GoPro Introduces Entry-Level Action Camera, Shares Pop on News of Potential Offer


GoPro has introduced a new entry-level version of its action camera amid declining sales ($1.2 billion in ‘17, down from $1.6 billion in ’15) and a wave of competition (see: Sony, Yi). The $200 Hero is “as easy to use” as a smartphone, with functionality that closely resembles the company’s higher priced models (minus 4K, 360 degrees, less fps). The camera maintains a 2” display and a touch screen back, shoots 10MP photos and 1080p video at 6 fps, has video stabilization, is voice controlled, waterproof up to 33 feet and both WiFi and Bluetooth enabled. The product is being marketed as a “great first GoPro”, one for “people looking to share experiences beyond what a phone can capture.”

Howie Long-Short: GoPro (GPO) shares jumped 7% (to $5.22) on Thursday on news that Xiaomi Corp. is thinking about submitting an offer for the beleaguered action camera maker. Of course, the news doesn’t exactly come out of left field, as we noted back in January that the company had hired JP Morgan to explore a sale. GoPro currently has a market cap of $763 million, but according to The Information, could fetch as much as $1 billion.

Fan Marino: Offering a device for the masses (as opposed to the outdoor enthusiast), may enhance unit sales, but the strategy has failed GoPro (GPRO) before. In 2015, the company introduced a $130 Hero and a $200 Hero+. While the devices sold, the company had cannibalized sales of their higher-tiered products (Hero 4 Silver, Black) in the process; revenue growth dropped from 41% in ’14 to 15% in ’15. By early 2016, GPRO had discontinued the Hero & Hero+ and by the end of the calendar year, was promoting a $300 Hero 5 Session as their entry-level camera. Revenue declined 27% in 2016 and the company reported a full-year loss.

It should be noted that in March, the company signed a licensing deal with the global manufacturing firm Jabil, Inc. (JBL), enabling their use of GPRO lenses and sensors within 3rd-party “Go-Pro approved” products (think self-driving cars). It’s the company’s hope that a higher profit margin licensing business will offset margin decline as sales of the new device grow.

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Upper Income Males Will No Longer Wear Under Armour


Piper Jaffray Companies (PJC) has released results from its 35th semi-annual “Taking Stock with Teens” survey and they indicate that Under Armour (UAA) remains out of favor with Generation Z, “boxed out by resurgent Adidas and retro-category”. The company was the No. 1 label males most often cited as an “old” brand, for the 3rd straight survey; while the company debuted on the list of brands females won’t wear, at No. 10. Footwear sales are struggling, with the brand falling 10 spots to 24th overall; but, perhaps most concerning, UAA has lost the upper-income male demographic. 12% of upper-income males said they would no longer wear the label, compared to just 2% in 2017. Adidas (No. 1 “new” brand for males, No. 2 for females), Vans (highest mindshare for footwear among upper-income females), Supreme (No. 5 “up and coming” male brand) and Champion (moved into Top 10 among upper-income males) were among the survey’s biggest winners.

Howie Long-Short: It been a rough 2 weeks for UAA, or at least their PR team. On March 31st, the company’s fitness app, MyFitnessPal (bought for $475 million), was hacked; resulting in as many as 150 million users having their personal information stolen (though, no payment details were accessed). Then on April 2nd, analysts at Morgan Stanley and Credit Suisse wrote separate notes stating UAA merchandise sales had fallen below 10% of Dick’s Sporting Goods (DKS) total sales and that the company is at risk of being replaced by private labels. Despite all the negative news, share prices have increased 2.5% (to $16.74) since the March 29th close; the last day before this string of negative publicity hit. The company will report Q1 ’18 earnings on April 26th.

Fan Marino: With the share price down 13% YoY and a publicly stated goal to becoming “more operationally efficient”, Under Armour has decided to pass on hosting a hospitality tent at this year’s Preakness Stakes; a traditional day of celebration for the company. They won’t be the only ones sitting this one out. Ticket sales for the event are depressed, down 30% YoY in the infield and 4% YoY “in the building”. Of course, the event drew a record 140,327 fans last year.

