TFM: The Financial Manager January/February 2020

INFORMATION AND INSIGHT FOR MEDIA FINANCE PROFESSIONALS JANUARY/FEBRUARY 2020 THE FINANCIAL MANAGER

Brightening the Path TFM’s four People to Watch in 2020 are leading the charge with technology, collections, regulation and CFO leadership.

ALSO INSIDE

Political Outlook The Streaming War Cannabis Conundrums

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TFM The Financial Manager

The Official Publication of the Media Financial Management Association is published six times annually under the supervision of:

INSIDE THIS ISSUE

FEATURES 10 Riding the Wave

BY MARK FRATRIK

MARY M. COLLINS, President & CEO Mary.Collins@MediaFinance.org JANET STILSON, Editor TFMeditor@MediaFinance.org BILL KNIGHT, Art Director wknight5@nyc.rr.com

Limited commercial messages of interest to our membership and readers will be accepted.

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Copyright, 2020. All rights reserved.

What is MFM?

The Media Financial Management Association is a not-for-profit corporation organized in 1961.

The MFM membership includes more than 1,200 of media’s top financial, IT and human resource personnel, station general managers and other media management personnel as well as associate members in the allied fields of auditing, tax, software, sales and the law.

MFM sponsors telephone seminars and conferences, publishes special studies and surveys, files position papers with federal agencies on behalf of its members and its industry, cooperates with other media industry groups and helps its members grow and learn both personally and professionally.

MFM also is involved in media industry credit matters through its wholly-owned subsidiary, BCCA, which provides members with a Credit Inquiry Service, an annual Conference, directory of Credit Personnel, credit reports accessed via bccacredit.com online credit search, Commercial Credit Reports and a credit and collections handbook.

The information and recommendations contained in this publication have been compiled from sources believed reliable. However, no warranty, guarantee or representation is made by the Association as to the absolute correctness or sufficiency of any representation contained in this publication, and statements contained in advertising and articles submitted to the Association are the responsibility of the authors, not the Association or its officers, directors, staff or members. Moreover, this publication is provided with the understanding that the Association is not engaged in rendering professional services through its distribution. The views and opinions expressed are those of the author, and not necessarily the Association.

This year’s political advertising tsunami will be markedly different than in years past, impacting media sectors and markets alike.

16 Getting Into the ‘Weeds’

BY DANIEL KIRKPATRICK & SETH WILLIAMS

Accepting ads for cannabis products requires a careful analysis of regulations and some protective actions, even in states where they’re legal.

20 The Streaming Race

BY MARCI RYVICKER

While the number of over-the-top contenders has escalated dramatically, their success isn’t about winning or losing. It’s about survival.

SPECIAL REPORT:

people to watch in 2020 25 Lighting the Path Forward

BY JANET STILSON

Four leaders combine strong work ethics and a can-do, friendly attitudes to push their organizations ahead.

Andrew Kober.........................................26 Ivan Ng....................................................... 27 Janet McHugh........................................28 Carmen Reyes........................................29

DEPARTMENTS 8 Credit Where Due 4 From the President Secret Sauces for Success Bad Debt, Right Decisions 9 Association News 6 Dear Expert Events and Discounts Cross-Ownership Regs 30 Last Word 7 Human Factor The FCC Fights Back Hiring Outside the Box The Financial Manager • January/February 2020 3

FROM THE PRESIDENT

Secret Sauces for Success

TFM’s People to Watch share the ways they get ahead in tough but enthralling media environments.

I

n the introduction to our “People to Watch” special report, TFM editor Janet Stilson writes, “The media industry continues its inexorable, fascinating and sometimes uncomfortable evolution.” That’s the best description I’ve seen for the state of the business as we enter this third decade of the 21st century.

The profiles of the honorees themselves say a lot about what it takes to thrive today.

Take Janet McHugh, now executive director of the TV Music License Committee.

She credits her upbringing in a tough area of Baltimore for giving her the strength and communications skills she now uses to negotiate on behalf of all TV companies.

Carmen Reyes, WarnerMedia’s new director of order to cash, also looks to lessons learned in her rough Brooklyn neighborhood to set her goals and find unique solutions for problems. Hearst’s Ivan Ng trained himself to step outside his comfort zone to help the company transition to new technical systems that meet today’s needs.

Our fourth honoree, former MFM board member Andy Kober, now CFO of Mega Broadband, leverages lessons from early mentors to determine “where the puck is going.” I encourage you to read the stories of these four shining stars for 2020. They begin on page 25.

This issue of TFM includes three other articles you won’t want to miss. Two of them look at big changes in media Our “Dear Expert” advertising. BIA’s Mark Fratrik gives his perspective on and “Last Word” what is forecast to be an incredible level of 2020 political ad spending. The firm estimates $6.6 billion in local columns bookend markets alone. The other story pertains to controversial this issue with two advertising categories, particularly marijuana and CBD looks at the FCC’s products. According to Fletcher, Heald & Hildreth attorownership rules. neys Daniel Kirkpatrick and Seth Williams, there are a number of legal and business considerations to be weighed before deciding to accept those revenue opportunities.

Finally, Wolfe Research’s Marci Ryvicker, takes on “The Streaming Race.” Her premise is that it will not be about winners and losers, but about survivors. With a thoughtful categorization of the service types, their business models and some interesting projections for 2020 and beyond, she posits that factors for success include service awareness along with content popularity and value.

This issue also includes our four regularly scheduled columns. John Sloan’s “Credit Where Due” takes on the conventional wisdom that it’s better to run an ad that might not be paid for than to run no ad at all. His argument, which considers sales and licensing costs, is quite compelling.

Media Staffing’s Laurie Kahn writes this issue’s “Human Factor” column. She recommends companies reevaluate long-standing policies around part-time employment, flexible schedules, candidate credentials and working remotely to attract and keep the most productive workforce.

Finally, our “Dear Expert” and “Last Word” columns bookend this issue with two looks at the Federal Communications Commission’s ownership rules. Lerman Senter’s Sally Buckman explains why the commission reverted to pre-2017 regulations after a 2019 ruling by the Third Circuit Court of Appeals. In what Meredith Senter, also of Lerman Senter PLLC, terms a “remarkable” situation, that court has retained the right to consider future appeals. The FCC’s next move involves the Supreme Court, which is not required to take the case.

It’s an exciting time to work in media and entertainment. MFM and BCCA are proud to be your choice to keep abreast of this changing business.

Mary Collins is president and CEO of MFM and BCCA; Mary.Collins@MediaFinance.org.

Happy New Year!

4 The Financial Manager • January/February 2020

EDITORIAL ADVISORY BOARD MICHAEL DENSON Director, Credit Services NMCP GREG LECHOWSKI Market Controller, Phoenix Bonneville International CAL MOSTELLA Vice President, Treasurer WarnerMedia JOHN SANDERS Principal Bond & Pecaro MEREDITH SENTER Member Lerman Senter PLLC C. ROBIN SZABO President Szabo Associates JAMIE GRANDE MFM/BCCA Staff Liaison

CONTRIBUTORS SALLY BUCKMAN Lerman Senter PLLC MARK FRATRIK BIA Advisory Services LAURIE KAHN Media Staffing Network DANIEL KIRKPATRICK Fletcher, Heald & Hildreth MARCI RYVICKER Wolfe Research LLC MEREDITH SENTER Lerman Senter PLLC JOHN SLOAN SETH WILLIAMS Fletcher, Heald & Hildreth

Congratulations to

Ivan Ng

on Being Named an MFM Person to Watch in 2020

DEAR EXPERT

Hitting the Brakes

Legal eagle SALLY BUCKMAN explains how a U.S. Court of Appeals ruling is impacting cross-ownership regulations.

Dear Expert, My company has been considering a transaction that would be permitted only if the Federal Communications Commission (FCC) relaxes its broadcast ownership rules. We expected to see a decision by now. Will it come soon?

Waiting in Wichita Dear Wichita, It does not appear that the FCC will be changing the broadcast ownership rules anytime soon. That’s due to a decision by the U.S. Court of Appeals, which sets aside rule changes made by the commission in 2017.

The decision affects broadcasters in several ways. First, the rules limiting broadcast station ownership revert to those in effect prior to the 2017 changes, and the FCC has signaled that it’s unlikely to approve transactions that don’t comply with the pre-2017 rules. Second, it is unlikely that the FCC will proceed with further changes in the foreseeable future.

So, what’s going away, exactly? In its 2017 decision, the FCC repealed a rule that prohibited the common ownership of a daily newspaper and a radio or TV station in the same market, and another cross-ownership rule that limited the number of radio and TV stations that an entity could own in the same market.

