The Wall Street Journal - 21.03.2020 - 22.03.2020

B12| Saturday/Sunday, March 21 - 22, 2020 **** THE WALL STREET JOURNAL.

It’s ‘Game On’ for Many

Working From Home

Videogames are surging but their shares aren’t

Working from home generally

means actually working, but video-

game companies know better.

As an unprecedented number of

employees and students are con-

fined to their homes to wait out the

coronavirus pandemic, a large num-

ber of them seem to be passing the

time with games. Verizon said

Tuesday that game traffic over its

networks has surged 75% from the

previous week. That compares with

a 12% uptick in video traffic over

the same time. Steam, a network

that powers online games for PCs,

has shown concurrent usage break-

ing 20 million players at peak times

this week—a record for the service.

That is good news for game

makers, but investors haven’t bid

up the sector the way they have

some other popular “stay-home”

stocks. Shares of console game

publishers Activision Blizzard and

Electronic Arts are down 16% and

18% over the last month, respec-

tively. Granted, that is better than

the S&P 500’s 29% plunge. But even

Netflix has performed a little better

over that time, despite the fact that

the popular streaming company

and its peers have been forced to

shutter production on several pro-

grams as Hollywood also reels from

the coronavirus outbreak.

So there may be some opportu-

nity here. While the game industry

certainly isn’t immune to a reces-

sion, it has proven resilient in past

downturns. Doug Creutz of Cowen

notes that game stocks outper-

formed the market handsomely be-

tween 2007 and 2009, during the

financial crisis.

The industry will also likely

benefit in the short term by the

cancellation of major league sport-

ing events and other live enter-

tainment options. Games such as

EA’s popular “FIFA” and “Madden

NFL” series could prove extra pop-

ular when ESPN is featuring stone-

skipping competitions.

There are still some risks. Many

game studios are located in the

San Francisco Bay Area and Seat-

tle, where the majority of workers

are now working from home.

There has been no indication yet

that the shift has affected games

in the pipeline, though Jefferies

analysts noted Wednesday that “it

would be foolish to think a long-

term disruption would not affect

the product cycle.”

But for the moment, the outlook

still looks solid. Microsoft and

Sony have recently reaffirmed

plans to launch new Xbox and

PlayStation consoles this fall. Gam-

ers, meanwhile, have plenty to

keep them occupied—assuming

their bosses don’t find out.

—Dan Gallagher

Plenty of people were discovering the joys of ‘Fornite’ this past week.

EPIC GAMES

HEARD

ON

THE

STREET

FINANCIAL ANALYSIS & COMMENTARY

Spotify Wants to Be Part of Your Road Mix

Music-streaming services are trying to lure drivers away from local radio stations. It hasn’t been easy. New technology may help.

Top Note

Monthly reach by platform, 2019

Radio

Search sites

Social media sites

E-commerce sites

Video sites

News sites

Sports sites

Note: U.S. consumers ages 18 and older

Source: Nielsen

244.5million

190.9

177.8

144.5

143.0

105.4

57.3

ISTOCK

can survive and come out as viable

companies after the virus fades.

On the first measure, they

should be able to stay afloat for

about a year, according to analyst

Harry Curtis of Instinet, based on

borrowing capacity and ability to

cut costs and defer capital expen-

ditures. But then what?

Cruise companies point out chal-

lenges they have faced before from

accidents to recessions to travel

scares. Bookings plunged after 9/11,

but industry leader Carnival’s share

Cruise Operators Face Choppy

Waters Even if They Stay Afloat

“Float” is taking on a new

meaning at cruise lines these

days.

The three big, U.S.-listed op-

erators,CarnivalCorp.,Royal

Caribbean CruisesandNorwe-

gian Cruise Line Holdings,have

“voluntarily and temporarily

suspended operations” out of

U.S. ports, according to their in-

dustry body. The move is, of

course, neither voluntary nor

quite so temporary given several

high-profile incidents of corona-

virus outbreaks on vessels

world-wide.

Even without passengers or

crew, giant cruise ships cost a

bundle to finance and maintain.

The largest ones, which can en-

tertain close to 7,000 passengers

with theaters, ice rinks and doz-

ens of pools and restaurants,

cost well over $1 billion to build.

Members of the Cruise Lines In-

ternational Association were

planning to operate about 278

vessels this year, including 19

new ones.

Coronavirus may shut down

the three big operators for way

more than a month or even a

season. Their collective market

value, about $75 billion at the

beginning of the year, was barely

$13 billion on Thursday. While

well below the fully depreciated

value of their vessels and other

property net of debt, that dis-

count is only meaningful if they

price recovered in a little over two

months after heavy discounting

filled its berths. More people

cruised in 2009 than in 2008.

Making people forget about

scenes like the grim quarantine on

the Diamond Princess as a fifth of

its passengers were sickened may

be more challenging. A big appeal

of cruises is that passengers have

nothing to worry about on their

traveling hotel, however exotic

their ports of call. While accidents

like the Costa Concordia disaster

or incidents like Carnival’s infa-

mous “poop ship” have faded in

cruisers’ memories, the world is

now far more frightened of deadly

infectious diseases and how easily

they spread in enclosed spaces.

A record 32 million people were

expected to take a cruise this year,

up from fewer than 20 million a

decade earlier. If coronavirus is

still prevalent and not easily treat-

able a year from now, the industry

may face even deeper distress.

Talk of the Trump administration

offering aid has faded as oppo-

nents point out that cruise lines

register their vessels in places like

Liberia and Panama to avoid taxes

and regulation.

