Alex Morris provides 2023 overview on Cable and what makes Media so attractive

Episode Summary

Executive Summary: In this podcast, host Andrew Walker and guest Alex Morris analyze the cable and media sectors, focusing on the competitive dynamics of fixed wireless access (FWA) versus cable broadband, the strategic positions of Charter and Comcast, and the evolving streaming landscape. They discuss the impact of FWA on cable broadband net additions, the importance of wireless bundling strategies, and the challenges facing media companies like Disney and Netflix. The conversation highlights the divergence in wireless carriers' approaches to FWA, the potential for cable companies to leverage their networks for wireless growth, and the uncertainty around media consolidation and content strategy.

Main Topics: Fixed Wireless Access (FWA) Competition (Priority: 5/5): Analysis of FWA as a competitive threat to cable broadband, including the differing strategies of T-Mobile, Verizon, and AT&T, and the localized nature of FWA capacity constraints. Cable Company Strategies: Charter vs. Comcast (Priority: 5/5): Comparison of Charter's focused Spectrum One bundling strategy with Comcast's more complex conglomerate structure, including NBCUniversal and Peacock. Wireless Bundling and MVNO Economics (Priority: 4/5): Discussion of how cable companies can use MVNO agreements and CBRS spectrum to compete in wireless, and the cost advantages of cable over wireless carriers in offering bundled services. Media and Streaming Landscape (Priority: 4/5): Examination of Netflix's competitive position, Disney's IP and strategy challenges, and the potential for consolidation or output deals among media companies. Capital Allocation and Valuation (Priority: 3/5): Discussion of cable company valuations, including EV/EBITDA multiples, the impact of rural buildouts and network upgrades on free cash flow, and the concept of a 'conglomerate discount' for Comcast. Sports Rights and Bundling (Priority: 2/5): Brief exploration of the challenges in monetizing sports rights in a streaming environment, and the difficulty of recreating the linear TV bundle.

Key Arguments: FWA is a real but potentially capped competitive threat to cable, with T-Mobile's capacity-aware approach and Verizon's more aggressive stance creating uncertainty. Charter's Spectrum One bundle offers a clear customer value proposition, leading to strong wireless net adds, while Comcast's strategy is muddled by NBCU and slower execution. Cable companies have a cost advantage in wireless because they already handle 90% of data traffic, making it cheaper to add wireless than for wireless carriers to add broadband. Netflix's long-term pricing power is underappreciated, especially if competitors retrench or consolidate, but its valuation at ~20x EV/EBITDA raises questions about risk-adjusted returns. Disney faces a strategic choice between a broad general entertainment streaming service and a more niche, IP-focused approach, with recent content performance showing cracks. Media consolidation is likely but complicated by ownership structures and the declining value of linear assets.

Data Points: Charter Q4 wireless net adds: 650,000 - Charter's strong quarter on wireless net ads, compared to Comcast's 'very good' but lower number. Comcast programming cost per month: $80-90 - Comcast's programming expense per customer, contrasted with Netflix's $15-20 monthly price. Netflix US engagement share: 6-7x Peacock - Netflix's engagement share in the US is six to seven times that of Peacock, which is at 1%. Charter EV/EBITDA multiple: 7x - Charter's enterprise value to EBITDA multiple, indicating a potentially undervalued asset. Charter EV/unlevered free cash flow: 12-13x - Charter's valuation on an unlevered free cash flow basis, with near-term distortions from rural investments. Netflix enterprise value: $150 billion - Netflix's enterprise value at the time of the podcast. Netflix 2024 projected EBITDA: $9 billion - Projected EBITDA for Netflix in 2024, implying a ~20x EV/EBITDA multiple. T-Mobile Magenta Max customer share: 15% - Only 15% of T-Mobile's base are Magenta Max customers, who get a lower FWA price. Fiber overbuilder year 1 market share gain: 15% - Rough estimate of market share a fiber overbuilder gains in the first year from a cable incumbent. Fiber overbuilder year 2 market share gain: 5-10% - Additional market share gained in the second year by a fiber overbuilder.

Pivotal Quotes: "I think the long-term pricing power for these services is probably very significantly underappreciated." — Alex Morris: Discussing Netflix's potential to raise prices as competitors retrench and the value of streaming content becomes clearer. "I just think they need to make a clearer choice about where they want to go, and then they have to rework the asset base and the operational focus to align with that." — Alex Morris: On Disney's strategic dilemma between a broad streaming service and a niche IP-focused approach. "I still feel pretty comfortable about where it shakes out over time, but certainly not positive." — Alex Morris: On the long-term impact of FWA on cable broadband, acknowledging uncertainty but maintaining a favorable view of cable's position.

Implications: Investors should monitor FWA's trajectory and cable's wireless bundling success. Charter appears better positioned than Comcast due to strategic focus. Media companies face a pivotal moment: consolidation or strategic clarity is needed. Netflix's pricing power may be underestimated, but its valuation requires growth to justify. Sports rights monetization remains a key uncertainty.