The 2017 decision also relaxed the local television ownership rule by eliminating the prohibition on one company owning two TV stations in a market only if eight independently owned stations would remain in the market after the acquisition. And it also eliminated the rule that treated a television joint sales agreement as the equivalent of controlling a station under the ownership rules and therefore prevented a company from owning one TV station and selling advertising time for another TV station in Do you have a professional puzzle that MFM and BCCA experts might be able to answer? We’ll mine the contact base and find the right person to answer your question.

Just contact TFM editor Janet Stilson at TFMeditor@mediafinance.org.

the same market. The FCC also announced that it would consider requests for waiver of the ban on the common ownership of two top-four ranked stations in a market.

The 2017 decision quickly led to several major acquisitions. The largest was Nexstar Media Group’s acquisition of Tribune Media. Nexstar was able to acquire two topfour ranked stations in the Indianapolis and Norfolk markets because of the rule change.

The FCC is required by law to review its broadcast ownership rules every four

a now non-compliant acquisition would be “grandfathered” – allowed to remain in effect – if the commission’s decision approving it is no longer subject to review. However, the company may be limited in its ability to sell the “grandfathered” combination in the future, because any acquiror would need to show that the acquisition complies with the ownership rule then in effect.

If the commission’s approval of a now non-compliant acquisition is not yet “final,” and the transaction is still being challenged, the effect of the court’s decision is less clear.

The court’s ruling also affects pending and potential transactions. Shortly after the court’s decision, News-Press & Gazette terminated its proposed acquisition of Heartland Media’s TV stations, which would have resulted in the ownership of a

Most FCC experts expect the commission to delay the 2018 quadrennial review and focus on defending the 2017 decision. years and to repeal or modify any rule that it determines to be no longer in the public interest as the result of competition. In December 2018, the commission initiated its latest review. Many expected that the review would lead to further relaxation of the ownership rules, including those that limit the number of radio stations that an entity can own in a market.

But the process came to a screeching halt in late September 2019, when the U.S. Court of Appeals for the Third Circuit issued its decision, directing the FCC to gather more data on how the changes to the rules would impact minority and female ownership.

Moving forward, most FCC experts expect the commission to delay the 2018 quadrennial review and focus on defending the 2017 decision. (For more on that, see “Last Word,” on page 30.)

The FCC has not yet ruled on the effect of the court’s decision on acquisitions that had already been completed. Presumably,

6 The Financial Manager • January/February 2020

daily newspaper and TV station in the same market. No one knows how many other acquisitions have been quietly shelved.

In addition, the transaction involving the sale of a controlling interest in television and radio stations owned by Cox to an entity affiliated with Apollo Global Management was restructured so that it would comply with the pre-2017 ownership rules.

Both actions imply that the FCC had signaled that it would not approve pending transactions that do not comply with the pre-2017 ownership rules.

Sally Buckman is a member of the law firm Lerman Senter PLLC, which represents media companies. She can be reached at (202) 429-8970 or sbuckman@lermansenter.com. Lerman Senter represents one of the parties seeking rehearing of the court’s decision.

HUMAN FACTOR

Hiring Outside the Box

Think creatively about your hiring practices. Fickle younger employees and massive Boomer retirements make that key. BY LAURIE KAHN

M

any companies, across all industries and market sizes, are struggling to attract and hire talented employees. While there are many new initiatives to make that job easier, it’s also important for hiring managers, human resources managers and owners to really understand the challenges their companies are facing. They should be open to changing the hiring processes that they may have had in place for decades.

Younger generations are not expected to stick around in any one position as long as was common for their parents and grandparents. As a result, turnover will increase with time. What’s more, about 10,000 Boomers are expected to retire daily between now and 2029. Many offices will struggle to replace crucial staff.

Despite the retirement trend, many Boomers also will provide employers with hiring solutions.

When they joined the workforce, people born between 1946 and 1964 were expected to work until age 65. With modern medical breakthroughs, many are working longer. In fact, younger generations entering the workforce today could be working well into their 80s or longer.

It will be important to hang on to high producers as long as possible, so think out of the box when considering how to keep them engaged.

Too often, job applicants over 50 are ignored. There is a great amount of talent out there that either needs or wants to work, and they should not be discounted. Consider offering those wishing to retire a more flexible schedule, perhaps fewer days per week or the ability to work remotely for a few months a year.

Maybe you can set up a job share with a veteran and a new hire; they can both learn from each other. Don’t rule out someone

who has not been in media but has retired and has a large number of local contacts.

This can be especially beneficial for filling sales openings.

You also might want to consider reevaluating the established qualifications for a given position. An annual review of all your job profiles may help you to reconsider what traits are really important for a particular job. Is a college degree required for success?

Unless you need someone with specific engineering or accounting training, you might be able to broaden your spectrum of qualified job applicants.

Many stay-at-home parents would love a part-time job and can bring great skills and expertise to your workplace. Many members of the younger generation have multiple jobs. Part-time workers can contribute on an individual basis or as a job share.

We are seeing more “team selling” models popping up in media. It can be as simple as a two-person job share. Or it might involve hiring an administrative person to help the sellers do their inputting so they can be on the streets conducting more customer needs assessments and closing business. This is an excellent spot for a new hire who is learning the business. We have seen sellers dramatically increase their billing by adding support.

If you have a stellar employee who needs to relocate, consider the idea of rethinking their job and what they might do. A station in Idaho recently was faced with that situation when their generMaybe you can set up a job al sales manager’s husband share with a veteran and a was transferred. They now new hire; they can both learn have her set up as a regionfrom each other. al manager, working out of Kentucky.

With strong programs and Here’s a case in point: years ago, Google accountability, this kind of arrangement decided to join the radio business. As Goo- can be successful – especially with estabgle’s recruiter, my company was required lished employees. to collect college transcripts from each apThe workplace of the future will look plicant, regardless of how long it had been drastically different since they graduated. On top of that, po- than what it was like tential job candidates had to have graduated w he n m a ny of u s with a minimum 3.5 grade point average. joined the job force.

As many of us know, that requirement cuts The smartest employout many of our current staff and potential ers will create soluhires. tions that work for Take the time to dig and decide what is individuals and not essential for success when creating your job just for the company. profiles and postings. You need to cast the Laurie Kahn is president of Media Staffing Network, widest net possible. a search and consulting firm that is focused on If you struggle to gain interest in fullmedia jobs. She can be reached at (480) 306-8930 or laurie@mediastaffingnetwork.com. time positions, consider hiring part-timers.

The Financial Manager • January/February 2020 7

CREDIT WHERE DUE

Bad Debt, Right Decisions

Rolling the dice on risky customers can have larger consequences for company profits than simple logic may suggest. BY JOHN SLOAN

T

here’s a conversation that often takes place on a daily basis at radio, television, cable network and newspaper offices that goes something like this: “If we don’t sell it to them, then we won’t be able to sell it to anyone.”

“Sure. The inventory is available. It’s better to sell it and take a chance on not being paid than not sell it at all.”

It persuasive, because traditional media companies have very perishable advertising opportunities. There is some truth in the assumption that it’s better to sell to a customer who might not pay than not to sell the time or space. However, deciding what’s best for your company is not as simple as it first appears.

What is the downside? Before addressing that question, it helps to understand our financial statements. It is only after understanding our finances, specifically the earnings statement, that we can begin to appreciate the advantages and disadvantages of selling to marginal customers.

An earnings statement – sometimes known as a profit and loss (P&L) statement – is simply a document that shows the expenses associated with the revenue generated by a company’s sales. Operating expenses listed on the P&L include everything from salaries to supplies to licensing fees. They are sometimes broken out by general and administrative expenses and cost of goods sold.

For every dollar of revenue, some expense is necessary to generate that revenue. Here is a simplistic P&L statement for a company we’ll call XYZ Media: Net Sales: Sales and Admin Expense Licensing Fees Net Profit

$1,000,000 -700,000 -150,000 150,000

In this instance, for every $10 in sales that the company makes, it generates $1.50 in profit. Profit does not equal cash. Profit is a mathematical calculation designed to show how well or poorly a company is performing.

The cash generated from all sales should end up in the company’s bank account, but there

are no guarantees that that will occur.

Part of the operating expense associated with each sale relates to the salaries of the salespeople, assistants, engineers, journalists, managers, accountants and, yes, credit analysts employed by XYZ Media. All of them influence, directly or indirectly, the funds that end up in the company’s bank account.

Suppose a salesperson makes a proposal to a customer, and the customer agrees to purchase $100,000 of inventory of XYZ. The schedule is run per the customer’s specifications and an invoice is generated and sent to the customer who pays it within XYZ’s payment terms. Nine other customers do the same thing and XYZ earns $150,000 profit for that period.

