by Frank Maduri

Monday Night Football Ratings Take A Nosedive

The ratings were released today for ESPN’s Monday Night Football and they were the second lowest ratings for a season and would have been the lowest if not for the huge rating turned in by the Dallas Cowboys-Detroit Lions contest this past week.

The problem facing the ratings for MNF is part of a broader trend facing all NFL broadcasts this season, as a ratings decline was felt across all their broadcast packages. The ratings slump was seen by some as being connected to the presidential election, but even after that was decided in early November, the ratings have not rebounded to expected levels.

This past week, with the long Christmas/Chanukah holiday weekend the NFL lead the ratings for their main telecasts: Thursday Night Football (Eagles vs. Giants), Sunday Night Football, and Monday Night Football.

The ESPN Monday night package had been down in recent years because the matchups were generally not as compelling as the games featured in other NFL packages. The other theory being that with the addition of more Thursday night NFL games on network channels with CBS and NBC splitting those telecasts, that the average as well as the hard core NFL fan was becoming disinterested by the time Monday night rolled around.

The broadcast of NFL games, prior to this season, held the sentiment within the media and advertising industries as the “final frontier” for programming which remained immune to drops in ratings or viewership. This season though dispelled that theory as each segment of the NFL broadcasting tiered structure, from the regionalized coverage on Sunday afternoons to the primetime broadcasts, all experienced a downturn in ratings.
The before-mentioned Presidential election had some effect on the NFL ratings because the cable and network news programs on Sunday nights saw a marked increase in ratings. The NFL numbers rebounded somewhat after the election, but still were softer overall than in recent years.

I have written previously about a potential oversaturation point for the NFL with televised games and I think the 2016 season is evidence that the threshold has been reached. The final weeks of the season were also fairly devoid of drama surrounding the field of playoff teams, with the AFC side decided except for seeding a couple of teams, and the NFC side basically set except for the NFC North.

The matchup to decide the NFC North title between the Detroit Lions and the Green Bay Packers served as the season finale to Sunday Night Football on NBC and it finished with a 13.7 rating. That served as an increase from the Christmas night game on NBC between Kansas City and Denver which finished with an 11.2 rating.

The NFL, for its part in this situation, has repeatedly stated that they are looking into the ratings downturn and evaluating strategies to increase viewers moving forward. They also remain committed to Thursday and Monday night games despite the decline in ratings this season for both of those programming entities.

The players, notably Richard Sherman of the Seattle Seahawks among others, have been vocal in their disdain for Thursday night games which create short weeks for both teams, especially the visiting team that must also travel to the game site. The discussion is now shifting toward improved scheduling of Thursday night games such as positioning it following a bye week for the teams involved, or scheduling more divisional matchups with shorter travel distances for the visiting team.

I had also written previously about the National Anthem protests by NFL players and whether that had an impact on the ratings slump for the NFL. The issue undoubtedly drew people away from watching certain primetime games (especially those featuring the San Francisco 49ers which were at the center of the issue) and I know people personally who refused to watch certain NFL games because of those protests.

However, the Denver Post conducted a survey about the NFL ratings slump and only 25% of the respondents felt that the National Anthem protests were the core issue as to why they were changing the channel from the NFL production. It should be noted that this survey was unscientific but it had some revealing results which demonstrated that the number of penalties, overall quality of play, and the off-field issues for players (domestic violence, drugs, guns etc.) were the top reasons for the decline in viewers.

First, the number of penalties in these games is bordering on being out of hand. The league office has to get together with the officiating crews during the offseason and discuss some ways to cut down on penalties, especially during primetime games. There were points in this season where my schedule allowed me to watch more Monday night games than anything else, and the number of penalties and stoppages for challenged rulings on catches or some other issue made the games very difficult to watch at points. I am a huge fan of the NFL and watch more out of market games for that sport than any other, so if I am frustrated with that, it has to effect the average viewer.

Second, the overall quality of play is a huge issue here with ratings and they are connected very closely to the decline this season. Many of the Thursday and some of the NBC games on Sunday in primetime as well as the Monday night edition on ESPN had scores that were so lopsided that the viewers bailed well before the end of the game. The retirement of Peyton Manning and some less attractive matchups in some of the primetime packages drove this rationale further in the impact on ratings.
Next, the off-field issues for the players is a definite concern for the league, to which there is no easy way to mitigate because of the way information is transmitted today via social media and the internet. The media coverage of a variety of off-field matters from domestic violence charges, weapons charges, and other infractions such as drug or PED use is a definite setback to the image of the league. The league has talked about transparency, so it is not like they can keep these matters out of the public domain, so it will remain an issue for the NFL moving forward.

Finally, the topic of oversaturation was discussed in multiple media reports (SI.com produced a great piece about the ratings slump) and the before-mentioned Denver Post survey noted that only 29% of viewers watched all three days of NFL football (Thursday, Sunday, and Monday). That translates into a situation where you have oversaturation of product in the airwaves.

The combination of factors driving the decline also translates into a situation where the solution is not easily obtained. It should be interesting to see how the NFL responds to the ratings data from this season and whether they can reverse this trend, stay tuned.

The NFL seems bullish on not eliminating any of these package tiers so they are going to have to work around this reality that, until they address some of these other issues, the ratings are going to remain hovering around the levels they were this season. The NFL is getting a dose of the fact that reality is sometimes a very difficult concept to accept.

by Frank Maduri

Squashed: Hunt’s GMO Claim Buries New Ad Campaign

Hunt’s is an iconic American brand, perhaps known best as the number two brand of ketchup next to Heinz, released a new advertising campaign this past Monday. The after-Christmas marketing and advertising direction poised to take them into 2017 and it features a field of tomatoes with the voice-over: “No GMOs in sight”.

