Month / March 2019

by Frank Maduri

Disney Merger With Fox: What Does It Mean?

I have been asked several times today by people who know that I have covered the Disney – Fox merger about what it means for the average person with a cable, satellite, or streaming services package subscription. The deal has also created a significant amount of understandable confusion regarding what Disney will end up controlling, and what assets from Fox are not part of the transaction.

The Disney acquisition of certain assets of the Fox media and entertainment empire has been in the works for several months. The driving forces behind both sides making this deal are different, but the transaction obviously helps both sides or else it would not have been completed.

In an earlier piece on this merger, I explained how Disney is looking to add content for the launch of their streaming app service to rival Netflix and Amazon, called “Disney+”. This acquisition of the 21st Century Fox assets, FX Network, National Geographic Network, and the Fox stake in the Hulu streaming service provides Disney with loads of content ownership.

Fox was looking to streamline their operations and cut themselves loose from the studio holdings that have high overhead costs associated with them. The move away from some of their more ancillary cable television holdings would allow them to focus on their core offerings of news, business news, and sports. These areas have higher profitability from the advertising sales perspective.

Many people are confused about this merger and think that Disney, which already owns ABC and ESPN, will now own Fox networks like their flagship channel, Fox News, Fox Business, and FS1. Those same people are curious as to how that would pass through the antitrust regulations of the federal government.
However, that is not the case. Fox will maintain ownership of their networks here in the U.S. and abroad as well as Fox News, Fox Business, and Fox Sports (FS1 and FS2 networks) in the newly created entity called Fox Corporation.

Disney will gain the outlying assets that I detailed earlier and will begin to seek what their CEO, Bob Iger, described in the press release as “cost synergies”; which translates into layoffs of people that they deem as redundant in the newly merged entities. Disney will also undoubtably look to expand upon the Marvel movies, and maximize merchandising opportunities by creating stand-alone movies on specific characters that were once the property of Fox.

Fox will look to expand the development of programming for their mainstream Fox network as well as gaining new rights agreements for live sports content on the Fox Sports networks. They will no longer be able to produce TV programs in their own studio which will impact their overall production costs, but they will save the overhead of maintaining 21st Century Fox and the Fox TV studio areas.

The Fox networks will be able to purchase productions made in the Disney/21st Century studios. Their sports division is heavily invested in soccer with a World Cup coming up in three years, and will continue to invest in soccer and other sports content namely the NFL package.

The merger is similar to the AT&T / Time Warner consolidation that I covered in multiple pieces over the course of that time frame through the process. It remains to be seen whether content will become limited by Disney to the other cable or satellite providers. I think the streaming content will certainly be limited, but Disney does not have a “horse in the race” like AT&T does with DirecTV on the distribution side of the business.

The deal was certainly a big win for Disney prior to the launch of their new streaming service. The media landscape has condensed and the content that is so valuable is landing in the hands of the few. The average consumer should prepare to pay a subscription fee for the Disney streaming service in addition to any other memberships they currently maintain.

The capabilities of Disney to produce outstanding content is well established, the acquisition today is going to make them even more formidable in the years to follow.

(Some background courtesy of CNN, CNBC, and The Financial Times)

by Frank Maduri

Amazon Grocery Store Plan: Will It Help Or Hurt Retail?

Amazon recently announced a plan to expand into the retail grocery channel beyond their current presence resulting from their acquisition of Whole Foods. Many people know that the internet shopping giant bought Whole Foods for about $14 billion in June 2017, which provided them with a foothold into the grocery business.

The image of Whole Foods from the consumer standpoint is that it is an expensive, almost elitist place to shop for groceries that many in the general public feel they can get a better value at a mainstream grocery chain. Amazon attempted to alter this consumer sentiment around Whole Foods, but when those were unsuccessful, this could have at least contributed to their decision to enter into the retail grocery business in a way that will reach a wider gamut of consumer demographics.

The plan is to open stores in targeted U.S. markets with just a few outlets in each market to test out the concept. The first Amazon grocery store of this type will open in Los Angeles as soon as the end of 2019, if everything goes as planned.

Then, the concept would be rolled out to ten or twelve strategic geographic areas throughout the country. The new grocery brand would sell less expensive products than Whole Foods, would carry a large selection of Amazon’s private label brands, and would carry national brands that are precluded from the Whole Foods shelves based on the food product standards set by that chain.