But what happens if one of those 10 customers has financial difficulty and is forced to file bankruptcy? What if XYZ cannot collect on that sale? The financial statement may look like this: Net Sales: Sales and Admin Expense Licensing Fees Bad Debt Net Profit

$1,000,000 -700,000 -150,000 -100,000 $50,000

XYZ’s profit is substantially reduced because one customer didn’t pay. If it takes $10 in sales to generate $1.50 in profit, then XYZ is going to have to sell another $1 million to make up for the $100,000 loss. If the average sale is $100,000 then it will have to find seven new customers to

8 The Financial Manager • January/February 2020

replace the one customer that didn’t pay.

In the real world, companies manage bad debt by establishing reserves so that the effect of bad debt does not have a dramatic impact on earnings. Operating expenses are increased over a period of time to create a reserve. Regardless of how bad debt losses are managed, the impact of a bad debt affects earnings.

Obviously, the size of the loss also is important. But bear this in mind: any bad debt loss cannot be made up by selling the same amount to another customer. It involves selling many times the lost amount to other customers.

So does it make sense to sell to a marginal credit if there is a reasonable expectation of not receiving payment? The answer must be “no.”

Note, however, that not selling the inventory results in zero revenue which also translates into zero profits.

Marginal customers can be sold as long as sales and financial management fully recognize the risk of loss. They should be prepared to manage the risk and willing to take decisive action to minimize a loss.

John Sloan is a former executive director of credit services for Turner Broadcasting System. He can be reached at john_sloan23@yahoo.com.

ASSOCIATION NEWS

[ UPCOMING EVENTS AND DISCOUNTS] MFM CFO Summit March 5-6 Pelican Grand Beach Resort Ft. Lauderdale, FL

S

enior media industry finance leaders explore big picture issues affecting today’s media businesses in this signature MFM gathering. Recognized authorities will share insights on a range of issues, such as the economic outlook, cybersecurity and the political landscape.

Registration is limited to the most senior financial executives in media companies.

MFM reserves the right to refuse registration requests that do not meet registration criteria. Registration rates will increase on Feb. 12, 2020.

The CFO Summit co-chairs are Marie Tedesco, CFO, Beasley Media Group; Kent Nate, senior vice president and CFO, Bonneville International; and Douglas Lyons, senior vice president, controller and treasurer, E.W. Scripps Co.

Media Finance Focus 2020 May 18-20 Loews Hollywood Hotel Los Angeles, CA

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egister by Jan. 21 and save more than $500 off standard rates for MFM’s annual conference, celebrating its 60th year in 2020. This is the premier industry event for financial professionals in media and entertainment. Over 80 sessions are featured, with a wide range of dedicated tracks. There’s something for everyone.

There will be numerous networking opportunities and direct interaction with industry professionals. CPAs have the opportunity to earn approximately 20 CPE credits.

The conference chair is Melissa Mitchell, corporate controller, Bonneville International. And her co-chair is David Bochenek, senior vice president and chief accounting officer, Sinclair Broadcast Group.

Team Meeting Opportunity

together for a meeting. Groups of 10 or more have the option to book a meeting space at the Loews Hollywood Hotel for no additional charge. Groups taking advantage of this option will also receive a food and beverage credit ($25 per person for MFM corporate members, $10 per person for individual members).

Steve McIntosh Scholarship MFM is now accepting applicants for the 2020 Steve McIntosh Memorial Scholarship.

The association will award two recipients free conference registration for Media Finance Focus 2020. Applicants must have worked in the media industry for no more than five years and be under 35 years old as of Feb. 14, 2020.

More information about these events is available on mediafinance.org and mediafinancefocus.org.

BOND & PECARO The Basis for Your Decisions

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Media Finance Focus 2020 may be the perfect occasion to bring your team

The Financial Manager • January/February 2020 9

RIDING THE WAVE This year’s political advertising tsunami will be markedly different than in years past, impacting media sectors and markets alike.

10 The Financial Manager • January/February 2020

ADVERTISING TRENDS

BY MARK FRATRIK

W

★★★★★ HILE WE ARE STILL AT THE START

of 2020, a considerable amount of political advertising already has been sold, especially in the early presidential primary states. Before the final victory balloons soar over winning candidates, BIA estimates that nearly $6.6 billion will be spent on political advertising in all local markets during this election cycle. Needless to say, the dollars allocated to national networks would increase that number even further.

The local revenue encompasses not just spending tied to the presidential race. Senatorial, gubernatorial and even some House races also will be quite significant to media company bottom lines.

This incredible spending will be spread across many different markets – some more than others, depending on where the most hotly contested races are located.

In fact, some markets are expected to attract far more spending than they ever have before. There’s a simple reason for that: the primary schedule has been changed so that more states are involved in the nominating process earlier, among them California and Texas.

MEDIA SECTOR NUMBERS

While mobile and online advertising platforms will garner more of that political spending than in previous election years, traditional media will continue to see

noticeable spending. BIA Advisory’s online ADVantage service estimates that local television stations still get the lion’s share of revenue.

Slightly over half (50.2%) of all spending will go to stations and their online advertising platforms – about $3.1 million for over-the-air and $235,000 for online TV platforms. (See chart below.)

Local cable advertising, with its ability to geo-target advertising, will be second in terms of the share, with 13.9% of all political advertising or about $915,000.

Third will be online advertising that’s not sold by traditional media players. This includes Google, Facebook and many other popular online sites. Collectively they are expected to pull in 12.1% of the total spending, or about $793,000.

While mobile is still a small amount in this category, it is growing rapidly, with a projected $195,000 spend.

The online sector has benefited from new fundraising mandates. Due to debate participation rules, Democratic presidential campaigns needed a minimum number of donors, especially small donors. To realize those goals, the campaigns have been utilizing many different digital/online sites, thereby increasing their spending on these platforms.

But local traditional media outlets can (and many do) tap into that spending by selling access to their own online and mobile sites as well as their apps. Sales reps from these media outlets can help these campaigns

TV OTA 46.6%

Cable TV 13.9%

TOTAL U.S.

★

POLITICAL SPENDING TV Online 3.6% Radio OTA 4.7%

SOURCE: BIA Advisory Services

Radio Online 0.6%

Out of Home 2.7%

Direct Mail 8.8% Email 0.6% Mags Online 0.1% Mags Mobile 3.0% Print 0.2% News Print News 1.4% Online 0.9% OTT Online 0.8% 12.1%

The Financial Manager • January/February 2020 11

ADVERTISING TRENDS navigate the online digital opportunities as to specific geographic areas, an advantage many are doing with their non-political that’s also sought by political campaigns. clients.

OTT advertising has the benefit of being The share going to traditional media, associated with quality video programwhile still substantial, is certainly lower than ming (much like over-the-air and cable what they were in previous election years. television). It also is valued for its ability to (BIA began estimating political revenue this target audiences, both geographically and year, so there is no formal data for prior elec- demographically. tion cycles.)

Online and mobile advertising platforms STATE IMPLICATIONS have the advantage of precisely targeting dif- In markets where there are competitive ferent types of consumers and geographic Senate and gubernatorial races, the levels regions, so political campaigns can really of political advertising will be nearly overtailor their messages. This strategic oppor- whelming. There are 14 markets where the tunity is especially significant when political predicted total political advertising revenue will be one-third or more of campaigns want to reach the all local television over-thepeople that make up youngthe ★★★★★ air advertising revenue in er demographic s – who fortunate 14 those markets. (See table at generally do not access local left.) traditional media outlets as The markets where These high percentage frequently as older groups. political advertising m a rket s a re loc ated i n Yet like all advertisers, is expected to be Maine, Nevada, Arizona, political campaigns need ad33% or more of total over-the-air Kentucky, North Carolina, vertising mixes that include advertising are: as well as other states with not only targeted messaging, ver y competitive races. but also messaging that are Portland-Auburn, ME Local cable systems and broader in scope (such as Bangor, ME other media outlets in these “get out the vote”). That’s Reno, NV markets will also see these rewhere traditional media fit Las Vegas, NV markable levels of spending. in nicely, with their ability Presque Isle, ME The Senate races are amto provide mass audiences at Tucson, AZ plified by the Democrats’ specific times. great hope and desire to win One traditional advertising Phoenix, AZ control of the chamber. And platform that is still widely Greensboro-High the spending will come not used by political campaigns, Point-Winston Salem, NC only from the campaigns though we sometimes forget Louisville, KY themselves, but a lso by about it, is direct mail. It’s exthird-party efforts. pected to garner about $579 Lexington, KY The total political admillion during the current Wilkes Barrevertising spending will be election cycle. While direct Scranton, PA larger than in 2016, which mail is used extensively by Greenville-New BernWashington, NC according to many political many local campaigns that analysts, was an anomaly. do not need a television or Grand JunctionMontrose, CO Recall that one of the canradio market-wide coverage, didates ended up with an it also continues to be used Wilmington, NC incredible amount of free by statewide and national media time covering his pricampaigns. The flyers and brochures can be a vital part of the mix of mary and general election campaign.

In 2020 all of the campaigns have been acadvertising messages.

