What This Week's Mega-Merger in Magazines Means
In this Market Foolery podcast, host Chris Hill is joined by Million Dollar Portfolio's Jason Moser and Stock Advisor Canada's Taylor Muckerman to discuss the most interesting business news as the week began. First, Meredith's third try to acquire Time Inc. (NYSE: TIME) is on target; and second, Disney (NYSE: DIS) finds a slightly surprising box-office smash with Coco. Lastly, the guys consider Black Friday, Cyber Monday, and all of retail's other special "days," and ponder how long these artificial sales gimmicks can last.
A full transcript follows the video.
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This video was recorded on Nov. 27, 2017.
Chris Hill: It's Monday, Nov. 27. Welcome to Market Foolery. I'm Chris Hill. Joining me in studio today, from Million Dollar Portfolio, Jason Moser, and from Stock Advisor Canada, Taylor Muckerman. Happy Cyber Monday, gents!
Jason Moser: Hey now, Cyber Monday? Come on!
Taylor Muckerman: Taking a break for the show.
Hill: Exactly. Let's get this done so --
Muckerman: I'm missing some deals, man.
Moser: I mean, isn't every day Cyber Monday, really? I mean, except for Tuesdays, Wednesdays, Thursdays and Fridays. Just put "cyber" in front of all of them.
Hill: Exactly. Good Thanksgivings?
Muckerman: Yeah, pretty solid.
Hill: Nice. Easy travel, all that? I had a great time and very smooth travels.
Muckerman: I was just down in Fairfax. Very easy.
Moser: We didn't leave the house. Where did you travel?
Hill: Up to Boston.
Hill: Flew up.
Hill: It was all good. We're going to talk retail and we're going to talk movies, but we're going to start with the deal of the day. It turns out the third time was a charm for Meredith Corporation (NYSE: MDP). Meredith Corp., which had tried on two previous occasions to buy Time Inc., succeeded. So Meredith is buying Time in an all-cash deal valued at $2.8 billion.
For those who are unfamiliar with Meredith Corporation, and I'm assuming that's mostly everyone in terms of the name Meredith Corporation, but you are almost certainly familiar with the brands of magazines that they have, like Better Homes and Gardens, Family Circle, Parents, Allrecipes, etc. This is one media company buying another. And of course, with Time Inc., they're getting Time and Sports Illustrated and People and the tens of millions of people who are in that database, which appears to be one of the keys to this deal.
Moser: Yeah. Basically, getting ready to corner every physician's office and dentist's in the entire country.
Hill: Congratulations, Meredith Corp.!
Moser: You're going to be seeing this company a lot of places, I'm sure. I think we said before that Facebook (NASDAQ: FB) had a very good idea in the strategy of trying to consolidate as many apps under their umbrella as they could early on. I think the same applies here for media properties. I think it makes sense, ultimately, to see consolidation in the space, bring more properties together under one umbrella, utilize as much financial leverage as you can there to exploit the value in those properties.
The trouble is, today, the advantage that these magazines and properties had 40 years ago was distribution. You got the magazines in the mail, there was really no internet, the free flow of information didn't exist like it does today. So these magazines just don't hold the same sway that they did before. They just don't have any pricing power. They really don't scratch that instant-gratification itch, either. If you're getting a monthly publication, you're really only getting it once a month, and then you have to wait, and then by the time you get it, you've probably read, in some capacity, everything that's already in there anyway. So they're figuring out ways to go digital, and that's the right thing to do, obviously. Utilizing partners like Facebook and Twitter (NYSE: TWTR) and Google and figuring out ways to disseminate the news in their pieces.
By the same token, I wouldn't assume that the printed word is going away. You're going to see places where magazines hold place. Again, when you look at Time, Time itself is a business sort of in slow decline. If you look in the numbers, the top line is shrinking, margins are shrinking, subscribers are not growing. So this will do something to help bring a little bit more power together, and hopefully take advantage of everybody being under one roof.
Hill: Here's one other thing that's striking, and it's the number of issues that you get. I came to realize this recently, because I actually subscribe to Sports Illustrated and got a notice the other day that was essentially, "By the way, we'd like you to subscribe again, and next year." It was something like 37 issues or something. I was like, I'm sorry, you're a weekly publication and the last time I checked, they were more than 37 weeks in a year.
Muckerman: Oh, I didn't realize it was weekly.
