Author Topic: MSGN - MSG Networks  (Read 44059 times)

SHDL

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Re: MSG Networks
« Reply #10 on: August 29, 2019, 07:12:46 PM »
Also Bloomberg had some estimates for YES’s EBITDA multiple:

https://www.bloomberg.com/opinion/articles/2019-03-14/amazon-s-cheap-yankees-deal-for-yes-network-is-hollywood-lesson

If we use their range of 7.4-9x to value MSGN, we get a per share value of around $20-28.  So plenty of upside left.  (Unless you guys bid up the price tomorrow morning, that is. ;))


hillfronter83

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Re: MSG Networks
« Reply #11 on: August 29, 2019, 07:26:46 PM »

scorpioncapital

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Re: MSGN - MSG Networks
« Reply #12 on: August 30, 2019, 12:28:02 AM »
Is this a run-off type business on cable while they onboard to streaming? Similar to Discovery Inc I would think?


Gregmal

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Re: MSGN - MSG Networks
« Reply #13 on: August 30, 2019, 12:29:39 AM »
Further;

Typically, companies hold 4-6 prescheduled board meetings per year. Any corporate action, specifically, buybacks, are predetermined based upon prevailing market prices or expected corporate events. Here, what we have, is a proactive board, not more than a week after an earnings release, taking it upon themselves to move to this action. In other words, entirely unsolicited and REACTIVE, to events that likely transpired since their most recent board meeting, and events that did transpire since the most recent earnings. Yea, lets put to bed the notion that they don't give a f** about you.

Second, in relation to sub declines. Lets look at CVC, DTV, DISH, CHTR, T, etc or whatever. These are the driving forces behind much of the MSGN subscriber base. BUT, why I decided I give zero a hoot about sub declines is this. All of those companies offer packages. Many people subscribe to packages because they want specific items. For instance, one may very well pay for a package of 35 channels, for just a couple networks. So yes, cord cutting is effecting MSG Networks, but the cancellations or declines, IMO are hardly related to peoples desire for sports, and more of a macro trend. Losing subs, is likely because people dont feel the need to pay $55 for Cablevision's 150 channels. Not because they won't pay a $5-$10 a month for their sports fix. So MSG Networks issue, is not so much sub declines, but rather the method by which they distribute their product. I have long thought these guys could make MORE money, distributing the content through alternative mediums. AGAIN, does anyone think we ever see a scenario where Knicks and Ranger games are not on TV AT ALL? Nope.

Lastly, I'd highlight the announced actions. The company chose to increase their buyback authorization from $136M or so to the following. $250M tender for shares between $15-17.50, AND concurrently, a total authorization of $436M. So, what this means, is that they have determined their intrinsic value, AND concluded they are willing to buy $250M worth of stock at 17.50,WHILE STILL REPURCHASING ANOTHER ~$184M IN STOCK!

Sometimes investments are easy....
 



KJP

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Re: MSGN - MSG Networks
« Reply #14 on: August 30, 2019, 06:03:46 AM »


Second, in relation to sub declines. Lets look at CVC, DTV, DISH, CHTR, T, etc or whatever. These are the driving forces behind much of the MSGN subscriber base. BUT, why I decided I give zero a hoot about sub declines is this. All of those companies offer packages. Many people subscribe to packages because they want specific items. For instance, one may very well pay for a package of 35 channels, for just a couple networks. So yes, cord cutting is effecting MSG Networks, but the cancellations or declines, IMO are hardly related to peoples desire for sports, and more of a macro trend. Losing subs, is likely because people dont feel the need to pay $55 for Cablevision's 150 channels. Not because they won't pay a $5-$10 a month for their sports fix. So MSG Networks issue, is not so much sub declines, but rather the method by which they distribute their product. I have long thought these guys could make MORE money, distributing the content through alternative mediums. AGAIN, does anyone think we ever see a scenario where Knicks and Ranger games are not on TV AT ALL? Nope.


Is the bolded part of your post above hypothesis or fact at this point?  Specifically, do we know yet from other sports programming examples whether the revenue generated from people willing to pay $5-$10/month for a dedicated sports channel is equal to or greater than the revenue that a sports channel like MSGN can generate from being part of a bundle to which more people subscribe?  My understanding (though I don't have source handy) is that historically sports networks negotiated very hard for mandatory carriage in basic cable packages because that would generate more revenue than being part of an add-on or premium bundle for which subscribers had to specifically elect to receive and pay for.  (In this scenario, the bundle is subsidizing sports, rather than sports subsidizing other parts of the bundle.) I'm talking about, for example, MSG back when it showed Yankee games, SportsChannel for the Mets and Yes Network today.  Am I wrong about that historic practice, or has the view changed today?