The campaign, on the surface, might seem rather benign to the average consumer. However, the campaign and the inference that Hunt’s products used non-GMO tomatoes was met with swift resistance by those in a variety of areas of expertise.

The issue being: that there are no GMOs in tomatoes that are sold to consumers in any form in the United States. The claim by Hunt’s (parent company ConAgra Foods) is now being viewed as the company trying to essentially trick the American consumer into thinking that the competition uses or contains GMO ingredients.

Furthermore, the campaign by Hunt’s is being seen as a way to capitalize on the American consumer and their inherent aversion to GMO containing food products. In the essence of the situation here, the bottom line is that it looks dishonest by the company that they are making a claim about GMOs when all tomatoes are free of the ingredients that would met a standard definition of being genetically altered or modified.

The consumer, farming, and scientific communities have all taken to social media and squashed Hunt’s for the implication that their ingredients are free of GMOs, when it would be true for the entire market. The other issue at play here is that if they planned on changing their label to reflect a “non-GMO” status, that type of change to the packaging and label deck costs money, and it is usually passed along to the consumer in the form of a price increase.

The campaign has smacked so much of utilizing public fears over GMOs that some social media comments have consumers saying that they will be buying the competition’s products because of what Hunt’s tried to insinuate in this campaign.

It would be ridiculous if Heinz had to issue a campaign or a statement regarding the GMO status of their tomato based product lines. This is a case study for a marketing and advertising campaign that has gone totally sideways from the original intent because it was not thought all the way through. It was ill-advised by Hunt’s and it is definitely misleading to the consumer, but it was not in a malicious way.

The topic of GMOs is a hot button for many, myself included, and I have written my share of pieces on all sorts of topics relative to GMOs in the past. The article I did on Campbell’s Soup and their decision to disclose genetically modified ingredients on their individual product labels has certainly sparked a backlash against their products. I have witnessed it in the soup aisle and with the reaction of those people I know regarding their soup products.

In fairness to Campbell’s, as I noted in my prior article, the staple crops in making some of their soups: corn, soy, and sugar beet are sourced from the supplier as GMO containing ingredients. This is due to the supply chain of our staple crops containing GMOs or being grown with GMO seed. The amount of organic crops of those staple items is far too limited to sustain a mass production supply level and would also be very cost inefficient at this point.

The case of Campbell’s differs from Hunt’s because the ingredients involved in making soup do have non-GMO alternative sources, in the case of Hunt’s the product is already GMO free and they were trying to pass it off as it was a decision that they had consciously made about their products.

In the end analysis, honesty is always the best policy. Hunt’s would have been better served by focusing on the facts such as: “the tomato, GMO free and always will be” or “ketchup the naturally GMO free way to give flavor to your favorite food”. The tact they took has left them in a tough spot, they have to course correct this marketing campaign or else they will be left trying to figure out what to do with all those unsold bottles of ketchup which was GMO free in the first place.

by Frank Maduri

Rite of Passage: Walgreens, Rite Aid, & Fred’s Pharmacy Strike Deal

The retail pharmacy channel had an interesting week as we head toward the end of 2016, with the news that Fred’s Pharmacy chain is planning to purchase 865 Rite Aid store locations. This sale is motivated by the proposed merger between Rite Aid and Walgreens which I covered earlier in 2016.

A number of weeks ago the proposed merger was shifted to an early 2017 completion date because of some regulatory situations. The Rite Aid/Walgreens group decided to sell these locations in an effort to satisfy the Federal Trade Commission and some of their concerns over the potential monopoly the combined entity would have in certain geographic areas.

The exact locations of the Rite Aid locations being sold off to Fred’s Pharmacy has not been disclosed, and will not be disclosed until everything is finalized. The news yesterday had Rite Aid stock price jump 5% overall, and if the transaction is approved, the acquisition would vault Fred’s to the 3rd largest drug store chain in the United States.

Fred’s Pharmacy is a southeastern U.S. based regional drug store brand which also has a division of deep discount stores that compete with Dollar Tree and Dollar General. The company, according to financial news sources, is in the middle of a rebranding strategy to move away from being a discount retailer and shifting their focus to being a health and wellness focused drug store retailer. This transaction will provide them with a great opportunity to complete that type of rebranding effort. That was confirmed by the response in the stock market, with Fred’s Pharmacy shares jumping 81% at one point.

The Walgreens/Rite Aid group had to make some sort of move to divest locations to satisfy the anti-trust regulatory process. The reality in this market is that when you do a “channel check” on retail drug stores, Walgreens had just a few options to make a deal based on the current status in that market space currently. Then I read in Forbes that one of the top executives at Fred’s Pharmacy handled real estate transactions on locations for Walgreens in his most recent previous job, I started to understand the dynamics of this deal and how it was consummated.

The regulatory road has had some hurdles for Walgreens and Rite Aid because it will create a huge company of 12,000 store locations. The merger could benefit consumers because of the power they could possess for obtaining better drug prices from the pharmaceutical distribution companies. The merger could also be a negative for consumers because the company could set higher prices on other products leaving the consumer with little competitive options that could provide savings.

Fred’s is going to greatly expand their presence in the market with their investment of around $900 million to reinvigorate the company and help it to compete with larger regional and national marketplace players.

