For Immediate Release:

Friday, September 20, 2019

Featuring AT&T, DirecTV, NBCUniversal, McClatchy and Peloton

Every week, the subscription world has some interesting tidbits, news or acquisitions to share. This week is exceptional though with an array of jaw-dropping lawsuits, takeover bids and fake accounts. In this week’s Five on Friday, we’ll cover an unexpected takeover bid for MoviePass, a lawsuit alleging AT&T created fake accounts to beef up DirecTV subscription numbers, NBCUniversal’s streaming plans for Peacock TV, the New York Stock Exchange putting McClatchy on notice (again), and a lawsuit against Peloton, alleging they violated copyright to the tune of $300 million.

MoviePass Gets Surprise Takeover Offer             

Last Saturday, MoviePass announced its final curtain. The company wasn’t able to recapitalize, and it did not know if or when if would be able to revive itself. In a surprise move, Ted Farnsworth, chairman and CEO of MoviePass parent Helios and Matheson Analytics, stepped down from his role and made an offer to save MoviePass, says Hollywood Reporter.

If the offer is accepted, Farnsworth and his investment group would also acquire MoviePass’s intellectual property, licensing rights, patents and related businesses including MoviePass Films, MoviePass Ventures and MovieFone. Terms of the deal were not disclosed.

"I believe there is great unrealized value in MoviePass, and we want to rebuild and make sure it reaches its full potential," said Farnsworth. "I have always believed in the business model and the brand Mitch Lowe and I built at MoviePass. There's tremendous appetite for movie theater ticket subscription."

Farnsworth said that he and Lowe were aware of the mistakes they made along the way, but they also did some things right. They also set the stage for competitors to step into a market that MoviePass believes it built.

"We presided over the investment of hundreds of millions of dollars to build MoviePass and its family of companies. We are proud of what we built over the past two years and have no intention of walking away now. I believe in the company's future and look forward to regaining the confidence of our members and former customers,” Farnsworth said.

Lawsuit Alleges AT&T Created Fake DirecTV Now Subscribers to Inflate Numbers

In other astonishing subscription news, investors have filed a federal class-action lawsuit against AT&T, alleging that it “strong armed” employees into creating fake accounts for the DirecTV Now streaming service to inflate subscriber numbers. This fraudulent behavior misled investors prior to AT&T’s acquisition of Time Warner, says Variety. The plaintiffs also allege that AT&T wanted DirecTV Now, now called AT&T TV Now, to seem successful so they could justify the company’s $85 billion acquisition of Time Warner.

According to the lawsuit, AT&T used different tactics to create DirecTV accounts for customers without their knowledge. In one example, company representatives told customers they’d waive a $35 fee for phone upgrades, but they didn’t actually waive the fees. Instead, they used the customer information to set up DirecTV Now accounts with fake email addresses, Variety reports.

“While AT&T and the Executive Defendants repeatedly touted the success of DirecTV Now, depicting it as a fast-growing product with strong margins and brisk subscriber growth, in truth, this apparent success was a complete mirage,” says the lawsuit. “Information provided by multiple former employees of AT&T and its affiliates from across the country collectively confirm a wide-ranging fraud, perpetrated at the highest levels of the Company, as it pertains to subscriber numbers, promotional activity, customer churn, and the growth and success of DirecTV Now.”

In a statement, AT&T said they would fight against the “baseless claims” in court, says CNN.

NBCUniversal to Launch ‘Peacock’ Streaming Service in April

Peacock is the name of NBCUniversal’s new streaming TV services, expected to launch with more than 15,000 hours of content next April. In a news release, NBCUniversal said it would offer a library of world-class originals as well as modern comedy classics like “The Office” and “Parks and Recreation.” The network will also offer the latest news, sports, late night and reality programming as well as films from a variety of studios.

The service will offer ad-supported, free content as well as subscription content. NBCUniversal said it will share pricing and distribution information closer to its spring 2020 launch.