A relatively new platform that is being tive and successful in fundraising large sums. used in the campaigns is over-the-top (OTT) television advertising, which BIA expects to PUSHED-OUT ADVERTISERS attract $51 million in local revenue. Grant- As many local media companies know, these ed, a large percentage of advertising on OTT tremendous increases in political advertising platforms is national in scope. Yet increasing- has its quandaries as well. Finding availabilly, OTT is being used by national, regional ities for the longer-term advertisers during and local companies to target their messages the political season is always a problem. The 12 The Financial Manager • January/February 2020

requirement to find equal access for all of the political candidates (especially in the primary season with so many potential candidates) continues to be a significant challenge.

Some of these existing long-term clients will gravitate to other advertising platforms due to this “crowding out” effect.

While most of that advertising spending will return after the election and in the following years, the increased use of these alternative advertising platforms always raises concerns by traditional media players. What if those advertisers see better returns to their advertising spending on the other platforms?

What do local media companies need to do to minimize the impact of this crowding out? Clearly, working with important longer-term clients is essential. In markets where considerable political advertising is expected, local sales staffs must work with their important core clients to schedule their year-long advertising in ways that will avoid the congested political seasons.

Increasing their spending immediately prior and after these political seasons will allow these advertisers to retain their presence while not becoming lost amongst the avalanche of political advertisements.

UNIT-RATE CONCERNS

Additionally, local media outlets in these hotly competitive political markets need to consider their pricing for all of 2020. Radio and television stations, especially, have to consider what this added demand for their inventory will do to their pricing. They are legally bound to offer the lowest unit rate to federal candidates. Planning ahead is absolutely necessary.

What else do local media outlets need to do to take advantage of all this added spending in 2020?

Clearly, they need to stay in direct contact with all of the major campaigns providing them with as much information as possible about what their outlets can provide.

In markets with expected close races, they need to free up as much inventory as possible while still servicing their long-term clients.

While these political clients are not annual long-term clients, they are incredibly important in this political year.

Mark Fratrik is senior vice president and chief economist of BIA Advisory Services. He can be reached at (703) 802-2982 or mfratrik@bia.com.

CONGRATULATIONS TO CARMEN REYES. WarnerMedia is proud to congratulate Carmen on being recognized as a “Person to Watch”

by MFM.

14 The Financial Manager • January/February 2020

Congratulations to the

2020 TFM “People To Watch” Ivan Ng Application Security Audit Manager Hearst Corporation

Janet McHugh Executive Director

Television Music License Committee

Andrew Kober Executive Vice President CFO Mega Broadband

Carmen Reyes Director Order to Cash AR Manager Warner Media

Szabo Associates, Inc. • 404-266-2464 • www.szabo.com • info@szabo.com

ADVERTISING TRENDS

Accepting ads for cannabis products requires a careful analysis of regulations and some protective actions, even in states where they’re legal.

I

F MY COMPETITOR IS RUNNING ADVERTISING FOR MARIJUANA OR CBD PROD-

ucts, why can’t I? Media clients are increasingly asking that question, and for broadcast media outlets in particular, this question underscores the difficulty organizations face when it comes to accepting advertising from sources that are legal in some places, illegal in others – and in still other places decriminalized.

To turn down money from a quasi-legal source or not to turn down the money, that is the question.

Unfortunately, there is no easy answer. To start, it is important for any media organization’s advertising personnel to understand that it is a felony to use a communications business to facilitate the sale or distribution of illegal drugs.

This restriction is not limited to broadcast organizations. Cable and wireless operators, newspapers, magazines and even online publications could be subject to prosecution for advertising illegal drugs.

However, where marijuana, for example, is legal at the state level, broadcasters often feel the advertising pressures most acutely because they operate subject to a license granted by the Federal Communications Commission (FCC). A felony conviction may disqualify a person or entity from holding a license under the FCC’s evaluation of a licensee’s “character.”

To be sure, there are places where the legal uncertainty appears to be nearing an end, such as for hemp-derived products, including some types of CBD. But even when the substances are clearly permissible, the highly regulated nature of these newly legalized industries will continue to require media organizations to implement careful advertising policies related to them.

And there’s an added layer of complication: state and local laws and regulations may conflict with federal laws. Those complexities – along with the strong desire by purveyors of legalized CBD and marijuana to promote their wares – have spawned one of the hottest advertising issues for media organizations today. To understand the perils and promise, it’s first important to realize that the two products are on a somewhat divergent path.

Let’s look at each in turn.

HEMP’S WIDENING PROMISE

Historically, the U.S. tightly regulated all forms of cannabis, including hemp, but in recent years, the federal government has relaxed hemp regulations. The 2014 Farm Bill permitted certain pilot programs to begin testing hemp as an industrial agricultural product, and the 2018 Farm Bill effectively legalized hemp, subject to the regulatory oversight of the U.S. Department of Agriculture (USDA), state and tribal regulators. In addition to legalizing hemp, the 2018 Farm Bill legalized hemp-derived products, which includes some CBD products.

The USDA has publicly said that it wants to have its new regulations for producing hemp in place for the 2020 growing season, and on Oct. 31, 2019, it released an interim final rule specifying those regulations. Comments on the rules were due 16 The Financial Manager • January/February 2020

GETTING INTO

THE ‘WEEDS’

BY DANIEL KIRKPATRICK & SETH WILLIAMS

LEARNING THE LINGO CBD, which is more formally known as cannabidiol, can be derived from marijuana or industrial hemp. The two plants are related, and fall under the overall umbrella of Cannabis Sativa L. Hemp contains significantly less tetrahyrocannabinol (THC) than marijuana.

THC is the psychoactive ingredient that gets people high. Hemp is defined as containing a THC concentration of no more than 0.3% on a dry weight basis.

The Financial Manager • January/February 2020 17

by Dec. 30, 2019, so it appears the USDA is in position to adopt final rules for hemp production early this year.

The interim final rules also outline the submission process for a state to obtain approval of its statewide regulatory framework, which would supersede the USDA regulations in that state if approved.

While hemp-derived CBD products are widely available at the retail level in some states, the USDA and state regulators are still in the process of implementing regulatory frameworks to permit the sale of hemp products.

For media organizations, the details of these new rules are secondary to the fact that advertising hemp and hemp-derived products will very soon be legal, at least at the federal level. However, as with many legal issues, that legality comes with caveats and will remain subject to potentially complicated regulations.

Advertising CBD products without potential legal exposure is one of the biggest potential boons for media organizations when the new hemp regulations are finalized. But the general legality of hemp and hemp-derived products like CBD is only a threshold question.

For example, both hemp and marijuana contain CBD, and both can be used to create CBD products. Therefore, even after hemp regulations are fully adopted, media organizations will need to be careful in advertising CBD lest they inadvertently accept advertising for illegal marijuana products instead of legal hemp-derived products.

The new hemp regulations will also require hemp producers to get a license from the USDA or an approved state or tribal government agency. Media organizations may not need to become experts on the various state and federal hemp regulations, but they will want to ensure that the hemp products they advertise, including CBD products, are coming from licensed hemp producers.

Moreover, contractual protections may not prevent legal or enforcement action. In other words, it wouldn’t stop the FCC from taking action against a broadcaster that it believes is promoting illegal substances on the public airwaves. Nonetheless, media organizations should include language in advertising agreements for hemp-related products requiring the advertiser to certify that it fully complies with relevant state and federal regulations.

If possible, from a business negotiation

The FTC isn’t the only government body watching out for false information. The Food and Drug Administration (FDA) can also take action against advertisers that make MEDICAL & EDIBLE ISSUES unsupported medical claims. It plays a major Beyond the new hemp regulatory frame- role in another critical issue for CBD prodworks, there are also more general advertising ucts: edibles. Currently it’s illegal under FDA considerations that will impact hemp and rules to sell food that contains CBD or to sell CBD products in particular. CBD propo- CBD as a “dietary supplement.” The same nents, for example, often claim that CBD has holds true for cosmetics, if a given cosmetic medicinal value. Whether or is also intended to affect the not that is true, bear in mind structure or function of the Although it that the Federal Trade Combody or to diagnose, cure, mission (FTC) has regulatory has not taken mitigate, treat or prevent authority to prosecute false any public disease. This is a particuor unsupported advertising larly challenging area for enforcement claims. And unsubstantiated media organizations because claims of medical benefits actions, the FCC a number of large retailers often draw close scrutiny has specifically and food and beverage comfrom the FTC. panies have begun introduccautioned Therefore, even after the ing ingestible products that USDA adopts its final hemp broadcasters contain CBD. rules, media organizations not to accept To date, the FDA has apwill need to closely review proved only a single CBDany marijuana any CBD advertisement ba sed drug, Epidiolex, that claims the product has advertising. which treats a rare form of medical benefits. While any epilepsy. Other than Epidimedical claim must be scrutinized, media or- olex, the FDA has not approved CBD for use ganizations should pay particular attention to as a drug or as safe for introduction into any specific claims that a CBD product can “cure,” food (including any animal food or feed). “treat,” “do wonders for” or otherwise remedy Based on the FDA’s current stance on a specific symptom or disease.