The deal makes sense for Walgreens/Rite Aid because their merger is estimated at over $9 billion and would completely reshape the retail drug store industry space in the U.S. if it is approved. The areas of health, beauty, and personal care are always in demand by the American consumer and that trend is not about to change anytime soon. Walgreens is planning on having the capability to provide all of those needs in a “one stop” shopping experience for the consumer.

This all bears watching as we will soon flip the calendar to 2017 and watch as the huge companies all get even larger through M&A activity.

(Some background information, statistics, and stock market data courtesy of CNBC, Forbes, and Yahoo! Finance)

by Frank Maduri

Gone Fishing: L.A. Rams Fire Jeff Fisher

The Los Angeles Rams vaulted to the top spot in the sports news stream this afternoon when they announced they had made a head coaching change by dismissing Jeff Fisher after a 4-9 start to the 2016 season. The Rams lost their fourth straight game on Sunday and they had lost eight of their last nine games.

The reason why this move came as a bit of a surprise is that the team and Fisher had just recently confirmed that Fisher and General Manager Les Snead had both signed contract extensions (Fisher was given an extension through the 2018 season). The Rams owner, Stan Kroenke, spoke today about the firing of Coach Fisher and explained that the thought process at the time of the extension (which actually was signed before this season began) was to reward Fisher for making the transition of the franchise from St. Louis to their relocation this season to Los Angeles. The Rams are set to move into a huge new stadium facility in a few years and they thought Fisher could lead them into that stage in their progression in Southern California.

This season, however, was a spectacular failure for Fisher who has been dogged by on-field and off-field issues all season. The first issue was the decision to play Case Keenum at quarterback and bench the Rams top draft pick, Jared Goff, which then led to the media pressing Fisher about playing Goff. The team had traded future draft selections to move up to the top overall spot in the draft to select Goff and Fisher kept him on the bench.

When the media pressured Fisher about this situation, it was essentially discovered that he was against the decision to trade all of those future assets to move up to select Goff. The selection of Jared Goff was supposed to represent the future of the franchise in their new Los Angeles chapter, and that player was not in the plans for the head coach of the team, that was the first sign of trouble for Fisher.

Next, the play of the team after a surprising start, began to spiral downward. The players looked unfocused, and the play turned sloppy and undisciplined in all three phases: offense, defense, and special teams. The new fan base in L.A. grew weary quickly and called for Goff to get a shot at quarterback.

Coach Fisher, under what I would assume was intense pressure from the front office and the owner, relented and started Jared Goff. The situation went from bad to worse as the turnover ratio for the team ballooned and the Rams dropped their next four games. It was unfair to Goff too, since he had not seen the field at all, and then he is dropped into the middle of an already rocky season, and he is told to essentially learn the offense “on the go”.

The offensive woes continued with the Rams getting blown out by the Atlanta Falcons yesterday in front of a dwindling home crowd. The comments by running back Todd Gurley after the game are summed up by him calling the Rams “a middle school offense”, and in my opinion Gurley should not be saying anything to the media to criticize anything because his play has been well below the expectations, his performance has been terrible this season.

The offense is most probably a main reason why the decision to fire Jeff Fisher was made at this point because if the front office was lukewarm about keeping Fisher as their coach, the sooner they transition the new offensive scheme for Jared Goff to learn, the better off they will be in the long term. I have seen this with other teams and their young quarterbacks, the management wants to avoid having them learn multiple systems, and stability is needed for success.

Furthermore, Fisher had the whole ordeal with Eric Dickerson which unraveled off the field which became a huge distraction for the team. Dickerson is a Hall of Fame running back who was a staple of the L.A. Rams in their original run in Southern California before the team relocated to St. Louis in the mid-1990s.

Dickerson was seeking some on-field passes for himself and his friends, Fisher reportedly denied the request, and a rather vocal (at least Dickerson was) and public feud between the two men ensued. Fisher was never going to win a fight with a Rams former player that carries as much clout as Dickerson, so I knew this was going to be yet another “black mark” against Fisher.

The Rams were blown out yesterday by Atlanta, as I mentioned earlier, and with that loss Coach Fisher tied Dan Reeves for the most losses in an NFL coaching career in the history of the league. It was a matter of time before the hammer was going to drop on Fisher, I thought it was going to be after the season on that Monday where characteristically coaching changes are made.

In the interim, John Fassel, the son of former New York Giants head coach, Jim Fassel, will step in and guide the team. The Rams have a game on the road in Seattle on Thursday night, which also surprised many with the timing of this decision today, it is a short week for the team to prepare. This change being made at this point translates into a situation where reading between the lines it had to have been very rough behind the scenes over the past few days.

The aftermath beyond these last three games of the 2016 debacle of a season for the L.A. Rams is that the team with a multi-billion dollar new stadium being constructed along with a huge retail and entertainment district surrounding it, which is dubbed “NFL Disneyland” needs to make a big splash again. The Rams front office needs to hire a big name to replace Fisher. They need a big time offensive minded head coach to install a system that complements Jared Goff, who they have committed significantly toward being their franchise quarterback.
Those names are Mike Shanahan, Jon Gruden, and Jim Harbaugh. The plan, according to reports from ESPN, NFL Network, and others if Shanahan was hired his son, Kyle, would join him in L.A. and would take the reins as head coach in a few years.

The most intriguing name, whether you like him or not, is Harbaugh. In my own opinion, I do not think that Gruden has interest in leaving his very lucrative ESPN commentary job to coach again, or else he would have done so already. I would also have some concerns if I were the Rams about whether Gruden still had the fire to coach after being away from the sideline for so long.