Many people will be itching for

a carefree vacation once the world,

and their finances, start getting

back to normal. Cruises can offer

decent value for money, but they

will be a much tougher sell this

time around. —Spencer Jakab

Scuttled

Share-price performance

Source: FactSet

Carnival

Norwegian Cruise Line

Royal Caribbean Cruises

25

–100

–75

–50

–25

0

%

Oct.

2019

Nov. Dec. Jan.

’20

Feb. March

Your car is one of the last places

where tech companies still struggle

to reach you. That will likely change

as music-streaming services like

Spotify gradually loosen radio’s grip

on American car journeys.

Traditional radio is still a key

companion to travel, particularly

to and from work. Most Americans

commute in their cars, where AM/

FM stations dominate the dash-

board. While terrestrial television

has lost millions of viewers to

streaming services like Netflix and

Hulu, radio still reaches 92% of

Americans over 18 every week, ac-

cording to Nielsen data.

The coronavirus crisis may

change that in the short term as

more people work from home.

Longer term, the pandemic could

even encourage more Americans

to embrace home-working semi-

permanently.

Yet U.S. drivers will probably

remain a highly valuable radio au-

dience by global standards. Last

year, Americans listened to an

hour and 40 minutes of radio ev-

ery day on average. Consulting

firm Deloitte estimates that each

listener is worth $67 in radio in-

dustry revenue annually, com-

pared with $25 in the U.K. and

just $2 in China.

Spotify, Apple Music and Ama-

zon Music have been trying for

yearstomuscleinonradio’s

patch, with little to show for it.

Between 2014 and 2018, the num-

ber of daily radio minutes listened

to by adults aged 18 years or over

in the U.S. fell by a modest 2% a

year on average, Deloitte’s analysis

shows.Thatisdespitethefact

that Apple CarPlay is available in

many newer Ford, Bentley and

Buick models, while Uber riders

have been able to stream music

from their Spotify account during

their car trips since 2014.

Yet Nielsen’s 2019 data shows

that the pace of decline in time

spent listening to radio picked up

slightly to 3% compared with a

year earlier. It could gather further

momentum as more high-tech cars

roll off assembly lines.

While U.S. consumers replace

their smartphones every two to

three years, they are much slower

to upgrade their wheels. The aver-

age vehicle on U.S. roads was 12

years old in 2019, according to IHS

Markit data. As older models are

gradually replaced with newer

ones, music streaming in the car

will become more seamless. Some

new electric cars, including certain

Tesla models, don’t even have an

option to play AM radio stations

as the vehicles’ electronics inter-

fere with the frequency.

The rollout of 5G over the next

few years will also improve con-

nectivity. And as unlimited data

plans become commonplace, digi-

tal streaming in cars should get a

boost. For now, cost-conscious lis-

teners opt for free radio to con-

serve their smartphone data.

In a bid to attract more drivers,

Spotify last year launched Your

Daily Drive in the U.S., a service

with a mixture of curated music

and news content. To encourage

more to switch, Spotify needs to

offer more of the local traffic,

weather and news updates that lis-

teners usually turn to radio for.

This month, the company hired ra-

dio veteran Kevin Weatherly to

help it get the right mix.

This all points to stiffer compe-

tition for major U.S. radio station

owners, including Nasdaq-listed

iHeartMedia and Cumulus Media.

True, local stations offer a

sense of community and present-

ing talent that music-streaming

services will find hard to replicate.

And radio stations have spent

years building up loyal audiences.

But Spotify doesn’t need to con-

vert a majority of radio listeners

to get a big lift to its U.S. business.

Over 60 million Americans had a

music-streaming account in 2019,

equivalent to a quarter of the pop-

ulation over the age of 18. Assum-

ing radio listeners are no different

from the population as a whole,

Spotify would have to sign up only

3% of those that don’t already

have an account to grow its U.S.

subscriber base by one-fifth.

The biggest winners, however,

might not be streaming platforms

but recording giants Universal Mu-

sic Group, Sony Music Entertain-

ment and Warner Music Group.

Spotify and Apple Music would

hand over more than half of any

new in-car streaming revenue to

the record labels in the form of

royalties for playing their songs.

Record labels have no big in-

centive to defend radio from the

onslaught. Quite the opposite.

Terrestrial stations currently pay

no royalties to artists or labels

whose tracks are played on U.S.

airwaves. This has been a source

of tension for decades, but the ra-

dio industry argues that airplay is

a form of free advertising for new

tracks and musicians. The more

radio listeners that can be

switched over to services like Spo-

tify that do pay royalties, the big-

ger the boost to record labels’

streaming revenue.

Compared with television, radio

has been remarkably sheltered from

digital competition. As it loses its

privileged position in new car mod-

els, though, the U.S. commute will

come into play. Stay tuned.

—Carol Ryan

OVERHEARD

These are testing times on Wall

Street, but it is no longer testing

time on Wall Street.

Each year over 100,000 men and

women eager to earn the right to

put the vaunted “CFA” credential on

their business cards sit down to

take a grueling test. Just 41% of

those who took the first level of the

Chartered Financial Analyst exam

last year managed to pass despite

many spending hundreds of hours

studying the materials. The pass

rates last year were barely higher

for the second and third exams at

just 44% and 56%, respectively.

Fewer than a fifth get through

the whole thing.

But the only thing more dan-

gerous than hanging out on a

trading floor these days is cram-

ming yourself into a room for

hours with hundreds of strangers.

The CFA Institute has announced

that it is postponing the June

exam to avoid the spread of

Covid-19. The “earliest possible

date” for the exam will be in De-

cember.

The news will be disappointing

to aspiring financiers who were

hoping to make use of enforced

stays at home to hit the books.

So much for something to take

their minds off of melting stock

and bond prices.

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