you read "Modern Monopolies" by Alex Moazed and Nicholas L. Johnson to understand more on this topic. You can get it here. See also the second chart above.
  • Jevic. Whoa. The Supreme Court decision is in. Now open the firm marketing floodgates: Willkie Farr & Gallagher LLP's Marc Abrams, Matthew Feldman, Joseph Minias and Paul Shalhoub were among the first to provide a fulsome summary of the decision. As were Weil's David Griffiths and Vincent Yiu here. And Squire Patton Boggs LLP's Kate Thomas here

News for the Week of 2/5/17

  • Athleisure. Start the funeral dirge. Under Armour reported dreadful numbers and guided poorly, citing the Sports Authority bankruptcy as a reason for decreased exposure to product. Then S&P kicked UA while it was down, downgrading its corporate credit rating from investment grade to high yield. It's not a restructuring candidate with double-digit growth but its results don't bode well for retailers, generally. Good thing J.Crew is NOW starting to focus on athleisure.
  • Avaya. Doing a little damage control.
  • Cumulus MediaWhat the public is learning.
  • Europe. Some expect a bigger year for restructuring in 2017.
  • Private Equity. Some doubts about portfolio quality.
  • Solar. The technology continues to take hold and grab share but there'll be a lot of carnage along the way. Meanwhile, Exxon got pummeled, noting over $2b in writedowns.
  • Retail. As distressed investors and bankruptcy professionals lick their chops over the possibilities with rue21True ReligionClaire's StoresJ.Crew and others, "fast fashion" gets a second look as a culprit in the demise of retail (adding to the typical Amazon narrative). Still, even H&M and Uniqlo have announced intentions to scale back growth plans and/or close stores in the US.
  • More RetailThe Finish Line Inc. announced its sale of Jack Rabbit Sports this week (66 locations) for undisclosed terms. "Undisclosed terms" = GU gels and a jock-strap. Peter J. Soloman served as financial advisor. The quote, "The acquisition eases fears that the chain would face liquidation with no strategic buyers for the business"...basically sums up specialty retail. Reasons for the company's struggles are particular to specialty running stores, including, notably a marked decline in marathon participation. It's just not that easy to take a selfie while running 26.2.
  • Morer Retail - Canada. Once high-flying e-commerce startup Shoes.comcapitulates under the weight of multiple lawsuits, thwarting an IPO. In addition to shutting down the e-comm channels, the Vancouver-based company will shut down two brick-and-mortar locations - effectively flushing $45mm of PE down the toilet. Still, that URL seems like it would fetch some value...
  • Fast ForwardWalmart is looking to disrupt Amazon while Amazon is looking to disrupt Alphabet and FacebookAnd UPS. In other words, Amazon is after EVERYONE.
  • Rewind I: Usually we reserve "rewind" for topics we've discussed in previous weeks but we're making an exception here: apparently HMV still exists in Canada. Or did. What a major blast to the past. What were they selling, exactly, 8-tracks?
  • Rewind IIPayless Shoes4400 stores? Wow.  Apropos, retail now the sector with the most distressed debt. In other retail news worth a rewind, Sports Direct is reportedly in talks to acquire Eastern Outfitters, the parent company of Bob's Stores and Eastern Mountain Sports from Versa Capital Management out of bankruptcy. If those names sound familiar, it's because Versa literally just bought them in bankruptcy last year in the Vestis Group case. So, add this to the growing list of Chapter 22 cases. 
  • Rewind III: Given our revelation last week of the connection between Puerto Rico-Dentons-New Gingrich, its intriguing that Greenberg Traurig is distancing itself from another Trump supporter.
  • Chart of the Week: Sometimes to disrupt the incumbents, you have to bleed cash like nobody's business...