Moser: Yeah, I used to subscribe to Sports Illustrated many, many moons ago, but I haven't in a long time. I don't think I subscribe to one magazine now at this point, because I get it all either on Twitter or in a Google search. I guess I subscribe to The Wall Street Journal. I do that.
Muckerman: That's newspaper, and you can get it online.
Moser: Although it's through here, so that's kind of an easy one to just say, "Yeah, sure, I'll take it."
Muckerman: For Sports Illustrated, I think they need to focus more on their website than I do -- because, I think it's the clunkiest website I've ever --
Hill: It really is.
Muckerman: It's the worst. I won't go there, ever, because I just hate it. It's my most hated website.
Moser: Are they not utilizing an app? I think the key for all of these properties, they need to embrace the app ecosystem. I guess, it's gone a little bit away from the app back to the mobile web. So wherever they decide to land, I think making it a simple and easy-to-use interface on the phone is going to be crucial.
And I think as time goes on, we're seeing more and more that the phone is all you need. It's all most people want. The fewer devices, the better. I've sworn I will never buy another iPad again because I just don't need it. I can literally do the same thing with my iPad that I did with my phone. So I think as long as they're embracing the mobile -- and it doesn't sound like they're doing a great job with it.
Muckerman: Yeah. On the computer. I haven't really gone there on my mobile device, but I imagine it's probably something similar. And with the app, you get the die-hard users who are going to download the app. But if you want to reach the common person through social media or a regular Google search on your phone, you need that website presence, because they're not going to have that app to load it in.
And there's so much competition out there for eyeballs, between Facebook, probably being the largest news company in the world without actually publishing any content of its own, YouTube, the largest video distributor in the world without actually publishing any content of its own. So there's just so much competition out there, and I think these companies aren't keeping up. Time has 15 million Twitter followers; Katy Perry has 105 million Twitter followers. So people are interested in other things, and they have to get their act together.
Hill: And yet, in terms of investors, there is optimism. Meredith Corp was up about 9% this morning, the stock hitting a 52-week high. And I don't know enough about how Meredith has made their print strategy and digital strategy work, and I'm assuming they're doing it to a pretty solid degree, because if you think about the brands under the Time Inc. umbrella -- People magazine, Sports Illustrated, Food and Wine, Fortune, Travel and Leisure -- these are great brands, and yet, for whatever reason, over the last 20 years, under various groups of leadership under Time Inc., they haven't really been able to expand those brands beyond the printed magazine. And yes, they have digital properties as well. But one of my thoughts when I was reading through the coverage this morning was about Sports Illustrated's attempt to go into 24-hour sports television programming. For anyone who thinks --
Moser: [laughs] Because no one else was doing it.
Hill: But back in the mid-'90s, for those who weren't around or don't remember, CNNSI, as part of the whole AOL-Time Warner merger, that was a competitor to ESPN. And Sports Illustrated is a great brand, a brand that's been around a lot longer than ESPN, and in pretty short order, ESPN made pretty quick work of CNNSI. And it was gone six years after it launched.
Moser: I think ultimately, you've got to see, because it's a lot of different names involved with both companies -- and I do agree with you, there are brands that hold some sway, I think some more than others. Some probably don't resonate with the up-and-coming generation as maybe they did.
Muckerman: More nostalgic, yeah.
Moser: Right, perhaps there's a little bit more nostalgia there. Because no one is going to sit there and download 20 different apps to have access to all of these. So they're going to need to do a few things. They're going to need to leverage the mobile internet. They're really going to need to leverage their relationships with Facebook, Google, with Twitter, with Instagram, with Snapchat.
We're kind of at this point where it seems like people are trying to minimize the number of apps that they have. Remember when the phone first came out, and it was like, "500 apps, check it out, I can scroll my screen forever and it never stops." And now it's like, "Wait a minute, out of those 500 apps, 495 of them really serve no purpose."
Muckerman: And the updates continually take up more space on your phone.
Moser: Exactly. So you really try to whittle it down to the apps that you use the most, the ones that matter. Then you really relegate those to the first screen. Those are your Facebooks, Googles, Twitters, Snapchats, Instagrams, things like that. So that's really going to be the key for them, figuring out ways to integrate those brands, leverage those key apps where all the traffic is. And really, that shouldn't be that difficult, because those audiences are so big. It then just boils down to being creative and tapping into what your audience wants. I think that's the tricky part. It's difficult understanding what the younger audience wants today, versus what the audience that grew up with you over the past 30 years wants today.