The Rams roster is not very good and needs a lot of work to build toward a playoff contender, let alone a championship contender. I would think Gruden would be interested in a team that was closer to winning than one that will take a bit of rebuild before it can turn that corner.

Harbaugh, though, is a name that is going to gain traction because he has lived and coached on the West Coast with Stanford and the San Francisco 49ers, and he had great success at both stops. In his current situation at the University of Michigan there have been some significant bumps in the road in that situation because Harbaugh wants to do things his way, and Michigan has resisted completely handing him the keys to do so.

The Rams, if they were very aggressive, could pry Harbaugh away from his alma mater, especially if they put enough money on the table. The fact that Stan Kroenke is a billionaire and has a significant amount of resources dedicated to making the Rams a part of the fabric of L.A. again is leverage for the next coach to utilize as well.

In a related note, now that Fisher is dismissed, Eric Dickerson has stated that he will attend Rams games again, and for whatever it is worth, he just started following Jim Harbaugh on Twitter.

The Rams ownership and management made a bold push to the NFL to gain relocation into the coveted L.A. market before any other team, and their first season there has been a flop. They need to make another bold move by naming the right man to coach the team moving forward and transition this team into one that will capture the consciousness of the fan base in Los Angeles. They need to right this ship before it sinks completely.

by Frank Maduri

NJ Devils: West to East Coast – The Road Ahead

The New Jersey Devils lost yet another game on the road last night to the Chicago Blackhawks in overtime. Since the teams reached the extra session, the Devils will earn a point in the standings for the overtime loss, but it still leaves an unsettling feeling for the fans. This 2016-17 Devils team has struggled on the road so far, and the reverse is also true: the team has been very strong on their home ice (7 wins, and only 2 losses – both in overtime) which has buoyed their overall performance.

There are some fans and local “beat” media types that are quick to point out that many of those games where the Devils performance has lacked are in games against top tier teams or teams with winning records, for the most part. They would also be correct in generalizing the effort of New Jersey being very resolute in many of those games, where they have battled to stay in those losing games rather than give up.

However, in my view, the fact that the Devils have played 14 games on the road this season and have won just 3 of those games and lost 11 times (7 in regulation and 4 in overtime), is a concern. I can concede that it is still early, there is a great deal of hockey still left to be played; but the reality is that these trends get entrenched and they are difficult for teams to turn around.

In addition, the team has been without star forward Taylor Hall who was out with an injury until his return last night to the action in Chicago. Hall does significantly impact the manner in which the team approaches the strategy to a given game. His ability to use his speed and skating ability to push the puck forward puts pressure on the opposing team and changes the way in which the Devils hold the zone offensively and transition the puck as well. That type of impact cannot be underscored. It obviously remains to be seen how a healthy and effective Taylor Hall as well as the health of other key players impacts the performance of the team on the road as the season moves forward.

The silver lining in the case of a tough team like Chicago is that the Devils will not have to play there again this season. The Devils also dealt with a trip to the West Coast already and subjected themselves to that gauntlet. The point being that they have put some of the more difficult road trips behind them.

It should also be noted that the Devils schedule is “back loaded” with home games in the second half, which if they play to their potential and are in the mix for a wild card playoff spot, they should be able to win several of those home games, so they figure to be well positioned in the long term.

Conversely, they have not played many Metropolitan Division opponents so far this season, so New Jersey has some difficult games ahead against teams in the top of the standings such as the New York Rangers, Pittsburgh Penguins, and the surprising Columbus Blue Jackets.

In addition, the Devils have several games remaining with the top teams from the Atlantic Division such as the Montreal Canadiens, Ottawa Senators, and Boston Bruins. It is going to be “tough sledding” until February where they have nine of their eleven games that month are at home at Prudential Center.

In the meantime, we will learn if Travis Zajac has found his scoring touch again after the hat trick last night. We will see how the new defensive pairings for this season hold up under the crucible of Metropolitan divisional rivalry games. We will see if the young Devils prospects can continue to contribute in the various facets of the game on a consistent basis.

The Devils have areas to improve and they have areas where they have been surprisingly better than anticipated, but that is not unlike many other teams at this point in a hockey season. It remains to be seen how the road ahead will treat New Jersey, but I know one thing: they have to figure out a way to win games away from Prudential Center, or else this season will be over before we know it.

by Frank Maduri

The Commodification of Water

Many people living in America and other Western societies tend to take for granted the resources that we have at our fingertips which require little to no effort to obtain. One of those resources is also the most critical one: access to water.

I have fallen victim to this situation myself, having lived in America my entire life, never having to think about where my next glass of water would come from, or if I had enough water to take a shower. I simply turn on the tap and have access to safe, clean, unlimited drinking water.

However, as my previous experience covering the severe drought conditions that have plagued the American West have taught me, not everyone in America has had that same access to water as my experience has afforded me. The limited supply of water in states such as California and Nevada, the dangerously low levels of supply at reservoirs such as Lake Mead, and the changes in the levels of snowfall in the Rockies have prolonged the severity of the drought. The associated snowpack melting in the Rockies is what serves as one of the main supply points for the Colorado River and other Western rivers which feed into Lake Mead.

The access to water is also severely limited in certain areas of the world from Developing World areas in Africa and South America; to areas with booming populations and commerce such as China, India, Russia, and parts of Southeast Asia.

The simple fact is that the demand for water is very strong and the available supply of safe, clean water is low in comparison. Then, the projected demand over the next several years demonstrates that this demand curve is only going to enhance the demand for water, and that creates the classic supply and demand scenario that has Wall Street as well as other commodity experts speculating about one big idea: the commodification of water.

