Time Warner Cable: Revenge Is A Dish Best Served Cold by Jared Dillian, Mauldin Economics
Back when I was fifteen and in gifted and talented camp, I found myself on the wrong side of Rick. Funny thing about gifted and talented camps—by process of elimination, eventually you will find the least gifted guy there, and that might have been him.
Rick was fond of wearing Umbro shorts with boxers hanging out of the bottom, and carrying a lacrosse stick pretty much wherever he went. Every time I saw him, I had this mental image of Moe, the bully from Calvin and Hobbes. I half expected him to call me “Twinky.”
Back then, they used to have these things called Aerobies, which was like a Frisbee on steroids. It was a rubber orange ring that was exceptionally stable in the air when thrown and would travel incredible distances. The Aerobie was a vast improvement on the plain vanilla Frisbee, but flew so far that it was unusable for games of Ultimate.
So one day I was tossing an Aerobie in the quad with one of my friends, and Rick ambled over, and said, “Hey, let me have a toss. I couldn’t say no, so I handed him the Aerobie, and he promptly launched it on the roof of the cafeteria.
“Whoops!” he said and walked off with lacrosse stick in tow. “Hawf, hawf,” he laughed.
As a nerd, I often suffered indignities at home, but I never expected to suffer them at gifted and talented camp.
Anyway, I just celebrated my 18th anniversary with what used to be Rick’s girlfriend.
I actually don’t consider myself to be a vengeful person, but I can’t help but feel smug at this incident even now, 26 years later. I will allow myself that.
And it’s funny. I’m this old, and it took me until about 2013 to understand what the phrase “Revenge is a dish best served cold” meant. Now that I think about it, it’s kind of true.
I got my ass kicked real bad by a stock about two years ago. I shorted Time Warner Cable. Ha! You know how that worked out. Let me tell you the story.
It all started with football. During football season in 2013, I looked around and said, “Holy cow, is football ever a bubble.”
This is a national obsession, all these crazy people tailgating for eight hours and taking up all their time with fantasy football and the constant jibber-jabber on ESPN, on how you’d have six hours of football analysis on either end of a game. This was before all the concussion stuff.
But the economics of it were crazy. $1.2 billion for the Buffalo Bills? Have you been to Buffalo lately?
Then I started doing some digging on how much TV rights cost, and I found out how much ESPN was charging the cable companies, and ultimately, the customer.
“All of this is unsustainable,” I said. “This is the definition of a bubble.”
My plan? Short Time Warner Cable.
Well, that was just a terrible idea.
I wrote about it in The Daily Dirtnap at the time, and someone sent me an email from a third party who literally called me an idiot.
He said “This guy is an idiot.” Went into this whole spiel about how even if cable TV was losing subscribers (which it still is), it’s going to make it up in broadband.
He was only scratching the surface of how wrong I was. Then came net neutrality, which is going to insulate the ISPs from competitive threats forever.
Then came the Comcast takeover! But I had already taken enough pain, and I was lucky to get out before then.
As you know, the Comcast deal fell apart under antitrust scrutiny, and Charter is going to do the deal (with a whole lot of debt).
It was the second-biggest loss I ever took. I was a little stubborn about it, but not that stubborn. I lost the money because I was wrong and stupid. Expensive mistake.
My motto has always been “Invest, then investigate.” That is still true, but I now follow up with a lot more research than I used to.
What Would I Have Done Differently?
Did you know that ESPN is the most expensive channel in your cable package? That channel alone costs you $6-$7 a month, whether you watch it or not. That is the magic of bundling—the cable companies throw 150 channels together and charge you for the whole shebang.
So what we are seeing now, with things like Netflix, is unbundling. You probably saw that HBO is offering itself on a standalone basis online.
This is bad for cable TV, but like I said, people still need to pay for Internet (which will undoubtedly get more expensive).
So who is the real loser here?
Um, who owns ESPN?
You probably heard that Disney took a big digger on earnings. Let me explain.
The Magic Kingdom
There are some analysts out there who look at DIS as a consumer products company because of the theme parks. I kid you not. The theme parks are big business, but DIS is a media company that depends solely on selling its content and the value of its content.
Disney has benefited from the sports/TV bubble, the superhero movie bubble, the Pixar/animated movie bubble, but as we are now finding out, these are very fragile revenue streams. Look at that five-year chart. It is a sight to behold.
Disney also became the most consensus long in the world. You couldn’t be a growth manager and not hold 50,000 shares of DIS. It came with the mutual fund starter kit.
People are now beginning to question those assumptions.
Star Wars is expected to make a billion, maybe two at the box office. In fact, you can go look at Disney’s calendar of movies out to 2018, and it is superhero movie after superhero movie. They just made a movie out of Ant-Man. What’s next, The Tick?
My prediction: in three years, people will be very bored of superhero movies. Maybe sooner than that.
Disney is about to turn from the perfect storm of awesome into the perfect storm of poo, and it’s all because of cord-cutters and unbundling. TV is 50% of their revenue. If people one day have the ability to opt out of ESPN, their revenue stream will look very different indeed.
I’d like to get my money back from that awful Time Warner Cable trade. The best way to do it is through shorting Disney. I’m waiting and watching. If it gets anywhere near previous highs, I think I am going to take a shot.
In the new media landscape, Disney is the biggest loser of all.
Editor, The 10th Man
Jared’s premium investment service, Bull’s Eye Investor, is available now. Click here for our introductory offer. For Jared, no asset class or type of investment is off limits. From an iconic sports outfitter to a particularly liquid frontier-market ETF—Jared picks the best vehicles for his subscribers to profit from tomorrow’s trends today. Put Jared’s ingenious mix of market analysis and trader’s intuition to work in your portfolio today. Follow Jared on Twitter at @dailydirtnap.