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Revenge Is a Dish Best Served Cold

Revenge Is a Dish Best Served Cold


Rick was fond of wearing Umbro shorts with boxers hanging out of the bottom, and carrying a lacrosse stick pretty much wherever he went. Every time I saw him, I had this mental image of Moe, the bully from Calvin and Hobbes. I half expected him to call me “Twinky.”

Back then, they used to have these things called Aerobies, which was like a Frisbee on steroids. It was a rubber orange ring that was exceptionally stable in the air when thrown and would travel incredible distances. The Aerobie was a vast improvement on the plain vanilla Frisbee, but flew so far that it was unusable for games of Ultimate.

So one day I was tossing an Aerobie in the quad with one of my friends, and Rick ambled over, and said, “Hey, let me have a toss. I couldn’t say no, so I handed him the Aerobie, and he promptly launched it on the roof of the cafeteria.

“Whoops!” he said and walked off with lacrosse stick in tow. “Hawf, hawf,” he laughed.

As a nerd, I often suffered indignities at home, but I never expected to suffer them at gifted and talented camp.

Anyway, I just celebrated my 18th anniversary with what used to be Rick’s girlfriend.

Short Sports

I actually don’t consider myself to be a vengeful person, but I can’t help but feel smug at this incident even now, 26 years later. I will allow myself that.

And it’s funny. I’m this old, and it took me until about 2013 to understand what the phrase “Revenge is a dish best served cold” meant. Now that I think about it, it’s kind of true.

I got my ass kicked real bad by a stock about two years ago. I shorted Time Warner Cable. Ha! You know how that worked out. Let me tell you the story.

It all started with football. During football season in 2013, I looked around and said, “Holy cow, is football ever a bubble.”

This is a national obsession, all these crazy people tailgating for eight hours and taking up all their time with fantasy football and the constant jibber-jabber on ESPN, on how you’d have six hours of football analysis on either end of a game. This was before all the concussion stuff.

But the economics of it were crazy. $1.2 billion for the Buffalo Bills? Have you been to Buffalo lately?

Then I started doing some digging on how much TV rights cost, and I found out how much ESPN was charging the cable companies, and ultimately, the customer.

“All of this is unsustainable,” I said. “This is the definition of a bubble.”

My plan? Short Time Warner Cable.

Whoops

Well, that was just a terrible idea.

I wrote about it in The Daily Dirtnap at the time, and someone sent me an email from a third party who literally called me an idiot.

He said “This guy is an idiot.” Went into this whole spiel about how even if cable TV was losing subscribers (which it still is), it’s going to make it up in broadband.

He was only scratching the surface of how wrong I was. Then came net neutrality, which is going to insulate the ISPs from competitive threats forever.

Then came the Comcast takeover! But I had already taken enough pain, and I was lucky to get out before then.

As you know, the Comcast deal fell apart under antitrust scrutiny, and Charter is going to do the deal (with a whole lot of debt).

It was the second-biggest loss I ever took. I was a little stubborn about it, but not that stubborn. I lost the money because I was wrong and stupid. Expensive mistake.

My motto has always been “Invest, then investigate.” That is still true, but I now follow up with a lot more research than I used to.

What Would I Have Done Differently?

Did you know that ESPN is the most expensive channel in your cable package? That channel alone costs you $6-$7 a month, whether you watch it or not. That is the magic of bundling—the cable companies throw 150 channels together and charge you for the whole shebang.

So what we are seeing now, with things like Netflix, is unbundling. You probably saw that HBO is offering itself on a standalone basis online.

This is bad for cable TV, but like I said, people still need to pay for Internet (which will undoubtedly get more expensive).

So who is the real loser here?

Um, who owns ESPN?

Disney.

You probably heard that Disney took a big digger on earnings. Let me explain.

The Magic Kingdom

There are some analysts out there who look at DIS as a consumer products company because of the theme parks. I kid you not. The theme parks are big business, but DIS is a media company that depends solely on selling its content and the value of its content.