Buying & Selling A Life-sustaining resource

This idea at the core is both controversial and extremely complicated, while at the same time contains far reaching potential consequences. The financial markets buy and sell commodity positions on all sorts of materials from cattle, to coffee and even orange juice. The thought of that sort of trading with water is unthinkable to some, and a natural progression in the trade of a valued commodity to others.

The rationale behind these feelings is pretty self-evident, water is needed for survival where other commodities are not. The thought process around water and the access to water is different too, with many people (especially in the Western societies) feeling that they are entitled to water, or that water should be provided and not bought and sold on an exchange. Those feelings are all understandable.

However, water is currently sold on commodities markets in the form of ETF (Exchange Traded Funds) types of arrangements. In fact, for all those out there that saw the film, The Big Short, starring Christian Bale, Ryan Gosling, and Steve Carell which revolved around the housing bubble bursting and the economic crash that followed. The real-life character Bale depicted in the film, Dr. Michael Burry, has already began focusing his purchasing efforts on buying commodity positions in water.

Dr. Burry was ahead of the curve on the housing market with the swaps and CDOs, and now is focused on water which is a scary proposition. The current ETF structure places various products having to do with water such as the makers of pumps, filters, or irrigation systems with those who make equipment for water utilities. The Palisades Water Index, Dow Jones U.S. Water Index, ISE-B&S Water Index, and the S&P 1500 Water Index are a few of the most well-known funds that deal with water related trading activity.

In North America, this issue has come to the forefront with the controversies surrounding Nestle and other bottled water companies being able to utilize water supplies from Indian reservations in California while the state is on a water restriction. I covered that issue as well as the drought impact on Lake Mead so I have read countless reports and studies about the water supply in the domestic United States.

Another controversy surrounding Nestle was the purchase of a large water utility in Canada which serves the public. It is a dangerous potential precedent which led to protests and a call for a boycott of Nestle bottled water in Canada. The company also has outbid locals in Ontario for use of well water supplies for the purposes of bottling water, and Nestle has a permit to take water from an Ontario watershed during a drought restriction in that part of Canada. These incidences have outraged the locals and has initiated much the same argument as I posed with my prior work on Nestle in California: should they be allowed to sell water for a profit during a drought? It raises some serious questions.

Check and Balance

The commodification of water is also very complicated and is viewed by some in the investing and commodity trading sectors as a scenario which will never reach full realization. This is due largely to the reality that water is regulated by utilities which are operated, in whole or in part, by the state or the county. The municipal and county government or state level government involvement in the water supply is seen as the major deterring factor to essentially “check and balance” the trading of water as a commodity.

While the role of government may be factor in the U.S. and some other countries, it is certainly not the case in every country that is either dealing with water scarcity now, or will have an issue with the supply of water in the future. The financial market news site, The Street, reports that infrastructure spending for water supply related projects is estimated at $22 trillion over the next 20 years. That spending figure is just to maintain the status quo and does not account for new demand areas in growing population centers which I mentioned earlier.

That same piece done by The Street goes on to explain that the future investment strategy with regard to water will involve the infrastructure companies. The rationale around that statement makes sense because most of those same companies are diversified, therefore they will be involved with other infrastructure projects in other industries, not just with water related projects.

The thought of brokers or other “power elite” types buying positions in the supply of water is a downright frightening proposition for many in the general public. Furthermore, there are those who had no idea that the trend toward the commodification of water was even on the horizon, which is part of the impetus behind my choosing to write this piece.

Frightening & Intriguing

The reality is that water scarcity is a real issue confronting our future. It will impact supply and demand to a level that speculators will take a run at investing in positions at least in the ETFs involved. The response of other Developing World countries and emerging market countries, such as the BRICs countries I mentioned earlier, remains to be determined. They may decide to privatize the supply of water, in a country like China they will most likely implement measures where the supply is completely controlled by the national government, and Russia could fall somewhere in between. That portion of this scenario bears watching.

The commodification of water is also seen as both frightening and intriguing at the same time: frightening because it is a life-sustaining resource that most people feel should not be consolidated into the hands of a few wealthy individuals or entities, and intriguing from the investment perspective because there is no substitute for water like there is with certain other commodities.

The argument could be made that other natural resources such as oil and gold are traded as commodities, but the converse side is that neither of those resources are critical to sustaining life which water is most certainly. There are others within the investment world which feel that the buying of positions relative to the market on water may be essentially a bunch of noise. This is because the investors and those making valuations have difficulty in measuring the profitability of the private companies involved in the water industry.

Moreover, there is a sentiment that water is strictly a niche commodity investment and does not have the return rate needed to be a stand-alone investment. All of these factors will serve as the backdrop to the future where water will be in decreased supply and increased demand, unless some other method or technology comes along relative to the desalination of saltwater. That would “change the game” dramatically given the immense amount of saltwater that could be utilized.

In the end, the debate over whether or not a life-sustaining natural resource such as water should be traded as a commodity will continue. The potential for water scarcity for nearly half the population of the globe will also be a pressing issue in the future. Should water be traded as a commodity? Should it be exempt? Should industry titans such as Nestle be allowed to profit from resources that could serve local populations and not serve their bottom line?

Those questions will face us now and in future, with drastic and far-reaching consequences.

(Background and some statistics courtesy of The Street, Investopedia, U.S. News & World Report, Forbes.com, and CNN.Money.com)

by Frank Maduri

Follow Up: Lower Food Costs and the Impact on the Restaurant Industry

In a follow up to my most recent piece on the lower cost of food commodities and the impact on the retail grocery channel; the Chicago Tribune published an interesting article on the relationship to those lower costs and the impact on the restaurant industry.