One empirical test (though not a perfect one) for this is ESPN.  It's per-sub fees are very high, so it's been hit by cord-cutting.  But it also offers an DTC streaming product, ESPN+.  Has the revenue from ESPN+ offset the hit from declining cable bundle subs?  I acknowledge that ESPN isn't a perfect comp, because it's provides diffuse, national coverage of many sports, rather than broadcasting essentially all of the games for specific teams.

Of course, none of the above undermines your other point:  Despite people's understandable concerns about Dolan, the Spheres, etc., MSGN appears to be acting in the best interests of shareholders.
« Last Edit: August 30, 2019, 06:05:21 AM by KJP »

Gregmal

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Re: MSGN - MSG Networks
« Reply #15 on: August 30, 2019, 06:33:06 AM »
Most certainly it is predominantly an opinion of mine. But I suppose I could clarify.

The section you highlighted moreso refers to avenues the company could take in an armageddon scenario where basically all their subs disappear. But that isn't going to happen. Nonetheless, yes, they do squeeze out additional $$ when the 42 year old single women who wants basic cable signs up for the standard package which in many case includes MSGN. But at the same time, there are avenues to extract greater per head revenue, which I think could be a great lever to pull if done right, IN COMPLEMENT, of the basic subscription options through your service provider. At some point I think it makes sense for them to shift to direct offerings in addition to the current 6M subs they have through traditional tv packaging.

For instance, you know how much a UFC fight costs in your man cave? $100 or something right?(Ive never watched one but this is what I hear they go for) You know what it costs for your local sports bar? Possibly as much as $10,000. So my point is basically that the content is irreplaceable and to some, as necessary as air, and for others, an integral piece of action to have access to. So the company has distribution options and ways to do some offsetting. I think they have so far held off because they haven't hit a point $$ wise where a potential disruption is warranted. Kind of like the big autos with EVs.

KJP

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Re: MSGN - MSG Networks
« Reply #16 on: August 30, 2019, 08:22:45 AM »
Most certainly it is predominantly an opinion of mine. But I suppose I could clarify.

The section you highlighted moreso refers to avenues the company could take in an armageddon scenario where basically all their subs disappear. But that isn't going to happen. Nonetheless, yes, they do squeeze out additional $$ when the 42 year old single women who wants basic cable signs up for the standard package which in many case includes MSGN. But at the same time, there are avenues to extract greater per head revenue, which I think could be a great lever to pull if done right, IN COMPLEMENT, of the basic subscription options through your service provider. At some point I think it makes sense for them to shift to direct offerings in addition to the current 6M subs they have through traditional tv packaging.

For instance, you know how much a UFC fight costs in your man cave? $100 or something right?(Ive never watched one but this is what I hear they go for) You know what it costs for your local sports bar? Possibly as much as $10,000. So my point is basically that the content is irreplaceable and to some, as necessary as air, and for others, an integral piece of action to have access to. So the company has distribution options and ways to do some offsetting. I think they have so far held off because they haven't hit a point $$ wise where a potential disruption is warranted. Kind of like the big autos with EVs.

I agree with you that the content is very valuable and there ought to be ways to monetize it and generate alot of money.  So, if you owned the underlying intellectual property (i.e., the teams themselves), I think you're going to be fine, even if you ultimately make less money from TV than you do today. 

But the issue I see with MSGN is that the company doesn't own the underlying IP (i.e, the sports teams themselves); instead it has to pay MSG for right to use its IP, and those licensing fees are MSGN's biggest expense.  Those fees are also fixed, rather than a percentage royalty, and rise over time due to built-in escalators.  So, in the armageddon scenario (which I agree isn't going to happen), you still have a massive fixed expense to cover, rather than a variable expense that would decline in proportion to your revenue. Put another way, it's not enough to say that MSGN has valuable rights; you have to believe that the rights are substantially more valuable than what MSGN is paying MSG to secure those rights.  In the armageddon scenario, I doubt they would be.

All that being said, if I had to bet, I'd say MSGN shareholders will do well from here, but if you like MSGN, then you might also be interested in GTN or FOX, which, although not as sports focused, have similar dynamics and high FCFs.

scorpioncapital

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Re: MSGN - MSG Networks
« Reply #17 on: August 30, 2019, 08:26:52 AM »
I sometimes wonder why Buffett gave up the media space. Did his mental model say something about media or distribution? Albeit he does/did own some platforms.