“The name Peacock pays homage to the quality content that audiences have come to expect from NBCUniversal – whether it’s culture-defining dramas from innovative creators like Sam Esmail, laugh-out-loud comedies from legends like Lorne Michaels and Mike Schur, blockbusters from Universal Pictures, or buzzy unscripted programming from the people who do it best at Bravo and E!,” said Bonnie Hammer, Chairman of Direct-to-Consumer and Digital Enterprises, in a statement. “Peacock will be the go-to place for both the timely and timeless – from can’t-miss Olympic moments and the 2020 election, to classic fan favorites like ‘The Office’.”

Other programs viewers can expect to find on Peacock TV include “Dr. Death,” “Battlestar Galactica,” “Brave New World,” “Straight Talk,” “Saved By The Bell,” “AP Bio,” “Brooklyn Nine-Nine,” “Cheers,” “Royal Pains,” “Shrek,” “The Breakfast Club,” “E.T. The Extra Terrestrial,” and other favorites. See a more complete line-up on NBCUniversal.com or PeacockTV.com.  

NYSE Could Delist McClatchy If It Doesn’t Meet Listing Standards in 18 Months

Last Friday, The McClatchy Company (NYSE: MNI) revealed that it had been put on notice by the New York Stock Exchange that the company is not in compliance with certain listing standards and it has approximately 18 months to become compliant. Here is an excerpt from McClatchy’s explanation of the deficiencies:

“McClatchy is below compliance with Sections 1003(a)(i) and 1003(a)(ii) of the NYSE American continued listing standards since it reported stockholders' deficit of $372.5 million as of June 30, 2019 and net losses in each of the four most recent fiscal years ended December 30, 2018. However, NYSE American will not normally consider suspending dealings in, or removing from the list, the securities of an issuer which is below the continued listing standards set forth in Sections 1003(a)(i)-(iii) if the issuer meets certain other criteria, including, among others, total assets and revenues of $50 million in the last fiscal year or in two of the last three fiscal years, and a market value of publicly held shares (as defined by NYSE American) of at least $15 million,” said McClatchy.

McClatchy will submit a plan of corrective action to NYSE American by October 9 to explain how it can reach compliance within the 18-month timeframe. If NYSE American does not approve of the plan, or McClatchy cannot achieve the expected results in 18 months, it will be delisted from the New York Stock Exchange. McClatchy said this does not affect the company’s operations or SEC reporting requirements.

McClatchy also received compliance notices from NYSE in 2016 and 2009.

NMPA Doubles Estimated Damages by Peloton in Copyright Lawsuit to $300 Million

In March, the National Music Publisher’s Association filed a lawsuit against Peloton for copyright infringement – to the tune of $150 million. NMPA alleged that the fitness technology company used more than 1,000 songs without permission during its streamed workouts, reports MarketWatch. Peloton sells fitness equipment as well as membership to more than 13,000 workouts. NMPA has upped the ante, alleging that an additional 1,324 songs were used without proper permission. It is now seeking damages of $300 million.

In a March 19, 2019 news release, NMPA president and CEO David Israelite said, “Music is a core part of the Peloton business model and is responsible for much of the brand’s swift success. Thousands of exclusive videos and playlists are a major reason hundreds of thousands of people have purchased Peloton products. Unfortunately, instead of recognizing the integral role of songwriters to its company, Peloton has built its business by using their work without their permission or fair compensation for years.”

“It is frankly unimaginable that a company of this size and sophistication would think it could exploit music in this way without the proper licenses for this long, and we look forward to getting music creators what they deserve,” added Israelite.

MarketWatch reports that Peloton is filing its own lawsuit against NMPA for anticompetitive behavior.

“On the eve of court-ordered mediation, NMPA sought to alter the optics around its lawsuit by filing exaggerated new claims prior to the mediation while also transparently timing its filing to capitalize on Peloton’s inability to publicly respond in detail during our quiet period. We will continue to defend ourselves against claims made in this matter and look forward to pursuing our counterclaims,” Peloton told MarketWatch.

Last month, CNBC reported Peloton’s financials, as submitted to the Securities and Exchange Commission ahead of its IPO filing. For the fiscal year ended June 30, the company had sales of $915 million, a 110% increase over fiscal year 2018. At the same time, it reported a net loss of $245.7 million, compared to a net loss of $47.9 million for fiscal year 2018. If a settlement in this case is not made, or the court finds on behalf of the plaintiffs, Peloton’s losses could more than double.

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