Muckerman: Yeah, especially with the brands that Time has, because those are the most competitive areas. Time with news, Sports Illustrated with sports, Travel and Leisure and food, those are the most competitive areas that I think you can be in publishing, whereas Meredith has a little bit more niche publications. They have some big ones, but also targeting a little bit more of a niche market, where there's not as much competition, I don't believe. So I think there's going to be some cost-cutting, and then just aggregate eyeball growth for advertising, because that's where these companies really make their money.
Hill: Let's move on some movies. Coco won the box-office weekend, displacing Justice League. Did you actually see this over the weekend?
Moser: No, I haven't seen it yet. Read a lot of good things.
Hill: Well, plenty of people did, and I was struck by two things. One, that it took in just north of $70 million domestically, and two, that U.S. box office really needs to have one hell of a December if it's going to top last year's, because right now, the overall box office for the year is lagging -- and I think we talked about this a few weeks back. I don't remember what was the film -- maybe it was in the wake of Thor Ragnarok, which had a really good opening weekend. But at that point in time, the movie theaters were still looking toward the other big blockbusters to come out, including Coco, Justice League, and of course the Star Wars movie coming in December. They really needed all of them to be huge hits. And it's amazing to say this, but Justice League has taken in nearly half a billion dollars worldwide at the box office, and it's still considered to be a disappointment.
Moser: Coco. Yeah, that's chimp's OK. So I think the interesting thing to me about Coco, and really any Disney movie, No. 1, it seems like, from what I'm reading here, this is one of the top four or five Thanksgiving releases of all time. That's amazing. The part that's really amazing is the list of the other three or four are also all Disney movies. So Disney has got this figured out. We're like a broken record. Every holiday season, it's the same thing, Disney knows what they're doing. They've timed this time.
And you think about what the subject matter is, what is it, Dia de los Muertos, that's the Day of the Dead. You wouldn't think that's necessarily the most romantic, cheery, 'tis the season to be dead? No, that's not how it works. But apparently, this thing reeled in a lot. And everything I saw on Twitter -- and it wasn't just kids; it was adults that I saw were seeing this movie that were just fawning all over it.
Hill: Adults without children.
Moser: Yeah. And adults with children. But that taps into an interesting point here. When you think about the population of the United States, it's something like 310 million. About 25% of that population are kids, 18 and younger. So maybe 20% of that is your real target audience for a movie like this. But that's 20%, and then you add in all the parents that are taking their kids to it, and then you add in the parents without kids, because they want to see a feel-good movie, and Disney and Pixar know what they're doing.
This is why, season in and season out, we can sit here and question the ESPN strategy all day long, but this is an example of why you can't count Disney out. We're talking about how we need more compelling movies for this to be a compelling season. Well, interestingly enough, I think Star Wars ought to be able to take care of that in December, and lo and behold, that's a Disney movie as well. So I think that more and more, we talk about a lot of the headwinds that cinema faces, and I do think it's not a very pretty picture for the movie theaters themselves. But I think when you are a content producer and you know what you're doing, and you just continue to execute year in and year out, as Disney does, this is why you can't count Disney out, because they continue to do this year in and year out.
And while the movie isn't their bread and butter, that's 8%-10% of operating income at the end of the year, but what they do with that content, the chain reaction that it starts, and it goes on for years. There was a Frozen short movie that was integrated into this release as well, which just keeps people coming back for more. So nothing surprising here. I haven't been to see it yet, but I imagine we'll take care of that in the next week or so.
Muckerman: As a consumer, I'm waiting for this whole cycle of sequels and sequel-sequels and sequel-sequel-sequels and comic books into movies to just run its course. I'm tired of it. As an investor, it works. But as a consumer, give me something different.
Hill: Well, and I think that's part of the advantage that Pixar has, in terms of their ability to toggle between the sequels that are safer bets in terms of box office --
Muckerman: Yeah. I mean, you have to have those.
Hill: So just in terms of Disney Pixar, 2017 is the year of Coco. It's also the year of Cars 3. So if you're a part of the brass, if you're Bob Iger, you're delighted that this original surprising story, as you said, Jason, sort of the surprising topic for a family movie, but you're probably delighted with this, but you're also pretty happy that this film's release is sandwiched between Cars 3 and Incredibles 2, which comes out next year.