SHDL

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Re: MSGN - MSG Networks
« Reply #18 on: August 30, 2019, 09:09:38 AM »
I actually share the concern that RSNs in general could be melting ice cubes, but I’m also inclined to think that the YES valuation already has that priced in (given that the risk is fairly obvious, the buyers are a sophisticated/well-informed bunch, and Disney was essentially a forced seller).  So if Mr Market is taking YES as a reference point and then applying a “melting ice cube discount” to it to value MSGN, he is basically double counting the risk. 

Gregmal

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Re: MSGN - MSG Networks
« Reply #19 on: August 30, 2019, 09:11:28 AM »
Most certainly it is predominantly an opinion of mine. But I suppose I could clarify.

The section you highlighted moreso refers to avenues the company could take in an armageddon scenario where basically all their subs disappear. But that isn't going to happen. Nonetheless, yes, they do squeeze out additional $$ when the 42 year old single women who wants basic cable signs up for the standard package which in many case includes MSGN. But at the same time, there are avenues to extract greater per head revenue, which I think could be a great lever to pull if done right, IN COMPLEMENT, of the basic subscription options through your service provider. At some point I think it makes sense for them to shift to direct offerings in addition to the current 6M subs they have through traditional tv packaging.

For instance, you know how much a UFC fight costs in your man cave? $100 or something right?(Ive never watched one but this is what I hear they go for) You know what it costs for your local sports bar? Possibly as much as $10,000. So my point is basically that the content is irreplaceable and to some, as necessary as air, and for others, an integral piece of action to have access to. So the company has distribution options and ways to do some offsetting. I think they have so far held off because they haven't hit a point $$ wise where a potential disruption is warranted. Kind of like the big autos with EVs.

I agree with you that the content is very valuable and there ought to be ways to monetize it and generate alot of money.  So, if you owned the underlying intellectual property (i.e., the teams themselves), I think you're going to be fine, even if you ultimately make less money from TV than you do today. 

But the issue I see with MSGN is that the company doesn't own the underlying IP (i.e, the sports teams themselves); instead it has to pay MSG for right to use its IP, and those licensing fees are MSGN's biggest expense.  Those fees are also fixed, rather than a percentage royalty, and rise over time due to built-in escalators.  So, in the armageddon scenario (which I agree isn't going to happen), you still have a massive fixed expense to cover, rather than a variable expense that would decline in proportion to your revenue. Put another way, it's not enough to say that MSGN has valuable rights; you have to believe that the rights are substantially more valuable than what MSGN is paying MSG to secure those rights.  In the armageddon scenario, I doubt they would be.

All that being said, if I had to bet, I'd say MSGN shareholders will do well from here, but if you like MSGN, then you might also be interested in GTN or FOX, which, although not as sports focused, have similar dynamics and high FCFs.

They do not "own" the rights, but they kind of do. Ive tried envisioning a scenario where they lose the Knicks and Rangers. I just can't see one. The Sabres or Devils? Maybe...but I don't really care about those anyway at this valuation. Perhaps its overlooking a big issue, but I kind of think its equivalent to worrying about whether an RMR entity will renew their manager agreements... I view the contracts as moreso a way to kick over dividends to the parent company which was only necessary because they did the spin off in 2016. Conventional wisdom would say that you are protected from anything onerous simply because you're investing alongside the same guy. Ive said it a million times, but Dolan's reputation in terms of how he treats fans, distorts the perception of his acumen for the businesses. He views fans, and even supposedly most players(if you've ever met professional athletes it's hard not to see) as total morons and entitled brats. But investors, money managers, business executives, those are his types of people and he greatly respects them.

Although theoretically, down the line, if the numbers stop working and its no longer economical to have the rights agreements at their current rates, they will obviously go lower when it is time to renew. I believe the 20 year(maybe it was 15, I forget exactly) was simply a mechanism to keep some cash coming over to the sports team and little thought was given to it. It really isn't even out of the question IMO for the parent company MSG to repurchase MSGN down the line if necessary. This is something that has been speculated as well.

In layman's terms, if you can't sell sports in NY, you're an idiot. So my bet is that they arent idiots, and that if they are, the company gets sold to someone who can make it work, at a price that's in the ballpark of what the comps suggest. In both scenarios money gets made from these levels.