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Pac-12 Networks Lags Far Behind Big Ten, SEC Networks


SNL Kagan, a media research firm, has published a report detailing the average subscription fees for 26 national sports networks; data that reflects just how far Pac-12 Networks (P12) lags behind the Big Ten (B10) & SEC Networks. While the B10 and SEC command average subscriber fees of $.48 (+30% since ‘12) and $.74 (launched in ’14), respectively, P12’s average subscriber fee has declined 63% to $.11, over the last 5 years. Just 4 of the 24 national sports networks that existed in 2012, have failed to increase their average subscriber fee since (Olympic Channel -11.5%, Tennis Channel -17.5%, beIN Sports -35%) and P12 experienced the sharpest decline among the group. The Sportsman Channel ($.06), Outdoor Channel ($.06), Outdoor Television ($.05) are the only national sports networks that command less per subscriber than P12 does.

Howie Long-Short: College networks operate on a tiered structure where subscribers within “home markets” pay higher subscription fees than “out of market” subscribers. So, as a network expands distribution and adds out-of-market subs, the average per sub fee will decline. In 2016, P12 signed distribution deals with Dish Network (DISH) and DISH owned Sling TV; a conscious decision to add viewers at the expense of their average subscription fee. One would imagine the average fee would drop even further if the network wereable to work out its long-time impasse with DirecTV and add 37 million households nationwide.

To be fair, P12 has added 7 million subscribers within the last 5 years and the network is on solid financial ground; paying out $2.75 million to each member institution in 2018. Of course, that’s just a small fraction of the estimated $8 million that each SEC and B10 member institution earned, from their respective conference networks, in 2016.

Fan Marino: You can’t buy Pac-12 Networks, as the outlet is wholly owned by the conference’s member institutions, but you can buy shares in both the B10 and SEC. Fox Entertainment Group (FOXA) controls 51% of B10 (Universities own balance) and SEC, is a joint venture between The Walt Disney Company (DIS, 80%) and Hearst Communications.

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Monster Extends NASCAR Cup Series Entitlement Sponsorship Agreement


Monster Energy has signed a one-year extension to remain the entitlement sponsor of the NASCAR Cup Series and the “Official Energy Drink of NASCAR” through the 2019 season. While NASCAR expects the beverage company to remain a corporate partner beyond 2019, pending changes to the sport’s sponsorship model are likely to prevent Monster Energy from continuing as the Cup Series’ title sponsor at the expiration of this deal. NASCAR is leaning towards foregoing a title sponsor for the 2020 season, instead using a series of category sponsors reminiscent of the sponsorship models used in the NFL, NBA, MLB & NHL. Financial terms of the extension were not disclosed, but the original 2-year deal was worth $40 million guaranteed.

Howie Long-Short: On February 28th, Monster Beverage Corporation (MNST) reported disappointing Q417 financials. Despite net sales growing 7.5% YoY (to $810.4 million) and net income increasing 16.4% YoY (to $201.3 million) during the 4th quarter, MNST significantly missed Wall Street estimates (projected $843 million in sales, $213 million in net income); sending shares tumbling 14.4% (to $54.22) on March 1st. The company explained that net sales were “adversely affected (estimated -2%) by inventory reductions by certain international distributors.” Coca-Cola (KO), which maintains a 16.7% stake in MNST, handles international distribution for the company. MNST shares are down 18% since hitting an all-time high on January 26th ($68.91), following months of speculation (and a rising share price, +42% in ‘17) surrounding KO’s interest in buying out the company.

It should be noted that the MNST board of directors recently authorized a new $250 million share repurchase program, raising the aggregate amount available to repurchase shares up to $500 million.

Fan Marino: The first year of the NASCAR/Monster partnership was successful by just about any measure. Meltwater, a media intelligence company, called it the top performing earned media partnership in all of sports; calculating +/- 400 stories/day that included mentions of both Monster Energy and NASCAR. Nielsen determined that Monster received more than $500 million in sponsorship exposure value, on a $20 million spend, solely from the television broadcasts of races; a figure that outpaced the exposure Sprint received in ’16, despite declining viewership totals. 11 million additional NASCAR fans are now Monster drinkers and corporate sales grew 3x faster than category sales YoY in Q3 ’17. One must believe if the sponsorship model wasn’t changing, MNST would have looked to extend this deal further; particularly, when considering the value they’re receiving. Sprint had been paying between $50-$75 million annually.