CBD, a number of state health departments have also taken the position that CBD products cannot be sold in food. And states – including New York, Maine, Ohio and California – have taken steps to either warn retailers not to sell such products or to seize edible CBD products from stores N STATES WHERE MARIJUANA IS legal, the Department of Justice has in their state. focused enforcement on businesses The issue is particularly fraught in Calthat operate outside the legal market. ifornia where the state health department Factors that could attract federal law follows the FDA ban on foods containing enforcement attention include: CBD and has been confiscating edible CBD ■ Distribution or marketing to minors; products from shelves.

■ Sales by criminal enterprises (e.g.

At the same time, a bill that would make gangs and cartels); it legal for foods in California to contain in■ Distribution to states where maridustrial hemp, including CBD derived from juana remains illegal; ■ Use of authorized marijuana sales industrial hemp, has passed the California to cover for other illegal activity; Assembly. At press time it was pending in ■ Use of violence or firearms in the California Senate. However, even if the the cultivation or distribution of bill passes, it is not clear that state and local marijuana; health departments will change course and ■ Drugged driving and other public ignore the FDA’s ongoing ban on edible health impacts; CBD products.

■ Growing marijuana on public lands; Finally, states will undoubtedly adopt ■ Possession of marijuana on federal property. additional regulations as CBD and other hemp-related products become more standpoint, the advertiser should indemnify the media organization for any failure to comply with those regulations.

OUTSIDE THE LAW

I

18 The Financial Manager • January/February 2020

ADVERTISING TRENDS common. For example, Colorado has strict advertising rules as part of the state’s marijuana regulations. Other controversial advertisements such as tobacco and alcohol are also subject to both state laws and voluntary industry standards on advertising.

Media organizations should expect similar state laws to crop up with respect to hemp products, and they may want to take part in establishing advertising best practices for the industry to forestall further regulation. They will also need to establish internal policies to ensure that any new hemp or CBD-related advertising complies with the organization’s own practices and any applicable regulations, including FTC, FDA, USDA as well as state or local regulations.

MARIJUANA MOVEMENT

At first blush, marijuana appears much less complicated than CBD and other hemp-related products. It remains illegal at the national level; therefore, it also remains federally illegal to advertise marijuana.

At the state level, marijuana is both medically and recreationally legal in 11 states and the District of Columbia (although marijuana cannot be sold commercially in DC).

Another 12 states have decriminalized recreational marijuana, and medical marijuana is also legal in those states. Of the remaining states, 10 have legalized marijuana for medical use. And in 17 states marijuana remains illegal, although some of them have legalized CBD for medical use with various levels of THC permitted in the CBD products.

The federal government has also taken a “hands-off ” approach to marijuana enforcement in states where marijuana is legal.

While this policy is subject to change by the Department of Justice (DOJ) and other federal agencies at any time, even former Attorney General Jeff Sessions, a long-time opponent of marijuana legalization, maintained the approach after Congress pressured him not to change policy.

In this regulatory landscape, some media organizations have started accepting advertising from legal growers or distributors of marijuana in states where the sale of marijuana is legal. As noted earlier, accepting marijuana advertising remains illegal at the national level, technically speaking. However, the ultimate business decision on whether to accept such advertising where marijuana is legal at the state level reflects a risk-benefit analysis that companies routinely perform.

For media organizations considering marijuana advertising, it may make sense to tread even more carefully than with hemp and CBD advertising, but many of the factors to consider will remain the same. The difference in risk between hemp/CBD and marijuana is likely greatest for broadcasters, due to the threat any conviction could pose to holding an FCC license. Although it has not taken any public enforcement actions, the FCC has specifically cautioned broadcasters not to accept any marijuana advertising.

For any media organizations that decide to take the risk of running marijuana advertising, accepting the advertising should trigger a cautious review process. The media organization will want to ensure the advertiser is licensed in the state where the business is located and where the advertising will run and is in full compliance with state regulations.

As with hemp advertising contracts, media organizations should require advertisers to certify compliance with regulations and indemnify the media organization for breach of the contract, even if the agreement’s language will not fully protect the media organization from enforcement action by a federal or state agency.

To the extent possible, media organizations should also ensure a marijuana advertiser is not violating any of the DOJ factors noted earlier, and marijuana advertising should probably be even more conservative than other advertising when it comes to health claims or other advertising claims.

Because marijuana is illegal at the national level, the FTC, FDA and state regulatory agencies have an added cudgel to threaten a media organization that runs marijuana advertising that makes false or unsupported medical claims.

Finally, media organizations must comply with any state advertising regulations for marijuana. For example, Colorado law permits marijuana advertising, but it requires that an advertiser must have “reliable evidence” that no more than 30% of an ad’s audience is reasonably expected to be under 21 years old. Therefore, marijuana advertising still may be best suited for niche or more targeted media outlets.

Daniel A. Kirkpatrick is co-managing member of Fletcher, Heald & Hildreth, and Seth L. Williams is an attorney with the law firm. They can be reached at kirkpatrick@fhhlaw.com and williams@fhhlaw.com, respectively.

Congratulations IVAN NG on being a 2020 Person to Watch From you friends at

The Financial Manager • January/February 2020 19

TELEVISION TRENDS

THE

G

STREAMING

ONE ARE THE DAYS OF SIMPLY

choosing between streaming either Netf lix or Amazon Prime. Today the list of ever-expanding streaming providers also includes Disney+, Hulu, CBS All Access, the Roku Channel, Showtime OTT, YouTube, Apple TV+, BET+… the list goes on and on.

The media has dubbed this latest disruption “the streaming wars” as more and more services vie for our time and hard-earned dollars. Disney+ recently launched with 10 million subs (and apparently gaining 1 million subs per day). HBO Max and NBCU’s Peacock are launching relatively soon after the New Year. So now feels like a good time to understand what services are available and how they differ from one another.

THREE CATEGORIES

of the biggest streaming services currently in the marketplace (or announced with a pending launch date) and how each can be categorized on the criteria described above.

Each of these different criteria have their own pros and cons. For example, free adbased services can attract a large and more diverse userbase than those that require a paid subscription. However, this comes at the cost of the steady revenue stream that the subscription model provides.

Conversely, while the subscription is good for revenue generation, the subscription price inherently provides a barrier to customer acquisition. And any subsequent price increases will provide customers the opportunity and incentive to churn.

Content aggregators are able to buy only shows that are known hits and avoid the risks that come with production. However, this

Streaming services can be categorized according to three main criteria. The first is how a consumer “pays” for the service. Typically, this is either directly through a subscription fee or by watching advertising embedded within the actual programming.

The second category pertains to the type of content being offered by the service. It can be broken up into two main buckets: 1) the service’s own produced content, which is known as “direct-to-consumer” (DTC), or 2) licensed content that is produced from outside sources, aggregated together and mixed in with a platform’s own originals.

(The latter is becoming increasingly important for the initial streamers – Netflix, Amazon and Hulu.)

The third category relates to whether the content is “live” – essentially, what is happening right now as you are viewing it. This is typically reserved for genres like news and sporting events. Non-live content is previously recorded and binge-able – typically considered to be “library” content.

In the table at right, we outline many 20 The Financial Manager • January/February 2020

comes at the cost of having to pay increasingly higher prices for such premium content.

MOVE TOWARD DTC

The biggest differentiator between the streaming services as of late has been the shift to DTC. In fact, we’d say that DTC is “all the rage” after the announcement that Disney+ garnered 10 million subscribers in the first 24 hours after its Nov. 12th launch.

Each programmer seems to be attacking DTC in a different way. Some are gunning for market share (Disney+), while others are using a DTC offering to sell their core products. Think Apple+ with its hardware and HBO Max for AT&T’s wireless product.

Will this work? For some, perhaps. For others, we don’t think so. We are still very unsure of the value proposition.

From the consumers standpoint, it is going

Summary of Streaming Services Amazon Prime Apple TV+ CBS All Access Disney+ Free Dive HBO Max Hulu Hulu (Ad-Based) Hulu Live Netflix Peacock Pluto Showtime Now Starz STIRR The Roku Channel Tubi Xumo YouTube YouTube Preimum YouTube TV

SUBSCRIPTION/AD-BASED

DTC/AGGREGATOR

LIVE/ON-DEMAND

Subscription Subscription Subscription Subscription Ad-Based Subscription Subscription Ad-Based Subscription Subscription Ad-Based Ad-Based Subscription Subscription Ad-Based Ad-Based Ad-Based Ad-Based Ad-Based Subscription Subscription

Both DTC DTC DTC Aggregator DTC Both Both Aggregator Both DTC Aggregator DTC DTC DTC Aggregator Aggregator Aggregator Aggregator DTC Aggregator

On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand Live On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand On-Demand Live

SOURCE: Company data, company websites, and Wolfe Research LLLC estimates

RACE

BY MARCI RYVICKER

While the number of over-the-top contenders has escalated dramatically, their success isn’t about winning or losing. It’s about survival.