The decision to carry those national brands would open up a pathway for Amazon to benefit from the huge amounts of money that those companies spend for shelf space and advertising at Point of Purchase type of campaigns. The new grocery brand would also provide Amazon with a way to enroll more people in Prime memberships with some sort of promotional incentive either at the point of enrollment, or for future shopping trips.

Currently, Amazon provides a 10% discount for Prime members when they shop at Whole Foods store locations. This will serve as a model for the new grocery brand in order to incentivize memberships to their Prime service. Amazon will also be able to cross-promote more items from their website during an in-store shopping experience.

Furthermore, Amazon announced in the plans for this new grocery brand that they will have a service that allows shoppers to select the items on the website and set it up for pick-up in the store location, creating what Amazon believes will be the new way that the consumer purchases groceries.

The decision will have a gigantic ripple effect on the grocery industry. The established retail grocery chains are going to have to lower their overhead costs prior to Amazon entering their industry space. That could translate into job cutbacks, layoffs, or restructuring the number of full-time workers or hours that are given out by the mainstream grocery players. The one controllable aspect of a low profit margin business such as the grocery channel is the labor cost.

The other significant component to this news by Amazon is that they are looking to lease spaces that also allow them to sell beauty and personal care products. Those types of products generally have a higher profit margin, and Amazon has their own private label brands which allow for excellent cost control.

My past writing on the food industry and the retail shopping changes that have taken place over the years have centered more on certain chains going bankrupt or discontinuing a product due to a recall or sluggish sales. This situation is rare: a new player actually joining the brick and mortar segment of the retail landscape.

The timing for Amazon is advantageous too because of the amount of large retail spaces that are vacant now with the end of Sears, Toys R Us, and a slew of regional grocery chains. The speculation is that Amazon could lease some of the former Sears locations for this new grocery store concept.

In the Northeast and Mid-Atlantic states, the amount of retail space left from the demise of regional grocery chains such as A&P and Pathmark, create a huge opportunity for Amazon to get an advantageous lease term. Then, they can reach a huge variety of demographics in that part of the country which is so densely populated.

The industry data on the grocery business in America is compelling and certainly has been on the radar screen for Amazon for a while now. The U.S. grocery business is estimated at $830 billion and between Whole Foods and Amazon’s other online business they have a 4% market share. Wal Mart has a 21% market share of the grocery business, and Amazon is looking to grow their share and get in front of mainstream consumers with their private label brands.

The competition will face some very difficult pricing pressures from Amazon entering this part of the industry, should the concept launch be successful. There are many people both in the consumer public and on Wall Street that believe that the competition will be good for the grocery industry.

Amazon entering that mainstream grocery retail space will force other grocery chains to innovate and provide new and better value propositions to their customers. The consumer stands to benefit from that standpoint.

The success of this venture will be evaluated by Amazon in the test markets that they have announced: LA, Chicago, Philadelphia, and others. The full rollout of a new grocery chain from Amazon would help solve for some of the unoccupied retail space in shopping centers around the country. It would bring brick and mortar business back within the context of a changing consumer landscape.

The outcome of this new venture is uncertain, but one thing is clear: all eyes are again on Amazon to see if they can put their stamp on a new way for consumers to shop for groceries.

(Some background information courtesy of Forbes and The Wall Street Journal)

by Frank Maduri

Overload: The Impact of Social Media & The Internet On The Emotional Health Of American Society

The concept is not necessarily new or groundbreaking, but the rise in social media use, also known as “screen time” has demonstrated a definite impact on the mental and emotional health of Americans. The scientific study data is mounting to confirm this daunting trend.

The harmful effects of screen time in excess are being documented as the underlying cause of insomnia, anxiety, and depression. The blue light given off by screens causes eye strain, neck strain, and sleep deprivation. A recent medical study also concluded that the prolonged use of devices and tablets that give off this blue light causes damage to the retina.

The messaging that an average person is bombarded with daily is becoming increasingly obtrusive. The other common emotion is that people feel like they are going to “miss out” on something if they are not constantly on Twitter or Instagram.

The commonly misunderstood aspect of social media overall is that most of the communication being done is idealized, it is “stage hand” so people present the “best” version of themselves – being happy or without a worry in the world or that they have “perfect families or the perfect life”. This version eventually gets other people making constant comparisons to their own lives.
Many people then question why their lives are not “perfect” or “fun” like their contacts on social media present to the world. This leads to depression and anxiety. This leads to many people being further consumed by social media, like the fuel to the fire, as the saying goes.

