KEY POINTS
- CONFIDENTIAL DEAL, ODD TIMING: All we know is that the two sides have come to terms, but we don't know what those terms are. According to the press release, P will be paying a higher royalty rate and will have more flexibility in its product offerings. We're guessing the latter would mean an interactive license, which we believe would be a step in the right direction for P. The obvious question is the magnitude of the increase. Note, P had previously said that a direct deal wasn't likely prior to the Web IV decision. Given that we're only one month away from the decision, and that this deal will have precendential value in the next Webcaster proceeding, we suspect one of the parties realizes that it's going to lose, and the negotiated rates are heavily tilted toward one of the party's Web IV proposals.
- WAIVING THE WHITE FLAG? Very recent development suggest that P is now expecting to lose. P has committed over 60% of its cash reserves to the Ticketfly acquisition ($191M) + the Pre-1972 settlement ($90M), which is a fairly reckless move without knowing the Web IV outcome. That is unless it was already planning to blow up its existing model prior to an expected Web IV defeat. Also note that the pre-1972 settlement also covers the 2016 period, and it is pricing in a considerable rate increase (+40%). Note that P’s CFO suggested during the 3Q15 call that expected future rates were considered as part of the settlement. So that said, we wouldn't assume that P is getting anything close to a sweetheart deal here. If anything, it may be P's next step toward deemphasizing its ad-supported model (first one being Ticketfly).
Let us know if you have any questions, or would like to discuss further. See notes below regarding recent developments for P and our Web IV analysis.
Hesham Shaaban, CFA
@HedgeyeInternet
P: Can We Still Be Friends? (3Q15)
10/23/15 08:14 AM EDT
[click here]
P: Dumb or Defeated? (Ticketfly)
10/07/15 11:02 AM EDT
[click here]
P: It's All About the Benchmarks (Web IV)
10/02/15 12:22 PM EDT
[click here]
P: Fool's Gold (Web IV)
09/21/15 02:05 PM EDT
[click here]