The Financial Manager • January/February 2020 21

TELEVISION TRENDS to come down to the simple question: “Is there enough content for me to fork over another however-much-money per month?”

From the programmers’ standpoint, it is a lot more complicated than that: ■ How much will it cost to feed my content pipe?

■ How can I manage consumer churn given that there’s no costs for consumers to switch services?

■ Will I ever be able to raise prices?

■ How much of my core business will I cannibalize?

■ Will I accelerate cord-cutting?

Our sense is that those applications as-

Pay-TV Penetration of Occupied U.S. TV Households

100% 90 80 70 60 50 40 30 20 10 0

to exist or can’t make money eventually. But the landscape will eventually slim down; it has to.

So, when asked, “Who’s going to win the war?” we’re reminded of the quote: “There are no winners of war, only survivors.” We believe that is the case in the streaming wars as well.

Surviving this upcoming period of heightened competition, and eventually reaching a point of profitability, will be enough to “win” in our view.

While we can’t say for sure which of these OTT services will survive these wars, we are most confident in the big 3 incumbents – Netflix, Amazon and Hulu – as well as those

Penetration of The Pay-TV Bundle is Falling, But Will Stabilize 80% 4% 76%

2017A

78% 6%

75% 8%

72%

2018E

66%

2019 E

72% 10% 62%

2020 E

70%

68%

12%

14%

58%

54%

2021E

2022E

66%

64%

64%

15%

16%

16%

51%

48%

48%

2023E

2024E 2025+????

Virtual MVPD

Traditional MVPD

SOURCE: Wolfe Research LLC estimates

sociated with really strong brands (like a Disney+) are going to succeed. Others are more likely to come and then go.

REACHING SATURATION

With so many different streaming options available, there is something to be said for “too much choice.” In our view, we’re getting there quickly.

Don’t get us wrong; streaming video services do serve a purpose. They’re great for the avid general entertainment guru; for the super-fan; or for someone who doesn’t engage in sports.

But from a business perspective, the cost of producing or purchasing content continues to grow, and streaming video services don’t make any cash profits yet. Need we remind you that Netflix generates negative free cash flow. (We’re estimating a $3.5 billion hole for 2019.) And Disney+ is not expected to reach profitability until 2024.

It’s not that over-the-top (OTT) will cease

being launched by the biggest content producers – Disney+, HBO Max and Peacock.

Our reasoning for these choices is actually pretty simple. Netflix, Amazon and Hulu have a massive head start on the competition.

They already generate significant revenue from paying subscribers and have a significant amount of popular original programming that can’t be found anywhere else.

As for Disney+, HBO Max, and Peacock: we believe the inherent popularity and value of the underlying scripted content owned by the firms behind these services will give them enough firepower to achieve scale.

After all, Disney+ had over 10 million subscribers within days of its launch. HBO currently has more than 230 million subscribers, and the new HBO Max service will include all of the channel’s content and more for the same $14.99 per month.

What’s more, Peacock should gain significant enough viewership/scale to be profitable, with hit shows such as The Office and

22 The Financial Manager • January/February 2020

an advertising model that allows it to be offered for free.

BUNDLES WILL SURVIVE

How all of these new streaming products impact the pay-TV bundle? That is a question we get all the time. Our view: the bundle is not dead. It is not dying.

Yes, pay-TV subs losses have accelerated faster than initially anticipated. And yes, we’ve seen the proliferation of the OTT services vying for consumers’ attention and time.

But the bundle is adapting as well.

It used to be delivered only via a direct traditional connection – multichannel video program distributors (MVPDs) such as cable or satellite. But now it can be delivered over the internet as well via virtual MVPDs such as AT&T TV Now, Sling, YouTube TV or Hulu Live.

We also have a bunch of new, slimmeddown products coming from the traditional guys – Charter’s Spectrum Essentials, Comcast’s Xfinity Flex, Cox’s TV Starter and Verizon’s Custom TV. And don’t forget the incredible user interface and voice remote (introduced by Comcast no less), which we would argue is better than any streaming product out there. In our view, the bundle is still the most convenient way to access every type of genre, wrapped up in one user interface and one bill.

Yes, we expect pay-TV sub losses to continue. But, in our heart of hearts, we absolutely believe there is going to be a point at which the bundle stabilizes at a “core” percent of U.S. households. This could happen two years from now (maybe a little aggressive), five years from now or even 10 years from now (maybe a little conservative).

But it is going to stabilize – maybe at 50% of households or 60% or perhaps 40%.

Why are we so confident? Live sports.

Live News. And the simple fact that at some point, there is likely to be “too much” choice and “too much” hassle. Americans place a high value on convenience. What better option is there to get so many genres – entertainment, kids, news, sports – wrapped in one tight package?

Like Netflix, Amazon, Hulu, Disney, AT&T and NBCU, the pay-TV bundle will absolutely survive.

Marci Ryvicker is managing director of Wolfe Research. She can be reached at (646) 582-9330 or MRyvicker@WolfeResearch.com.

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Congratulate all our People to Watch in 2020 ANDREW C. KOBER Mega Broadband

Executive Vice President and Chief Financial Officer

CARMEN REYES

Turner Broadcasting/WarnerMedia

Director, O2C AR Cash Management-US

IVAN NG Hearst

Application Security Audit Manager

JANET McHUGH

Television Music License Committee, LLC

Chief Exectutive Officer

special report: people to watch in 2020

LIGHTING thePath Forward

Four leaders combine strong work ethics and can-do, friendly attitudes to push their organizations ahead.

BY JANET STILSON If a dictionary editor is ever looking for examples of people who help to define the phrase “relationship building” they should take a look at the following four profile articles.

Andrew Kober, of Mega Broadband Investments, is leading many of the same people who started out with him four companies ago. Janet McHugh, of the Television Music License Committee, uses the skills she learned as a child in a hard-knocks neighborhood to relate to people of any social standing, and across the negotiating table.

Ivan Ng is shouldering some really hard technology and security issues at Hearst at the same time he’s mending fences between some previously fractious units.

And Carmen Reyes has such good relations with WarnerMedia’s clients that many times they don’t even realize she’s getting them to do what she wants, according to Jennifer Wesson, the company’s vice president of order to cash.

The stories are filled with information about the mindsets and work ethics that these four leaders draw upon to help push their companies forward into greater success as the media industry continues its inexorable, fascinating and sometimes uncomfortable evolution.

They were selected by The Financial Manager’s editorial advisory board, which seeks out suggestions of People to Watch from MFM and BCCA members, as well as the media finance community at large.

Janet Stilson is editor of The Financial Manager. She can be reached at (212) 694-0126 or TFMEditor@mediafinance.org.

The Financial Manager • January/February 2020 25

W

ANDREW KOBER

The Team Ringleader

HEN PRIVATE EQUITY FIRM GTCR

teamed with Mega Broadband Investments to buy Vyve Broadband last summer, the usual rounds of layoffs that often take place after an acquisition didn’t occur. The newly enlarged cable company absorbed almost the entire Vyve staff, save for its president and CEO Jeff DeMond and his assistant.

In large part, that’s a testament to the leadership of Andrew Kober, who has retained his title as CFO within the newly expanded company. “He’s able to build very effective teams,” says DeMond in speaking of Kober, noting that some of the people on staff have worked with the two of them not only at Vyve, but at four other cable companies that they led together over the decades.

“There’s a great esprit de corps. Andy has been able to very effectively build and maintain those teams with very little turnover,” DeMond adds.

Kober is working at the same desk, in the same building in Stamford, Conn. And he still relaxes by gliding up Long Island Sound with his wife in their power boat. But he’s now helping to run a company that’s more than doubled in scope, with 700,000 homes passed, 25% of which are subscribers.

And the company is positioned for new

“There’s a great esprit de corps. Andy has been able to very effectively build and maintain teams with very little turnover.”

—Jeff DeMond, formerly of Vyve

poised for growth. GTSR has a large checkbook that they’re willing to put to work.”

Continuing to serve more sparsely populated areas of the country is part of the game

L-R, Andrew Kober with Mega Broadband’s COO Andrew Parrott and CEO Phil Spencer

opportunities, Kober says. “Being larger gets you noticed a little more. And being new, in the GTSR-Mega Broadband world, gets us noticed more as well. We are definitely

plan, Kober says. But providing video will slowly recede as a revenue stream. “We’ve modeled to continue to lose video subscribers to the over-the-top space over the next five to

26 The Financial Manager • January/February 2020

seven years. Given the low margin, it’s not a contributor to our success.”