Muckerman: Coco 2, November 2018.
Moser: I would imagine there's a character or two in this movie that they would be able to establish a series or spin off something from. I don't know if any of you saw the movie The Book of Life.
Moser: That was on the same subject. It was very, very well done. I really enjoyed the movie. I think it was Sony that did that. I'm not sure who did it. I don't know, but I don't believe it was Disney. As a matter of fact, I'm pretty certain it wasn't Disney.
Hill: It was not.
Moser: So I think it's a good example of, perhaps, looking at something that was done before and recognizing, while it sounds a little bit odd, it can really make for a compelling and heartwarming story, as it apparently did. But now, you look at Moana, you look at Frozen, you look at Coco, just through those three movies alone, we probably have another five years of sitting and talking about the sequels that all do so well.
We've seen some recent hubbub hear that there's a potential CEO replacement for Bob Iger. I know they're considering, at least, the gentleman who's been in charge of the parks, Bob Chapek. He's probably putting this guy in a pretty decent position to succeed if he's leaving with an arsenal like that. Right? I mean, all you have to do is get in there and execute and look at what's been done in the past and keep that ball rolling.
Again, this is the reason why you don't count Disney out of anything. This is the benefit of having that diverse model where you make money a bunch of different ways. Even though ESPN is your big money maker, that will become less and less the case, and they're showing that they can find other ways to fill the gap.
Hill: One thing before we move on, back in March, when I was in Austin, Texas, for South by Southwest, I got the chance to sit down with Steve May, who's the chief technology officer at Disney Pixar, and that was an episode of Market Foolery back in March 14. I will post that again on our Twitter feed and our Facebook group, because one of the things we talked about at the very end was Coco, and the work they did. It was a great conversation, because it's just fascinating to learn how tech departments work with directors to tell great stories. I'll post that again.
Muckerman: Is he in charge of movie tech? Or park tech as well? Because that new Star Wars hotel that's going to be totally immersive, I wasn't sure.
Hill: One of the things that we talked about was -- he's at Pixar, he's been at Pixar for a long time, so he's the chief technology at Pixar. But one of the things we talked about was how Disney has acquired all these studios so that he's able to connect with the CTOs of other Disney studios as well. So his counterpart at Marvel, his counterpart at Disney Animation, Buena Vista -- I think Buena Vista is still a standalone studio. Anyway, he's able to connect with all of them, whereas if it was from a different company, you have to sign nondisclosure, there's only so much you can share, that kind of thing. So they can all get together and share best practices in a way that they couldn't if they were working at different companies.
It's Cyber Monday. We had Black Friday. Speaking of email, I just opened up my email this morning, and it was littered with all these retailers. It reminded me of -- do you remember the comic strip The Far Side?
Hill: And one of the classic Far Side comics is a man standing in front of the store that he owns with his son, and there's a huge sign on the store that says "going out of business sale," and he's got his arm around his son and he's saying, "Son, someday all of this will be yours." Of course, the joke is, you see those signs and it's like, they're not really going out of business. And this is where we are now with Cyber Monday.
Moser: My favorite Far Side, there's no question, is the Midvale School for the Gifted. The door says "pull," and the guy is sitting there pushing with all his might.
Hill: Yes. That's my favorite.
Moser: That's the one, when I -- but, I remember when I was 15 years old and I got one of those 365 daily calendar things and you rip off one every day, and every single one was just so genius.
Muckerman: You were patient enough to wait every day?
Moser: Mostly. Every once in a while, I'd peek. But it was like Christmas, you have to go down there a little early to get an eye. But, God, the same thing. My email inbox gets littered with these "last chance for Black Friday" sales, and then Saturday, they're like, "You know what, we've decided to continue this deal a little bit further."
Muckerman: Or they say, "Demand was so impressive that we decided to keep it open."
Moser: Exactly. They figure out a way to market it in such a way that they're trying to do everything they can to gen up interest. And I think to me, I feel like, that we're still discussing this, we're still going through with this as a human race, this is disappointing. I'm just disappointed in people. We're better than this.
Hill: Apparently we're not.
Moser: Well, maybe some of us are. These days, to me, it's not about the day anymore; it's about just marking the beginning of the season. And I think most consumers know that. Some consumers love to go out there and celebrate it still. I can't fathom why. I mean, if I can't click it, I don't want it, and I do everything I can to avoid a store at this point.
