Wednesday, December 30, 2020

Broadband Rescue

 

The $900 billion pandemic relief bill passed by Congress on December 22nd and signed by President Trump five days later, includes $7 billion for broadband programs.  Approximately half of the total, $3.2 billion, will fund an emergency broadband benefit program wherein internet service providers (ISPs) will temporarily discount internet service to eligible households by as much as $50 per month.  (Details of the program will be spelled out in FCC regulations, expected to be released within the next 60 days.)

The focus on broadband is late, but better late than nothing at all.  According to an October 2020 Pew survey, approximately 70 percent of the workforce is now working from home.  (This compares to 20 percent before the coronavirus outbreak.) Many children and young adults, from elementary school to college, are, at least partially, learning virtually.  Without available and affordable connectivity for all, the digital divide enlarges gaps in income (wealth), education, and hope.   

According to the FCC’s 2020 Broadband Deployment Report, 94.4 percent of the U.S. population has access to fixed terrestrial (cable, fiber, DSL) broadband (25 Mbps download and 3 Mbps upload).  By geographical density, broadband deployment is 98.5 percent in urban areas, 77.7 percent in rural areas, and 72.3 percent on tribal lands.  At the state level, broadband deployment is as high as 99.2 percent in New Jersey and as low as 78.7 percent in Arkansas.

According to the Census Bureau’s 2019 American Community Survey (ACS), so pre-covid, nearly 93 percent of U.S. households have a computer in their home and 77.3 percent subscribe to a wired broadband service (includes cable, fiber, DSL, and satellite).  Again, there is quite a bit of variation by state.  In New Jersey, over 82 percent of households have a wired broadband subscription, compared to just 60 percent in Arkansas.  

The variation in access and usage is even greater at the county (and city) level.  For example, in the state of Pennsylvania, 95.4 percent of households have access and nearly 77 percent subscribe to fixed terrestrial broadband.  However, in the low income, sparsely populated (rural) area of Sullivan county, less than 70 percent of households subscribe to a wired broadband service.  Why?  Lack of access and financial means.  By contrast, in Montgomery country, which is more densely populated (suburban) and wealthier, broadband usage jumps to nearly 85 percent.  Why? Abundant access and financial means to subscribe.  The county of Philadelphia tells a slightly different story.  Broadband availability exceeds 99 percent, yet less than 70 percent of households have a broadband subscription.  Why? A simple matter of affordability for the monthly service (and a computing device).

 

 

 

Broadband Subscription (%)

No Internet Subscription (incl. cellular plan) by HH Income

 

 

No Computer in HH (%)

Cable, Fiber, DSL

Satellite

Total Wired

All Income Groups

< $20K

$75K+

Median HH income ($)

US

7.1

70.8

6.5

77.3

13.4

35.6

4.3

       62,843

New Jersey

6.4

78.6

3.7

82.3

10.5

34.9

3.3

       82,545

Arkansas

13.8

51.6

8.4

60.0

26.5

49.8

10.8

       48,952

Pennsylvania

9.3

72.5

4.4

76.9

14.1

35.3

4.1

       61,744

Sullivan

16.7

60.4

8.5

68.9

25.3

54.9

13.6

       47,407

Philadelphia

13.9

64.6

4.4

69.0

22.9

43.9

6.3

       45,927

Montgomery

6.7

82.4

2.1

84.5

10.3

34.1

3.0

       91,546

Source: 2019 American Community Survey, U.S. Census Bureau

By race, broadband subscription was highest among whites (90.1 percent) and lowest for Blacks (83.9 percent),    and native Americans (77.9 percent).  By education level, broadband subscription was highest in households with a bachelor’s degree (95.5 percent) and lowest for those without a high school diploma (72.6 percent)

Will the broadband benefit program help low-income families in counties such as Sullivan and Philadelphia alike?  Absolutely!  But, when the money runs out and the program expires, what then? How can we sustain making broadband accessible and affordable for all?