The article describes the fact that the falling food prices for staple items such as beef, eggs, and other commodity products has not translated into lower prices at restaurants. In fact, dining out is more expensive than it has been when compared to eating at home, that ratio is at the highest difference in three decades in the United States.

I was thinking about this connection myself last week when I was working on the piece on food commodities. It came about at a couple of different points last week: I had picked up some mail and the menus for some restaurants in my area were included in the ads and coupons. The prices on some of the menu items really jumped out at me for being expensive. Then, I stopped one day last week in a time crunch to pick up lunch and it was pretty expensive compared to the servings of what I had ordered.

I kept thinking about people that eat lunch out every day and how that cost will definitely add up over time. In keeping along that line, just take an example of ten dollars a day for lunch during the work week. That ends up being fifty bucks per week and two hundred dollars per month for lunch which will end up being close to two thousand four hundred dollars per year, give or take. That is for one person, for lunch, and an average cost of ten dollars. That is a lot of money for the average family.

The lower cost of food has had the reverse effect on restaurants because the cost of running and maintaining the business has not decreased. The restaurant has to be staffed and it has significant overhead costs with insurance, energy, and other costs associated with running that business.

In order to maintain profitability amid an increasingly competitive market, most restaurants have had to increase their menu prices. The other pressure point for restaurants, especially the traditional sit down places and the fast casual chains, is that the grocery store channel has become increasingly more relevant in the prepared foods area.

The local grocery store in your neighborhood and mine now has expanded upon the offerings for prepared meals to go which suit our active lives and are at a lower price point than going out to eat. I think we all can attest to a recent shopping trip where we have grabbed a cooked rotisserie chicken for dinner or put together a meal on the go from a huge selection of choices at a Whole Foods or a Shop Rite.

The numerous alternatives at the grocery store and the emergence of fast casual dining options such as Chipotle, Salad Works, and a few others have impacted the margins of the traditional restaurant channel as well. The Tribune article cites the troubles of Chili’s and a few other regional Midwestern chain restaurants in surviving this trend. The article as well as other industry resources mentions the higher minimum wage in certain states as another mitigating factor in the demise of certain restaurants in this climate.

The fast casual or traditional fast food options have lower overhead because the employees are members of a “crew” where each person is cross-trained and can complete a variety of job functions. This approach has helped them sustain profitability more than a traditional sit down restaurant but even the fast casual and fast food operators are encountering issues with falling food prices and an uncertain economy.

Many consumers are opting to save money in their budget and eliminate eating out and they are staying home. The more health conscious consumer prefers to make their own food at home with ingredients which they select, which is becoming a larger trend resulting in eroding profits in the restaurant sector.

The fast food channel has displayed several indications that they are at an oversaturation point. The industry is focused on rolling out new product offerings or seasonal products to attract new customers. The major players in the industry are putting together special promotions and full meal deals such as “4 for $4” or a “McPick Two”, to drive the value to the customer.

However, even with all of those efforts in marketing, the channel is hitting a point where it cannot grow profits. Therefore, they all made a push for breakfast and that is the final frontier, so to speak, for the fast food industry to grow profits. It is the last untapped revenue stream available to them where they can maximize the lower commodity prices for eggs and other staple items to put together a profitable set of menu offerings. The demand for a fast breakfast is also very robust for the American consumer that is seemingly always rushing around in the morning to start a very hectic day.

The traditional restaurants are going to struggle in this scenario because it is hard to compete on cost with other establishments and the fast casual/fast food/grocery prepared foods channels while maintaining their profits. It is a situation to bear in mind as the commodity pricing on food overall, and certain products such as beef and eggs in particular, will remain at a point where the restaurants and the grocery stores will feel the squeeze for the foreseeable future.

by Frank Maduri

Food Commodity Prices Drop

The average shopper in America has probably noticed the changes in price for several commodity items in recent months. The falling prices are due to a combination of factors such as decreased costs of fuel and product packaging materials. Some other areas such as with meat and eggs, those commodities are in a cost reduction due to some external factors surrounding supply and demand.

The egg market segment has seen prices drop about 50% according to industry sources. The price of eggs, as many consumers will recall, increased sharply due to the avian flu epidemic. I recall going to my local grocery store and the signs that were hung just about everywhere in the cases surrounding the eggs and dairy products regarding the shortage of eggs due to the rampant spread of that illness.

The price of eggs had to adjust and correct itself when the supply levels returned back to normal levels with the increased number of hens into the system. That is the rationale behind the drop in prices for eggs as well as the shift in overall global demand for the product. The demand curve surrounding eggs in China and other parts of Asia has flattened, it has decreased over the past several months which creates a supply abundance and consequently lower prices.

The pricing shift on meat is a similar scenario. The cattle population in the U.S. had some issues between disease and other factors which impacted the population and created a supply issue. This lead to an increase in beef prices that many of us remember between the grocery store butcher department and the menus of our local restaurants.

The supply of cattle has increased over time and the supply for beef as a commodity is oversaturated due to current market demand factors. Some of this is driven by the healthier eating trends of Americans where red meat is more limited than at other points. The industry experts have reported that the supply levels of beef are so high compared to the demand that the prices will remain low until 2019.

The price points of other food products have come down in relation to supply, lower delivery costs, and a host of other scenarios. The timing on the price changes as we head into the Thanksgiving/Christmas/ Holiday Season is fortuitous for the food product suppliers, the distributors, and the retail grocery as well as club store channels.

