Analyst Q&A: An Update on the Entertainment Industry

December 24, 2009

The following is an excerpt from TWST‘s interview with Chris Marangi, associate portfolio manager of the Gabelli Value Fund at GAMCO Investors, Inc. Having joined GAMCO in 2003 as an analyst covering the cable, satellite and entertainment sectors, Mr. Marangi has since appeared on Bloomberg television and radio, and been quoted in publications such as The Wall Street Journal, New York Times, Barrons, Newsday, Bloomberg, Variety and Broadcasting & Cable.

TWST: In general, what is the status of the entertainment sector?
Mr. Marangi: All media companies are being affected by both cyclical and secular dynamics. On the cyclical side, there has been a severe reduction in advertising across all media and continued pressure on consumers’ pocket books, which has contributed to a decline in home entertainment purchases.

TWST: And what is the secular side?
Mr. Marangi: The secular issues in entertainment include changing patterns of consumption of entertainment, i.e., more consumers getting their news and entertainment through the Internet, through mobile applications versus traditional television, radio and newspapers.


TWST: What actions are the companies taking to remain competitive in this environment?

Mr. Marangi: Most of the big entertainment companies are experimenting with new business models. That’s become more urgent as the move to the Web in particular has accelerated. And we think that some of cyclical dynamics as well as improvements in digital distribution, such as faster broadband speed, have contributed to an acceleration of that movement. So as consumers have shown that they are willing to pay for high-quality content, the content owners need to figure out how they can best monetize it in a world in which consumers behave differently.


TWST: What is the status of the cable companies?

Mr. Marangi: All the multi-channel video distributors have been affected to varying degrees and to a lesser extent than the content companies by cyclical trends. A reduction in household income, increases in empty houses, down-tiering have all impacted the growth of video subscriptions. There is also a competitive element in cable with video expansion by AT&T (T) and Verizon (VZ), in particular. But on the other hand, the cable broadband product continues to sell very well. Penetration is still increasing and pricing has held firm.