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Patrick Reed Wins Masters with “Mixed Bag”, No Equipment Sponsor

Patrick Reed

Patrick Reed won the Masters Tournament on Sunday without an equipment sponsor, using “14 golf clubs and a golf ball that I feel are the perfect fit for me.” Reed, who played the previous 5 seasons under contract with Callaway Golf, carried a “mixed bag” containing Ping, Titleist and Callaway irons, Artisan Golf wedges and an Odyssey putter; he used Titleist’s Pro V1 balls. While Reed does not have an equipment sponsor, rare for a major winner, he was outfitted by Nike; though not in his traditional red (see Fan Marino below).

Howie Long-Short: Of the 5 brands that Reed had in his bag, Callaway (ELY), Titleist (GOLF) and Odyssey (ELY) are publicly traded. Ping is a privately held operation, run by the Solheim family; Karsten Solheim founded the company in 1959. Artison Golf is a newly formed company (late ’17), founded by a group of old Nike Golf clubmakers; including master clubmaker Mike Taylor.

Callaway Golf (ELY) had a strong FY17 fueled by the success of the company’s EPIC Woods & Irons line and the acquisitions of OGIO and Travis Mathew (+ $100 million in net sales). Sales increased 20% YoY (to $1.05 billion), net sales grew 20% (to $178 million), Adjusted EBITDA ballooned 72% (to $100 million) and gross margins were up 160 bps. Management is expecting sales and EPS (+100% to $.53 for FY17) to continue growing at a similar rate, in Q1 ’18.

Fan Marino: Despite being the leader going into Sunday’s final round, Nike would not allow Patrick Reed to wear the red shirt with black pants (and black hat) that he typically wears on Sundays. Reed, who wears red as an ode to his idol Tiger Woods, won his 6th tour championship while wearing a pink shirt. Nike maintains that the decision was not related to Woods presence (never in contention) and that there is a new policy to keep the brand’s golfers in “the same kind of storyline” (presumably for easier recognition); but, Woods showed up in his customary red on Sunday finishing T-32nd (+1). There is no word on if Woods was violating company policy or Nike maintains an exemption for Tiger.

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Octagon SVP, Dan Cohen on OTTs, MVPDs and ESPN+


There has been a lot of activity within the OTT & MVPD space over the last 30 days. Among the headlines; ESPN announced the April 12th debut of ESPN+, Turner introduced B/R Live and Endeavor acquired NeuLion. To help us gain some perspective on the sports media rights landscape is Dan Cohen, Octagon SVP, Global Media Rights Consulting Division. In Part 1 of a 2 Part interview, Dan projects what the media landscape is likely to look like in 5 years and suggests who ESPN should be targeting with their OTT service, ESPN+. 

JWS: In the last several months, just about every major TV network launched an OTT service. If the consumer is forced to buy multiple bundles to acquire the various networks they watch, isn’t this just the newest iteration of the cable bundle?

Dan: Yes, is the short answer. I think we’re a little bit away from that and I wouldn’t necessarily say that every U.S. based media company is going about it the same way from a strategy and content perspective. For example, NBC is going very sport specific with NBC Sports Gold (think: soccer or cycling), where they have an anchor property like English Premier League or Tour de France; whereas ESPN+ is really going to be aggregated multi-sport non-linear distributed content, coupled with original programming.

JWS: How far are we away from the “tipping point”, when it is no longer cost-effective for the consumer to acquire programming on an ala carte basis?

Dan: In the next 3-5 years, the dollar cost to having these standalone subscriptions will start to outweigh the original cable bundle for $100/mo. You’ve got the leagues going direct to consumer, they’re also selling broadcast rights to companies like Amazon and Yahoo! and you’re going to have content distributed digitally through these MVPD’s; which I would argue is too crowded a space. So, you’ll have a Netflix subscription, an Amazon Prime account, HBO Go, NFL Game Pass and MLB At-Bat, in addition to your internet bill; and at that point, you’re probably spending close to what your cable bundle costs right now and not getting everything that you had before. 

JWS: So, where does that leave this collection of league/network OTT services and MVPDs in 5 years?

Dan: I think you’ll see a lot of M&A activity within the OTT space, either from a technology platform perspective as we’ve seen with NeuLion, BAMTech and Deltatre or from the multitude of content distributors now readily available (think: Hulu, Fubo TV). You’re also going to see some of these other content rights holders either fall by the wayside or get gobbled up by a larger media distributor looking to grow subscriptions, acquire larger content libraries, or enhance their technology offerings.