The retail grocery channel is a low margin business structure to begin with and these price fluctuations over the past few years on certain commodities have cut into those profit margins even further. The ability for them to turn around and sell these products at the holidays is going to help their revenue forecast to close out the year.

The price points on so many other products and services are going up, I thought it would be comforting to note that our food prices are coming down, and considering the necessity of food, that is some welcome good news heading into the holiday season.

by Frank Maduri

Fall TV Season Reviews: Six Weeks In

The Fall television season is about six weeks into the schedule and with a review of the ratings to this point. I have done this the last few television seasons and reviewed ratings at the sweeps periods, and I have had some time for late night viewing of some shows on demand or via streaming services as well.

Those of you who have kept up with my blog here at Frank’s Forum are aware that I am not usually a fan of many of the new shows on the network slates in any given year. There have been a handful of shows that I would even recommend that any of you devote any of your valuable time to watching and following on a routine basis.

However, this season I am surprised that there are a few shows that have exceeded my expectations out of the gate. There are others that I have not seen but have read reviews from other writers whom I trust and have analyzed their ratings to know that they will most likely be cancelled.

No Bull

The first new show that I would recommend watching if you have not done so already is the CBS drama, Bull, starring Michael Weatherly of NCIS fame. I read a review of the show before it aired which was not very favorable, so I approached the pilot episode (which my wife really pushed me to watch) with trepidation.

I was pleasantly surprised, Weatherly is excellent as Dr. Jason Bull (a character adapted and based on the early life of Dr. Phil McGraw) who is an expert psychologist in the field of reading jury reactions in court proceedings. The cases are very interesting and thought provoking, the human behavior aspects are fascinating at points, and the cast is very strong. It is a very likeable show that will definitely entertain and is the character development, the writing, and the production are all excellently done. CBS has averaged around 17 million viewers and it is the top new show of the season for a reason, this program is poised to be another major hit for that network.

NBC Strikes Gold

I must admit that when I saw the trailer for the newest NBC drama, This Is Us, I thought it was a hastily produced fill-in for Parenthood which NBC ushered out of the lineup after a very strong multi-season run. However, this program written by Dan Fogelman is brilliant in the conception and the direction of the character arcs.

In an innovative way (without giving anything away to those who have not watched) it follows the lives of several people all at the same stage in life (mid 30s) and chronicles the unique challenges, joys, and heartaches that each has at that particular point.

The stories are woven seamlessly into themed episodes and the acting is excellent from Mandy Moore, Milo Ventimiglia, and the rest of the outstanding cast that makes this show the second most watched new series and a bona fide hit for NBC.

The only thing that could derail the momentum of this show (which has a massive social media following) is NBC getting involved from a top executive level and making changes to the creative direction or moving the time slot of the show (which that network does often) and it ends up ending in a loss of ratings.

This show is raw and real and very well produced, the writing is excellent, and it is well worth your viewing time.

Designated for Success

The ABC hit drama Designated Survivor looks like it is designated for a successful run on the network after very strong ratings to this point in the new television season. This newly launched show features Keifer Sutherland as the top billed star and the lone surviving Cabinet level official following a terror attack on the Capitol building during the State of the Union address.

I must admit two things: I did not like the premise of the show and the events that precipitate the conditions which the plot line launches, and I have not actually seen this program I have just read some very strong reviews about it.

I would think that it would have to appeal to those who like suspense and government spy type concepts to be the captive viewer for this program. I would tend to be of the opinion that if the ratings are this strong it is usually worth viewing the pilot episode and making a decision from there about it.

Kevin Can Wait

The new Kevin James comedy concept from CBS titled Kevin Can Wait has garnered some pretty strong ratings numbers despite being positioned to the male viewing demographic on Monday nights (opposite Monday Night Football).
In my opinion, the show has always struck me as a retread of the same antics that Mr. James used in his prior TV series hit, The King of Queens. I know that he has a loyal following of fans, but I personally think that you can wait on watching this series for the time being.

MacGyver It

I remember the original version of MacGyver and all of the wild scenarios that the lead character would get himself out of by coming up with some hair brained solution using normal items you would find around your house or garage.

The new CBS reboot which comes under the production guidance of Peter Lenkov (one of the guys who rebooted Hawaii 50 for CBS with great success) but the lead guy, Lucas Til, does not have the right look to be taken seriously as the new MacGyver.

The show has gained a pretty significant rating (the fifth most watched new series) but they will be walking the line between edge of the seat action and completely nonsensical, over the top stunts that could eventually drive away viewers.

Leaking Oil

Several returning shows are losing viewers like a truck leaking oil. The notables among those are two ABC programs Quantico and MARVEL Agents of Shield which will both probably meet with cancellation soon. In fact, ABC has another problem with a new series called Notorious (which is filling a lineup slot while Scandal is on hiatus due to Kerry Washington being pregnant) where the network announced they cut the number of episodes that will air already due to sagging ratings.

The TV industry calls that type of order reduction a quasi-cancellation, and so that series is definitely not worth your time.

The once popular series, How to Get Away with Murder has taken a tremendous decline in viewership this season to the point where it will most certainly be designated for cancellation in the near future.

The ABC network ratings overall have taken a big hit in a declining manner. They have to hope for stalwarts like Greys Anatomy and Modern Family to keep the ratings curve from bottoming out until they can begin production again on Scandal. The network will most assuredly also have a number of mid-year concepts that they will roll out in the winter for testing which could help buoy the ratings tide.

Deflated Ratings

The NFL once dealt with a major issue surrounding deflated footballs, it now has an issue with deflated ratings. The once gigantic ratings producing machine that was live NFL football game broadcasts are no longer the market leader they once were.