Disney has benefited from the sports/TV bubble, the superhero movie bubble, the Pixar/animated movie bubble, but as we are now finding out, these are very fragile revenue streams. Look at that five-year chart. It is a sight to behold.

Disney also became the most consensus long in the world. You couldn’t be a growth manager and not hold 50,000 shares of DIS. It came with the mutual fund starter kit.

People are now beginning to question those assumptions.

Star Wars is expected to make a billion, maybe two at the box office. In fact, you can go look at Disney’s calendar of movies out to 2018, and it is superhero movie after superhero movie. They just made a movie out of Ant-Man. What’s next, The Tick?

My prediction: in three years, people will be very bored of superhero movies. Maybe sooner than that.

Disney is about to turn from the perfect storm of awesome into the perfect storm of poo, and it’s all because of cord-cutters and unbundling. TV is 50% of their revenue. If people one day have the ability to opt out of ESPN, their revenue stream will look very different indeed.

Revenge

I’d like to get my money back from that awful Time Warner Cable trade. The best way to do it is through shorting Disney. I’m waiting and watching. If it gets anywhere near previous highs, I think I am going to take a shot.

In the new media landscape, Disney is the biggest loser of all.

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Discussion

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0 comments

jkmail@nycap.rr.com
Aug. 20, 2015, 6:13 p.m.

Hindsight being 20/20, as a former Time Warner Cable insider, two things you didn’t consider:  1) the cable industry buried themselves in huge investments building and acquiring the infrastructure.  Those investments are becoming paid-off and therefore more and more of the revenue is going right to the bottom-line, the only way they can lose lots of subs and still watch profits grow.  And, 2) did the Comcast deal REALLY fail because of regulators or did the “twins” decide it wasn’t really the best thing for either of them and need a scapegoat for the reversal??  After all, they OWN Washington!  You are totally right about ‘common carriage’, and right about ‘what they don’t get from television, they’ll get from internet carriage’.  Joe Consumer hasn’t a clue what’s coming!

norris.harvey@hatchmott.com
Aug. 20, 2015, 12:02 p.m.

I disagree with your statement on superhero movies.  There is too much to like, for a diverse age range, for these movies to just stop making money. 

ESPN is also very popular.  There is a reason the cable company is willing to pay the fee to begin with.  Sports popularity has been around a long time.  Until ESPN has competition - which it doesn’t right now - it will continue to demand these prices and people will pay it.

Disney stock does look like it has had a long upward run, though.  Perhaps you are right, but likely for other reasons than those stated.

michaelcarr@providge.com
Aug. 20, 2015, 10:51 a.m.

Great lead-in story.

That 3rd party email you received sounds exactly like others I have sent all around the web. To me the Cable companies own the last line with the highest throughput into your house.  As such, they will reap the benefits of whatever comes over that line. Whether you watch “Interstellar” on Netflix or Cable, it is all data coming across and they have two mechanisms to charge you for it. The other thing people don’t realize is the cable companies are beneficiaries of the Telecom bubble. All those TC companies that went backrupt gave away their assets for pennies on the dollar. So there is an embedded barrier to entry.

To me the real threat to cable are the Wireless companies.  As Wireless improves, maybe we won’t need Cable or Wi-Fi at all.  It will all be cellular (10G or something).  That is why I like VZ (even though I haven’t invested in them).  Or maybe American Tower?

Regarding Disney, I think you are wrong. Content is king and ESPN could easily get $10/household.  Ask any man whether they’d rather spend $15/mo on ESPN or HBO.  Even someone like me knows they have to have it after hosting a few “Big Game” parties only to realize I the game was on a channel didn’t subscribe to. There might be a sports bubble, but living in the South, I don’t see it ever completely popping.  Disney might see TV revenue increase as they can get $20/mo for households with Sports Guys and Children.

Superheroes are in a bubble, but there is a floor for demand as long as people keep having babies. Also, what about China? Can’t Disney break into that market?

I don’t own any of the companies mentioned above, mainly because I am bandaging my hands from failing knives (oil), but at this point I wish I did.

Looking forward to your next piece on OIL!

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