Instead, the success is contingent on broadband growth and commercial services in pockets of the country that were used to slow DSL internet connections before Vyve’s high-speed offering came into the picture.

The company’s future achievements are also tied to the ability of Kober – along with Mega Broadband’s COO Andrew Parrott and CEO Phil Spencer – to navigate the market’s evolution. That involves “figuring out where the puck is going. From a financial perspective, from an offering perspective, from an acquisition perspective, what will you have to have in your toolbox 24 months from now that doesn’t exist today?” says Michael Boylan, managing director and co-manager of BBH Capital Partners, a private equity firm that invested in Vyve prior to the new acquisition.

“I look at Andy as a little bit of a ringleader and really driving accountability and results,” says Boylan. He notes Kober’s work overseeing Vyve’s engineering, sales and marketing staffs in addition to finance and accounting, prior to the acquisition. (Now he’s responsible for finance, legal, human resources and accounting.)

When Vyve was formed, “Andy rolled up his sleeves and was instrumental not only in the acquisitions and the financing that goes along with that but taking what was very under-invested-in businesses and integrating disparate assets and going through a significant upgrade,” says Boylan.

Kober learned at the feet of a cable industry pioneer, Bill Bresnan, whose Bresnan Communications grew to include operations in Chile and Poland as well as in the U.S. Originally, Kober was Bresnan’s outside auditor, then he became controller in 1990 before jumping to the CFO role. Both Bresnan and DeMond, who worked there as well, became Kober’s mentors.

“They taught me the cable business and enabled me to go beyond just the debits and credits of a controller and branch out into operations and engineering,” Kober says.

Kober recalls how Bresnan would meet with community mayors and the local staff.

“Everyone lit up when he entered a room.

[Trying] to mirror that as we grow our business is something that I’ve taken with me,” he says.

SPECIAL REPORT: PEOPLE TO WATCH IN

IVAN NG

2020

The Active Listener

year ago, Ng has shouldered a huge task. teams. They got comfortable very quickly.

The finance department had migrated from We finally had someone who understood a 25-year-old legacy financial application what they were trying to do and accomenvironment to a cloud-based architecture, plish,” Hovstadius explains. using an Oracle suite of products for finanThat has a lot to do with Ng's attitude. “He cial and human capital management. is probably the most laid-back person you “He is responsible for monitoring and can meet. He doesn’t get shaken very easily improving critical business application at all,” says Dena Robinson, an IT audit security and controls manager at Hearst. “He along with a second- “He really makes an really makes an effort ary role in transformunderstand what effort to understand what to ing select bu sine ss you’re saying and what processes leveraging you’re saying and what your needs are.”

Oracle Cloud ER P your needs are.”

Indeed, Ng considers [enterprise resource himself to be an “ac—Dena Robinson, Hearst planning] technolotive listener,” a skill he gy to further modernize and streamline honed in earlier years, working at PricewaHEN IVAN NG RAN THE NEW YORK the finance function,” said Jeana Stanley, terhouseCoopers and KPMG. That’s where City Marathon last November, Hearst’s vice president of finance, when she he gained a “customer-centric” approach to it was his ninth marathon of nominated Ng as a Person to Watch. working with people, Ng says. the year. And he managed to shave a full At the time the legacy system was in use, Over his 20 years working for the conhour off the time it took to complete the there was a sort of “tribal knowledge” among sultancies, he spoke with all kinds of people five-borough course the first time he ran staff people, without a lot of structure, says within client organizations. “It’s reflecting on it, back in 2004.

David Hovstadius, Hearst’s senior vice pres- all those thousands of conversations that I’m He’s been practicing, to say the least. Ng ident of finance operations, who is also Ng’s proudest of – to have navigated through all ran over 1,300 miles in 2019 alone. boss and mentor. of that,” Ng says. Colleagues and bosses fall Ng has a desire for rigorous challenge that “In the old days, there was also a fairly an- into his “customer” category. “That’s the No. works to the advantage of Hearst, where he’s tagonistic relationship between our internal 1 value that’s helped me grow professionally an application security audit manager. “I’m audit function and the finance teams,” adds throughout the years.” dealing with technology and a lot of system Hovstadius. “We recognized that we needed While his work has certainly been pivotal to Hearst, it’s been strategic for Ng on a personal level – as a means to spend more time with his wife and six-year-old son and less time traveling.

He comes from a very international background. Ng was born in London at a time when his father worked as a civil engineer for the city. Then his family moved to Singapore, where Ng spent his formative years.

Along with his wife and son, he returns to Singapore every year to visit his parents.

“My son has been there eight times in his six years on Earth,” Ng says.

Looking ahead, there’s plenty to fuel Ng’s interest in stepping out of his comfort zone, running aside. Part of that has to do with the complex nature of Hearst.

“Things move a little slowly here,” explains Robinson, noting the complex strucIvan Ng took part in a 50-mile race last July on Tahoe Rim Trail, which he completed in 17 hours. ture of Hearst. She says it’s a huge effort changes, so embracing change and never a more mature, standardized approach to “when we’re trying to implement security saying ‘no’ to stepping out of my comfort controls and a better relationship with audit.” or better ways to automate, in order to get zone is key,” he explains.

Done and done with Ng. “He worked very buy in and everybody moving in the same Since his arrival at the company over a well with our internal and external audit direction. That’s his biggest challenge.”

W

The Financial Manager • January/February 2020 27

JANET McHUGH

B

ALTIMORE IS A CITY THAT RUNS

through Janet McHugh’s life, right from the start. The executive director of the TV Music License Committee (TVMLC) was raised in a rough-andtumble neighborhood there and attended Catholic school. No other person in her childhood cohort went on to college, and some of them didn’t make it through high school.

While it may seem counterintuitive, those circumstances helped her in her career, “dramatically,” as McHugh puts it.

“There’s no one I’ve ever encountered at any level that I couldn’t relate to,” she says.

“That’s a really important thing. I think a lot of folks, as they climb up the corporate ladder, they find it hard to relate to someone who is perhaps not as educated or given the advantages that they have.”

Seeing the perspectives of those across the negotiating table is particularly important now, as McHugh champions a cause for local TV stations that could significantly alter their financial wellbeing.

“The entire way that we deal with music in the TV business is under attack,” said Ralph Bender, CFO of Manship Media, who nominated McHugh as a Person to Watch.

One of the primary “attacks” relates to the consent decrees that help curb the power of two performance rights organizations (PROs), ASCAP and BMI. The U.S. Department of Justice is currently considering the idea of eliminating them. The TVMLC, under McHugh’s leadership, is trying to make sure that doesn’t happen.

The Music-Rights Warrior

“Without regulation, ASCAP and BMI that’s national in scope. But she certainly could charge whatever they want. Music has worked for some mighty big companies, users – who already pay well over $1 billion all based in Baltimore. Just before joining dollars each to ASCAP and BMI – would be TVMLC, she was an attorney with Sinclair held hostage,” wrote McHugh in an article Broadcast Group, where her duties ranged that appeared in TFM ’s September/October from negotiating commercial contracts to 2019 edition. music licensing matters.

“A lot of what happens to us down the Not only is her geographic range larger road, in terms of how we now, but so is the experuse music and what it costs “A lot of what happens tise required. “Transitionus, is in Janet’s hands. She to us down the road, ing to becoming the head works tirelessly. I cannot tell of TVMLC involves a in terms of how we use lot more than her lawyer you the number of times I’ve exchanged emails with music and what it costs skills. She’s now running her in the evening, on the us, is in Janet’s hands.” all aspects of an organizaweekend. She’s a warrior,” tion, and it really demon— Ralph Bender, says Bender, who serves on strates her business savvy,” Manship Media the TVMLC board. says David Bochenek, seWhile there’s plenty of fight in her, nior vice president, chief accounting officer McHugh tempers her words and actions and corporate controller of Sinclair, who is with a tried-and-true maxim: “Never burn McHugh’s former boss. a bridge.” She says that’s something that “We both kind of joke about it. Janet’s she learned from her greatest mentor, her learned a lot more about finance than she mother, who worked in accounting at Exxon. ever contemplated when she graduated from “I’ve been in many contentious situations law school,” Bochenek adds. in my career. In fact, I’ve gone to meetings McHugh has some advice for younger where I’ve had armed guards,” McHugh says. people in media: “You can be the smart“Someone once described me by saying that est person in the room, but nothing beats I could stand toe-to-toe with anybody on work ethic. Nothing beats being willing to any issue. But I could walk away, and there do what other people don’t want to do. But

Janet McHugh shares a moment with Tee Pawasittichot, TVMLC's senior director of operations.

would still be a relationship there.”