The NBC Sunday Night Football telecast was consistently the highest rated program of the week nearly every week that it aired for years. The telecast has experienced double digit ratings losses in 2016. There are some news media sources that track the ratings decline and tie it to the huge ratings that Sunday evening cable news programs are drawing due to the November Presidential election.

The other main national television “windows” for NFL broadcasts are down as well, Thursday Night Football is usually a reliable to be among the top five programs in the week and sometimes will crack the top three in the ratings charts. This season that package of games has also seen a double digit decline in ratings. This is driven by two factors: the matchups for the teams in most of the games have not been compelling, and the national anthem protests have also hurt the ratings for football overall as well.

The ESPN tradition of Monday Night Football has taken the most precipitous decline with viewership of their telecasts off as much as 25% from last season. That is a steep decline for a live sports content product as highly desirable as the NFL usually commands within the television industry. The biggest issue for this telecast and the other national television windows for the league is that the advertisers shell out some serious money for featured commercial time on these live game telecasts. The NFL ratings dip is cause for concern because they might hit the “giveback” territory in the numbers, where the advertising dollars get returned to the sponsors if the ratings decline to a certain threshold.

This type of scenario would impact the networks which pay huge rights fees to the NFL to broadcast the games. The league office in New York is reviewing the ratings decline, but it is certainly something fascinating because the numbers were once off the charts and now they have hit the wall.

Some of you may recall the piece I wrote on the oversaturation of the NFL on television. I wrote, once upon a time, about whether the league had reached a point where there were just too many games on TV and the impact that oversaturation would have on the ratings. It seems like we may have hit that point now.

The television season is still in the early stages, we have February “sweeps” and May “sweeps” periods left to go before all is said and done. We also have an election night in 12 days, and the holidays with specials and movies on the horizon. The networks have some shows they will keep for years, and others they will dump after a month or two. The major networks are split with CBS and NBC doing very well in overall ratings, while ABC, FOX, and the CW are in a ratings plummet that seems to get deeper by the week.

It will be interesting to see when we check in again around The Super Bowl and February sweeps, until then, stay tuned and keep streaming!

by Frank Maduri

Busy Signal: AT&T and Time Warner Proposed Merger

The news today of a potential merger between two giants in the media industry: AT&T and Time Warner brought with it both a wave of enthusiasm and skepticism in the financial markets and the multimedia/telecommunications industry. The enthusiasm was demonstrated on Wall Street, where Time Warner stock trading surged, with their stock price up around 13% at one point in today’s activity.

The skepticism comes on the part of some consumer groups who are concerned about what this merger might mean for costs of internet access, cellular phone and data plans, and satellite television services (AT&T merged with Direct TV previously). There is also some legitimate cause for regulators to reject this deal, so there is some caution in the industry that this merger may eventually come apart.

The proposed deal includes Time Warner’s film division and cable television division which includes channels such as TBS, TNT, CNN, as well as the crown jewel of premium cable networks, HBO. The deal is valued, according to sources, at $300 billion. It would be the largest merger in the media industry since Comcast completed the acquisition of NBC/Universal in 2011.

This trend would continue what I have deemed in other mergers as the “big getting bigger” scenario. Time Warner is a huge company with many different divisions and huge market presence in media of all forms. AT&T has a market cap of $233 billion and provides cellular phone, internet, telecommunications, and satellite television services to millions of consumers. The combined entity would be a goliath capable of competing with Comcast/Universal, which I maintain is one of the goals of this move today.

The trend of the average consumer looking to cut out their cable television service, or “cord cutting” as it is known, is something I have written about in the past, and it is an increasing trend. This trend is damaging the cable television providers and the cable networks from making revenue gains. This has particularly impacted Time Warner’s cable services division, and made this potential merger a way to partner with a larger company to expand their reach.

The trend toward streaming content is also a driving factor in this proposed merger, as AT&T has been actively pursuing the development of their own streaming content service which would be offered via the Direct TV platform. The combination with Time Warner would provide AT&T with more advantageous content streaming negotiations because they would be better positioned to control the content from TBS, TNT, CNN, and most importantly, HBO.

HBO has top rated content that is sought after by competing streaming services and cable and telco providers. This would put AT&T in the proverbial driver’s seat of those negotiations, but is the same reason why regulatory boards will have issues with this deal.

The Wall Street Journal reported that regulators have some regrets over the Comcast merger with NBC/Universal which they do not want to have repeated by this potential media industry transaction. The Time Warner properties in the cable network division also have exclusive rights (or partial exclusive rights) to sports content such as the NCAA Tournament in college basketball, NBA basketball games both regular season and playoffs, and Major League baseball both regular season and playoff games. This made the deal more attractive for AT&T because of the demand for live sports programming, but it will also make the regulatory scrutiny that much more heightened because that content is meant to be seen by everyone and not meant to be restricted to only certain providers.

This proposed merger, should it gain approval, would give AT&T a huge advantage in providing streaming content for their cellular phones and their new service with Direct TV customers. It would provide Time Warner with more outlets for their content and more consumers in parts of the country which they could not reach with their traditional cable television services. It would offset the loss of cable television consumers through the streaming rights agreements for their content that they will gain through millions of AT&T customers.

However, in the end, this media giant would have more control over more content and that should give both the industry and the consumer cause for concern. This merger should be stopped because it will provide too much control to one corporation, we saw what happened with Comcast and NBC, we cannot afford to let that happen again.

(background information and stats courtesy of CNBC, The Wall Street Journal, and CBS News)