How Rough A Road?
The "R" word has finally popped out of the box. Even in the upper reaches of government, the grins of denial are fading fast. Housing is in crisis, jobs are disappearing and the dollar has sunk to near doormat status.
In short, we're in a recession ... as those of us living in the trenches have known for quite some time. The question now is not "if" but "how bad." How much will today's economic bad news hurt the burgeoning, highly competitive and increasingly cut-throat multiplatform business?
Judging from the latest Wall Street numbers, the outlook is grim (although not necessarily as grim as the overall economy). While the Dow sank to just 3.3 percent above its 52-week low on Friday, our BRIDGE Multiplatform Index has fared slightly better at 6.3 percent above its 52-week low. Nonetheless 13 of our 52 index companies are now within whisper distance of their lows. (This group encompasses some real biggies such as CBS, Charter, Gannett, Motorola, Qwest and Time Warner.) An additional two companies - NBC parent GE and Media General - sank beneath their 52 week lows on Friday. And if brouhaha between John Malone and Barry Diller doesn't play out nicely, we'd expect IAC Interactive to join the now-at-an-annual low group this week.
Still the home entertainment business has historically been considered "recession proof." As the thinking goes ... when people cut back on such things as vacations, home remodeling and even just going to the theater, they rely more and more on home entertainment.
We expect that's still true ... with one big, BIG change: The housing crisis which helped launch this recession has cut sharply back on the traditional fuel for multiplatform growth. That is, the formation of new households. As we wrote five months ago in our weekly in-depth publication The BRIDGE (see "Housing Casts a Shadow," The BRIDGE Oct. 10, 2007). "From a multiplatform point of view, this means one critical thing: If fewer folks are buying homes ... then fewer households are being formed. That means fewer new subscribers to sign up for services. And that means ... drum roll, please ... if you haven't been paying attention to your existing subscribers then the coming age of customer retention as a No. 1 priority is about to bite you in the butt."