 

Sources:

https://www.pewsocialtrends.org/2020/12/09/how-the-coronavirus-outbreak-has-and-hasnt-changed-the-way-americans-work/

https://arstechnica.com/tech-policy/2020/12/50-per-month-emergency-broadband-subsidies-approved-in-pandemic-stimulus/

https://broadbandnow.com/

https://data.census.gov/cedsci/

https://www.fcc.gov/reports-research/reports/broadband-progress-reports/2020-broadband-deployment-report

Wednesday, December 23, 2020

Going [Back] to the Movies

 While domestic box office receipts were lower in 2019 relative to the blockbuster prior year, revenue topped $11 billion, the fourth time in five years.  Among distributors, Disney led the way with nearly a 40 percent share of the market, and accounted for eight of the ten largest grossing movies, including Avengers: Endgame, The Lion King, Frozen II, Toy Story 4, Captain Marvel, and Star Wars: The Rise of Skywalker.

 

2019

2018

2017

2016

2015

Total Box Office ($M)

11.26

11.95

10.99

11.26

11.16

Tickets Sold (M)

     1,228.76

     1,311.32

         1,225.64

     1,301.66

                1,323.27

Top Movie

Avengers: Endgame

Black Panther

Star Wars VIII: The Last Jedi

Finding Dory

Star Wars VII: The Force Awakens

The quantity and quality of the movies released each year by the studios is critically important to the well-being of studios and exhibitors alike.  The studios leverage box-office success when negotiating television deals with third-party video distributors or adding to the library of valued content on their own platforms.  The exhibitors, plain and simple, need content to fill seats.

As 2020, began, the expectation was for another strong year with the planned release of must-see in-the-theater movies, including MGM’s No Time to Die, Disney’s Black Widow, Mulan, and Soul, and Warner Media’s Wonder Woman 1984.  While the recent entry and expansion of streaming platforms by the top studios created heightened concerns that some content would bypass theaters and go directly to television, the three largest US exhibitors, AMC, Regal (Cineworld), and Cinemark, viewed streaming as a complement and not a substitute to going to the movies.  Through acquisitions mainly, the chains got bigger providing them with some ability to push back when negotiating for content with the studios.     

U.S. Market (2019)

AMC

Regal

Cinemark

Locations

636

546

345

Screens

8,094

7,178

4,645

Attendance (M)

250

177

176

 

Revenue ($M)

Box Office

2,388

1,860

1,432

Concessions

1,348

954

936

Other

287

396

213

Total

4,023

3,210

2,581

 

That all changed in 2020.  With theaters closed or operating at a fraction of capacity for most of the year, studios increasingly released films directly to their own or partnered streaming platforms.  The pandemic exposed the exhibitors’ vulnerability of having no content of their own and no alternative distribution channels. Through the first 9-months of 2020, the three top U.S. theater chains earned less than a quarter of what they brought in for the same time period in 2019.  (AMC’s numbers are shown below)

U.S. Market - 9 Months Ending 9/30/2019

Revenue ($M)

2020

 % of 2019

Box Office

             408

23%

Concessions

             227

22%

Other

               90

43%

Total

             724

24%

Costs ($M)

Film Exhibition

             208

21%

Food & Beverage

               43

29%

Operating Expenses

             454

50%

Rent

             496

93%

G&A

               53

66%

D&A

             275

109%

Impairments

         1,400

--

Total

         2,929

101%

 

Once vaccinated and herd immunity is achieved, will people go back to the movies? As an affordable form of entertainment that provides an event-sized shared experience, they will.  Behind the scenes, however, things will be different.  Studios have renegotiated contractual terms that have reduced theatrical exclusivity windows (i.e. Universal) and announced intentions to simultaneously release movies to theaters and streaming platforms in 2021 (i.e. Warner Media).  Exhibitors have few good options.  They can continue to work with landlords for concessions on lease terms and seek out alternative uses of their spaces (e.g. live events). But, what else can they do?  Scale back or exit markets?  Maybe.  This would reduce exposure to the whims of the studios.  Vertically integrate or partner with content creators (e.g. MGM, Lions Gate, Sony/Columbia, Netflix, Amazon).  Maybe.  This would partially offset the hold-up problem.  Create promotion bundles/loyalty programs with other entertainment venues. Maybe.  This would offload some risks.  The bottom line is that there is no single, cheap, low-cost answer.  Survival will take vision and boldness.  Who has the “right stuff” to make it happen?  Time will tell…stay tuned!    

Sources: firms’ SEC filings and https://www.the-numbers.com.