The leadership role at TVMLC marks the first time that McHugh has held a position

28 The Financial Manager • January/February 2020

also, be your own PR person. You can be the hardest-working person in the room, but if nobody knows it, it doesn’t get you very far.”

SPECIAL REPORT: PEOPLE TO WATCH IN

C

CARMEN REYES

The Tough Problem Solver

ARMEN REYES SAYS SHE “LOVES IT”

when she has an idea for an improvement and other people say it can’t be done. “I just feel like we haven’t found a way. I really feel that,” says Reyes, who is director of order to cash, accounts receivable cash management in WarnerMedia’s U.S. operations Case in point: back when she worked on Turner’s electronic data interchange (EDI) team within the ad sales group, there was a big problem collecting payments in a timely manner, which in turn affected cash flow.

Reyes suggested that her unit find a way to get agencies to acknowledge receipt of invoices, an electronic confirmation, to nip some problems off at the bud. Some staffers felt that it would be too difficult.

It took Reyes a few weeks to reach all the agency clients and coax them into turning on a feature in their system that allowed for the confirmation. Over 90-95% of the agencies agreed to do it. “If you really believe in something, and you want others to believe in it, sometimes you really have to get involved and make sure it happens,” Reyes says.

Her people skills, which were required to solve that problem, have been very striking for Jennifer Wesson, vice president of order to cash at WarnerMedia. “She knows how to build relationships and get what she wants,” Wesson says. “She’s so savvy at it; she gets what she needs, and the other person may not even know it.

“Carmen understands the business and understands the process, so she’s able to resolve issues very quickly,” adds Wesson, who nominated Reyes as a Person to Watch.

Wesson promoted Reyes from her most recent position – senior manager of collections, order to cash – into her present role.

Reyes jumped from leading two people in New York to 18 people in Atlanta. The larger group includes accounts receivable (AR) analysts, AR resolution analysts and cash applications specialists.

Ebony Moore, vice president of account services at WarnerMedia, notes that Reyes impacted her team “exponentially” when she moved into a relationship manager role within Turner’s credit and collections unit earlier in her career. “She really helped us decrease our DSO [days sales outstanding]. For digital invoices, we were at 120-plus days. Six

2020

“Carmen understands the business and understands the process, so she’s able to resolve issues very quickly.”

—Jennifer Wesson, WarnerMedia

years later, we’re at 95 days. Obviously, we could do better, but that’s a huge difference,” Moore says.

Reducing DSO is a top priority for Reyes in

a DSO standpoint. She’s got to help us think creatively.”

Reyes’ determined mindset was shaped in childhood. She spent part of her younger years in the tough Brooklyn neighborhood of Bedford-Stuyvesant with her mother, two brothers and sister. “One of the things I learned was that’s not where I wanted to live,” she says. “I learned early on that knowledge is power, and if I wanted to bridge the gap of where I was to where I am today, I needed to go to college and get a degree – no matter what it took to get there.”

At first, she worked within Viacom’s sales department full time, simultaneously going to night school and summer school, “whenever there was a class that I could squeeze in.”

Later on, Reyes learned from a mentor: Cindy Pekrul, WarnerMedia’s senior vice president and deputy controller. At one point, Reyes was asked to speak at a BCCA seminar about the role of a relationship manager, and she didn’t think she had the time to do it.

“Cindy gave me some great advice. She said, ‘If someone asks you to speak at a seminar or conference you just do it. Because who knows? Something great may come of it.” As a result of saying “yes” to that opportunity, “it really increased the breadth of

Carmen Reyes now oversees 18 people – many of whom are seen here – up from two direct reports in her previous position.

her expanded role, Wesson says. “Agencies are all striving to keep their advertisers. They’re having to extend terms. It’s impacting us from

contacts that I have today,” Reyes says. “It’s great to think we’re all working together in the industry.”

The Financial Manager • January/February 2020 29

LAST WORD

The FCC Fights Back

The commission wants the “last word” in a debate with two U.S. Court of Appeals judges who have curbed ownership rules for 17 years. BY MEREDITH SENTER

T

he Federal Communications Com- Bush to the Obama to the Trump admin- reality. For example, the newspaper-broadmission (FCC) says it is “mad as istrations. In four instances the two judg- cast cross-ownership ban lost relevance, if hell, and it’s not going to take this es from the Third Circuit have foiled the it ever had any, decades ago. Yet the court anymore.” Well, maybe the com- FCC’s attempts to modify its ownership continues to foil its repeal. mission hasn’t used those exact words, but rules. In each case, the same third judge In the most recent decision, the court it is certainly channeling Howard Beale dissented. In other words, two judges have didn’t question the commission’s competifrom the movie Network. effectively constituted themselves as an tion analysis, which showed how dramatiThe commission’s ire relates to a three- FCC ownership rule review court. cally the industry had changed. Instead, it judge panel of the U.S. Court of focused on the quality of the data Appeals for the Third Circuit, the FCC used in evaluating female which hears cases arising in New and minority ownership, which Jersey, Pennsylvania and Delathe judges found to be insufficient. ware. It set aside the commisUltimately, the decision on sion’s 2017 decision that loosened whether changes to the ownership the broadcast ownership rules, as rules are in the public interest is a discussed in “Dear Expert” on question of policy. According to page 6. the FCC, Congress has delegated Making the situation even the policy decision to the commore grating: over the last 17 mission, not to two judges. years, the same three judges have The commission initially asked reviewed every attempt by the all the judges in the Third Circuit FCC to revise its broadcast ownto rehear the case. The National ership rules pursuant to the conAssociation of Broadcasters and gressionally required review proseveral station groups joined this rulings of two judges who are at odds with the FCC could be cess. And two of the three have The request, arguing that the two overturned by the U.S. Supreme Court. consistently thwarted the FCC’s judges based their decision on ownership-relaxation efforts.

The court’s decisions appear to be based impermissible factors and that it is impropHere’s the backstory: In 2003, a public more upon the policy considerations the er for the same judges to retain jurisdiction interest group known as the Prometheus two judges believe are of paramount impor- over the rules. Not surprisingly, the Third Radio Project sought review of the FCC’s tance than upon whether the rules adopted Circuit denied the request.

2003 reevaluation of its ownership rules by by the FCC are unlawful. This is an imThe FCC’s next step is to ask the U.S. Sufiling an appeal in the U.S. Court of Ap- portant distinction because under the U.S. preme Court to intervene. It is not required peals for the Third Circuit. legal system, laws are enacted by Congress to take the case. But unless it does, the comIn 2004, two of the three judges set aside and agencies. Judges’ roles are generally lim- mission’s decades-long much of the FCC’s 2003 decision, telling ited to determining whether the laws were efforts to liberalize the the FCC that it needed to give the judges lawfully enacted and to interpreting them. broadcast ownership a better explanation of why the ownership In this instance, the statute requiring the rules may continue to rules should be relaxed.

FCC to review its rules every four years be stymied by the two It is not unusual for a U.S. Court of Ap- directs the commission to consider current judges. peals to set aside a rule adopted by a federal ownership rules and repeal or modify any It rema ins to be regulatory agency. But in this case, the deci- that are no longer in the public interest as seen who will have the sion was remarkable because the court said a result of competition. The two judges in last word. that it retained jurisdiction over the case, the majority, however, have focused primarMeredith Senter is a member of the law firm which meant that after the FCC reconsid- ily on whether the commission adequately Lerman Senter PLLC, which represents clients ered the rule change, the same three judges analyzed the impact of the rule changes on before the FCC. He can be reached at would consider any appeal. female and minority ownership. msenter@lermansenter.com or (202) 429-8970.

Since that time, the composition of the More importantly from an industry perLerman Senter represents one of the parties seeking rehearing of the court decision.

FCC has changed three times, from the spective, the court’s decisions seem to ignore

30 The Financial Manager • January/February 2020

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BCCA is a subsidiary of Media Financial Management Association (MFM).

Recovering less money is not the same as recovering MORE.

A lot has changed in the media collections industry over the years. As the very first media collections company, we ought to know. Lately, we’ve noticed a disturbing trend. There are a lot of collection companies promising quick receivable recoveries. The problem is they are getting quick recoveries of a lot less money than what was owed. Pennies on the dollar.

What kind of a deal is that? At Szabo, we follow one simple rule when collecting accounts receivable. Collect MORE.

So we make it our business to give you MORE — MORE experience, MORE resources, MORE expertise, and almost always, MORE collections.

We’re not after a quick fix of a few dollars. We know how to work with your clients to collect the maximum amount possible, yet without damaging your valuable client relationships with heavy-handed tactics.

Don’t settle for less. It’s your money, and we think you deserve MORE of it back. You may have heard people say, “less is more”. People that say that don’t work at Szabo.

Szabo Associates, Inc. 404-266-2464 www.szabo.com info@szabo.com

MORE is better than less.