Howie Long-Short: Not familiar with Octagon? It’s the world’s largest sports & entertainment agency with 50 offices in 22 countries. Steph Curry, Giannis Antetokounmpo and Felix Hernandez are among the athletes the firm represents; while BMW, Budweiser and Mastercard are listed among their brand clients.

The company is a subsidiary of the publicly traded Interpublic Group (IPG), a collection of advertising agencies and marketing services companies; and component of the S&P 500. In early February, IPG released Q4 revenue +3.3% (to $2.34 billion) and FY17 revenue +1.8% (to $7.88 billion) figures and noted that the company’s operating margin grew +40 basis points (to 12.4%) in 2017. IPG also reported a 17% YoY increase in the Q4 dividend paid (to $.21) and announced the authorization of a new $300 million repurchase program; actions that “reflect our continuing operating success and financial strength”. Since ’11, the company has returned $3.6 billion to shareholders in the form of dividends and repurchases. IPG, which hopes to grow organic revenue 2-3% in ’18, will report Q1 ‘18 earnings on the morning of April 27th.

Fan Marino: As noted here just a weeks ago, I’m having difficulty grasping who the ESPN+ service, as currently constructed, appeals to. Sports fans have favorite teams and watch their teams’ games, gamblers pay for services (think: NBA League Pass, NFL Season Ticket) that provide them with access to all the action and anyone willing to cut the cord (and drop ESPN), isn’t adding a package meant to be complimentary. I asked Dan, who is ESPN targeting with this service?

Dan: There are two groups; the millennial digital and mobile first segment of the population and the next generation of cord cutters or cord nevers. If I’m them, I would be targeting the 28-40-year-old parents that are cutting the cord, have kids that are still screaming for sports content and aren’t necessarily into sports. At $4.99/mo. it provides them with a less expensive entry point for live sports content.

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Meredith Seeks $150 Million for Sports Illustrated


Meredith Corp. (MDP), which acquired Time Inc. for $1.84 billion in January, is seeking more than $150 million for Sports Illustrated (and SI swimsuit). The company doesn’t value the brand’s male dominated readership base, with the MDP’s strengths lying in women’s magazine sales (think: Better Homes & Gardens, Martha Stewart Living). The global investment bank Houlihan Lokey has been tasked finding a buyer and facilitating the transaction, which MDP hopes to complete within 120 days.

Howie Long-Short: Meredith (the U.S.’ largest magazine publisher, owns 17 TV stations) acquired TIME to build scale as a digital publisher (now receives 170 million unique visitors/mo.), but this deal also provides them with financial strength and flexibility. MDP expects the “acquisition will be accretive to free cash flow in the first full year of operations” and anticipates generating +/- $500 million in annual cost synergies over “the first two full years.” The company shed 200 duplicate corporate staffing jobs in March and plans to cut 1,000 more within the legal, financial and human resources departments over the next 10 months.

Sports Illustrated isn’t the only label Meredith is looking to unload; Time, Money and Fortune (the most valuable of the 3) all have audiences (and advertising bases) that differ greatly from the balance of the MDP portfolio (80% is millennial women). The company hopes to get $100 million for each of those 3 labels.

It must be noted that on January 27th, MDP increased its annual dividend 4.8% to $2.18/share. It is the 25th year in a row that the company has increased its dividend and the 71st consecutive year it has issued shareholder returns. Shares are down 19% since January 31st, the day the company announced completion of its TIME acquisition.

Fan Marino: Wondering who might buy Sports Illustrated? Keep an eye on Jay Penske, the founder of Penske Media Corp. Jay recently sold a minority share of the business for $200 million in cash, to the Saudi sovereign wealth fund (so he has some cash laying around). You may recognize the Penske name. His father Roger, owns Penske Racing; which operates teams on both the NASCAR and IndyCar circuits (so he has sports ties). Brad Keselowski, Ryan Blaney, Joey Logano, Helio Castroneves and Juan Pablo Montoya are among Team Pensky’s most recognizable drivers.

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Liberty Media Details Plans for Formula One


Liberty Media (FWONK) has unveiled its plans to make Formula One more competitive, in time for the 2021 season (following expiration of the Concorde Agreement). The adoption of a team budget cap (+/- $150 million, would not include driver salaries), more equitable distribution of prize money (Ferrari will retain a bonus, albeit 60% less) and technical changes designed to make engines simpler, cheaper and louder were among the changes proposed (along with modifications to the sport’s governance and regulations). To increase overtaking, FWONK is working to reduce the impact of engineering technology; as the most powerful cars have been minimizing the impact of the driver. F1 Chairman Chase Carey indicated that the individual teams would have the ability to share their opinions on the proposed rule changes before any decisions are finalized.