And it's funny. I see my kids and their friends doing the same stuff. These stores are having a hard time bringing people in, and there are good reasons why. For me, I think these are almost names now, as far as Black Friday, Cyber Monday; they begin the season. And I think, at some point, it'll be interesting to see if all of these retailers that send you these emails and say, "We're going to continue this thing one more day," or Cyber Monday, or whatever, I wonder if any retailers are actually going to get out there one day and just draw a line in the sand and be like "Black Friday is over Friday; we mean it. And this time, no ands, ifs, or buts. On Saturday, your deals are done."
Muckerman: Send out a full-priced email on Saturday.
Moser: [laughs] Maybe we can see some retailers try to draw a line in the sand. I doubt we probably will. I don't know. These things are just laughable at this point.
Muckerman: I saw a Deloitte study that said last year, retailers sent out a little over 15% more emails, yet 15% less emails were opened from them. So it's just firing more off into the ether with less and less response. Even though people were buying more on mobile, they have their favorite stores; they might just go there, or Amazon has the scrolling deals on the homepage. You can find these things going on at your favorite brands without getting inundated with emails. I feel like most people, if they don't already, should have a separate inbox that all this stuff gets sent to outside of your main personal email account. I know I do. So I check that maybe twice a month, and it's mainly just to make sure I didn't miss an important email.
Hill: And transactions are up. Online sales over the weekend up around 17%. But compared to a year ago, and foot traffic down 3%-4%. So, maybe that nets out for the retailers. Certainly, Amazon is hitting another high today, so maybe we shouldn't be surprised by that. To your point, Jason, I look at all the email and I kind of just want to pull all these retailers aside and say, "It's OK. We know."
Moser: [laughs] Exactly.
Hill: "We know. Just make sure your site is ready." And the day isn't over yet, so maybe I'm jinxing things here, but we haven't heard, to this point, about any sort of internet outages or major websites being down for several hours, that sort of thing. The stat about the online transactions being up 17% compared to a year ago, that came from Adobe, which was tracking this. They also had the stat that online transactions were being closed more quickly. Consumers were closing those sales down 10% faster than a year ago. So maybe the tech is getting better. But, again, I want to say to all the retailers, we know. We know you have deals. We'll come to your site, and maybe we'll shop, but please stop emailing.
Moser: Maybe the tech will get better. It just strikes me that we're in the process of finishing our basement in our house, and part of that is that we're putting a full bathroom down there, so that includes a toilet and a sink. So I went to Wayfair, and we found a vanity that we wanted for the bathroom down there, and I ordered the vanity. So now we have the vanity, it's shipping, and I'm supposed to get it today or tomorrow or the next day or whatever. But I'm just floored by the number of emails that I continue to get from Wayfair with all of these vanity sale offers. How many vanities do you think I need? Really? This seems kind of like a one-time -- like, maybe if you have three bathrooms in your house, and maybe some people are just looking to upgrade all their vanities, but that's not normal. I think maybe their tech could use a little bit of a tweak there.
Muckerman: Do they offer free returns?
Moser: They do offer free returns.
Muckerman: So maybe they're just hedging their bets if you don't like this one.
Moser: Well, the toilet, the same thing. I ordered a toilet, and they're like, "Hey, we got these toilets!" I'm like, how many toilets do you think I'm going to order? Make your tech a little bit better.
Muckerman: "Are you sure that was the best one?"
Moser: You don't need to send me those emails, is my point. If I need another vanity, I guarantee I'm going to go look there first.
Hill: Let me take the other side of that, which is the slim possibility, but it's out there, it's a non-zero chance that someone who does email marketing to Wayfair is one of the dozens of listeners, and they've been hearing you over the past year or two talk about the river house and how you're going to upgrade it, and they're like, "I don't know how many homes Jason Moser owns, but I think it's 17."
Moser: [laughs] Yeah. "Normally that box is checked, but we're going to default his and uncheck it."
Hill: Jason Moser, Taylor Muckerman, thanks for being here, guys!
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon and Walt Disney. Jason Moser owns shares of Twitter and Walt Disney. Taylor Muckerman owns shares of Amazon and Twitter. The Motley Fool owns shares of and recommends Amazon, Facebook, Twitter, Walt Disney, and Wayfair. The Motley Fool recommends Adobe Systems and Time Warner. The Motley Fool has a disclosure policy.