The unfortunate component to social media overload is that very often those who are impacted do not realize it until it is too late. The fact that so many of our jobs or our side jobs require a presence on social media to carry out obligations of those occupations sets up a slippery slope for many people.

The expectation by a supervisor, manager, or director that we support the work of the company or organization through promotion on social media has blurred the lines of the boundaries even further. This can also be an issue with volunteer work, which in the past was a safe haven from the pressures of your “real job” and now very often these organizations are asking volunteers to “follow”, “like”, and “retweet” their social media marketing to improve their reach/frequency numbers.

The side job or main job being a freelance or independent contractor type situation is also becoming more prevalent, furthering the social media overload. The current percentage of the U.S. workforce that identifies as a freelancer is 30% of the total domestic workforce.

In a recent study on the American workforce, the Department of Labor predicted that 50% of all jobs in the U.S. by the year 2030 will be freelance/independent businesses. That increase is generated by the relative ease that the technology behind creating a website and social media profile has provided to the average person with no tech background.

The emergence of dedicated social media pages as “business pages” or “business profiles” has furthered the reliance on people being attached to their phones or devices. This increased screen time has an impact on parent/child relationships, marital relationships, and sibling interaction.

The heavy usage of social media can be, and has been, determined as an addiction for some Americans. It can cause emotional mood swings because of the constant human tendency to measure ourselves against how others are portraying themselves on social media, leading to constant feelings of inadequacy or unfulfillment.

This overuse of social media has stemmed a trend of “device free” dinner times for families, or the trend of “device free” time for couples when they get home from work or plan an evening out together. That is an indication of how far out of control this situation has become.

The recent studies by several reputable animal health journals and universities centered on the impact of social media use and pets, most specifically dogs. The pets in the studies were impacted, but dogs were found to be the most severely negatively impacted by their owner’s use of social media.

The studies found that when the pet owner spent several uninterrupted hours of social media “screen time” instead of playing with the dog, this was linked to increased rates of depression in dogs. Dogs, more than other pets, are reliant on time with their owner or human family members for play, love, and emotional support. Dogs have been scientifically proven to provide unconditional love to their human family. This loss of interactive time with their owner or family causes the dog to take on the same traits of a depressed human, which can lead to severe health problems for the dog.

A study from the University of Pennsylvania shows a direct link between the use of social media and an increase in loneliness and depression in Americans. The more time the subjects spent on the various forms of social media, their loneliness increased. That increased screen time has also damaged whatever friendships or close relationships that they had prior to the study.

In fact, there is a post going throughout social media that goes along the lines of social media being great for keeping up with people you have not seen in years, yet farther apart from the people closest to you. That great conundrum inherent in social media overload is a trend that will have increased societal implications in the years ahead.

Some countries have pushed back against the grain by banning the use of devices during school hours. Moreover, some countries have banned access to social media outlets completely. This debate will be fueled for many years to come.

The United States has seen the screen time changes play out in school districts and in a piece for the New York Times, the explanation was clarified that in many cases it was easier for the students to adapt to the “all or nothing approach”. It was better for the student to have zero screen time than an abbreviated amount of screen time. It also made the policy easier to enforce.

The impact of cyber-bullying is also of increased concern when it comes to social media use and increased screen time. The widespread nature of bullying going from the classroom to the internet is a tremendous problem for many students from grammar school through college.

Additionally, there is the threat of fake profiles that strangers put up on social media sites to meet people and the many dangers that are associated with those types of interactions. The countless news stories are evidence of this alarming pattern of activity where people have caused harm to another person or kidnapped a child through a “relationship” developed on social media.

In conclusion, the effects of excessive screen time in front of a smart phone, tablet, or other device are being documented as increasingly harmful to an individual’s mental, emotional, and physical health. The amount of neck, shoulder and back injuries as well as the eye problems that increased time staring at these devices can cause is also being documented.

The extreme attachment that people have to their smart phones and other devices today has become an epidemic. It causes increased amounts of anxiety, depression, and feelings of inadequacy in children and adults alike. This increased reliance on screen time has become detrimental to family relationships, friendships, pets, and others.

It is time to put some restrictions on this overload of screen time by putting down your phone or device and spending time with those around you, by meeting up with a friend, or playing with your dog. Your outlook will improve and your life will be more fulfilled if you can successfully implement this “device free” time into daily routine.

(Some background and statistics courtesy of University of Pennsylvania, Harvard University, New York Times, Washington Post, and New England Journal of Medicine)