Howie Long-Short: In early March, we noted that Liberty had introduced F1 TV; a subscription-based OTT service that will carry commercial-free live race streams (beginning with the start of 2018 season on March 25th), live video from 20 in-car driver cameras, coverage of qualifiers, practice footage, highlights and press conferences. F1’s head of digital and new business Frank Arthofer believes the platform can eventually generate $500 million in revenue (would boost company revenue +28% over ’17 results), crucial for a sport that has all but maxed out the traditional revenue streams (see: race hosting fees, ticket sales). I asked Octagon SVP (Global Media Rights Consulting Division) Dan Cohen if it would be feasible for F1TV to generate $500 million in revenue within 12 months of launching the platform?

Dan: I don’t think so. The U.S. market is still not in love with F1 and to generate the type of revenues they’re talking about (that must occur). They’re more than 12 months away from turning the casual U.S. sports fan into an F1 fan.

JWS: They tout 500 million fans worldwide. Do they really need the U.S. market?

Dan: They need the U.S. market if they want to provide a return on investment for Liberty.

Editor Note: We’ll have Part 1 of a wide-ranging interview with Dan, on everything from ESPN+ to the first global broadcaster of sports, in tomorrow’s newsletter.

Fan Marino: In December ’17, Ferrari CEO Sergio Marchionne indicated that his team would leave Formula One “in 3 seconds” at the expiration of their contract (2020), if “simple and cheap engines like NASCAR” became standardized; Marchionne even floated the idea of forming an “alternative championship” to start in 2020-2021. I’m calling his bluff. While Ferrari chose not to publicly respond to FWONK’s presentation, Mercedes said that many of the “ideas and proposals have been either overdue or necessary or good”; while McLaren has said it’s on board with Liberty’s fan-centric approach.

Aston Martin CEO Andy Palmer said, “the prospective changes support many of the requirements needed” for their company “to enter the sport as an engine supplier.” One suspects Aston Martin’s interest in entering the sport would be to raise the company profile ahead of a pending $7 billion IPO. While more than 90% of the luxury sports car maker is privately held (Kuwaiti investors + Italian PE firm), you can play Aston Martin via Daimler AG (DDAIF); which owns 5%.

Fun Fact: Mercedes driver Lewis Hamilton wears +/-$158 million worth of sponsorship logos (12 companies) on his fire suit. To put that number in perspective, Manchester City’s jersey sponsorship deals with Puma, Etihad and Nexen only total +/-$134 million.

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Fitbit Targeting Women, Children and the Price Conscious Amidst Stiff Competition


Fitbit (FIT) believes there is an opportunity to “bring more women into the smartwatch category”, one that is currently 60% male, and is developing a series of newly designed apps for the female user. The company plans on building the largest database of women’s health metrics (from healthy women), tracking menstrual cycles, fitness activity and sleep patterns; while offering users health tips and insight into their fertility window. The apps will be available on the Ionic and newly introduced Versa model; announced as a “mass appeal” (see: affordable) watch, with versions starting at just $199. It should be noted that FIT also sees an opportunity to capitalize with children (8+), announcing the pending release of the company’s first kid-focused tracker.

Howie Long-Short: Fitbit (FIT) shares took a dive (-11% from $5.11 to $4.55) earlier this week (they have rebounded slightly since to $4.91) following a note from Morgan Stanley analyst, Yuuji Anderson, stating, it’s “hard to see a floor” on the company’s share price; while projecting the company’s sale of “new smartwatches will be outweighed by declines in legacy products.” If true, that would explain why the FIT is placing an emphasis on data collection; it’s hoping to resell the information to insurance and healthcare companies and generate some recurring revenue. Shares are down 31% since December 11th as questions remain about the company’s ability compete in a crowded smartwatch market (think: Apple, Xiaomi, Garmin, Huawei).

Fan Marino: A man was sentences to 2 years in jail for creating a phony buyer, with the intention on manipulating FIT’s share price in Nov. ’16. The con filed a document stating FIT had an offer from a buyer prepared to pay far above the share price. As news broke, shares increased 10% and the man dumped his options for a $3,000 profit. Clearly, not a man familiar with the concept of risk/reward.

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