A round up of some of the week’s most significant corporate events and news stories.

Tuning out

© Bloomberg

US pay-television providers shed subscribers in the second quarter — typically a weak period owing to seasonal factors such as college students leaving campus and “snowbirds” moving to their summer homes, writes Shannon Bond.

However, this year is shaping up to be particularly tough, following steep losses in the first quarter, as competition increases from new online TV services such as Dish’s Sling TV and Google’s YouTube TV as well as established forces such as Netflix and Hulu.

This week, AT&T posted a record quarterly loss of 351,000 traditional video customers. Comcast, Altice, Verizon and Charter also reported drop-offs in video subscribers, although in the case of Verizon and Charter, losses were less steep than a year ago.

John Stephens, AT&T’s chief financial officer, told investors the company was “feeling the impact of the overall industry trend of more customers wanting mobile and over-the-top offerings,” referring to internet-delivered video. “The pace of that change seems to have picked up a bit so far this year,” he said.

Traditional distributors are hedging against this trend. Not only do they provide the broadband connections needed to watch internet video, several have launched their own online-only offerings. AT&T said its DirecTV Now service now counts nearly half a million subscribers — most of whom are also AT&T wireless customers.

Executives at Comcast, the US’s largest cable provider, which saw video subscriber losses accelerate to 34,000 from 24,000 a year ago, were more sceptical.

“It’s a very tough business. And as we’ve said before, we are sceptical that it’s going to be a very large business or profitable business for the people that are in it and they are off to a relatively slow start,” said Steve Burke, chief executive of Comcast’s NBCUniversal.

While new options may be tempting some viewers away from pay-TV, they do not yet appear to be making up for the erosion in traditional cable and satellite subscriptions.

“It still appears that the acceleration in the decline of legacy [pay-TV subscriptions] is much greater than the added [subscribers] from new platforms,” analysts at Cowen wrote in a note to clients. “Concerns about the future of the cable bundle continue to remain unresolved, with no clear path forward to a potential new model.”

Libor’s last days

Andrew Bailey, head of the Financial Conduct Authority, said it was “not only unsustainable, but also undesirable” for Libor to continue in its current form © FT montage / PA/Bloomberg

After years of scandal and $9bn of fines, Libor is heading for the scrap heap. Top UK regulator Andrew Bailey this week signalled the end of the London-based interbank lending rate by calling for it to be replaced by 2021, writes Martin Arnold.

At its height, Libor was the reference point for $350tn in financial products, including mortgages, student loans and derivatives. But its calculation method, which averaged daily estimates supplied by a panel of banks, left it open to manipulation.

In 2012, Barclays became the first bank to admit its employees had sought to rig the rate to benefit their trading books, but others quickly followed suit.

Mr Bailey, who heads the Financial Conduct Authority, acknowledged this week that Libor’s new managers had improved governance for the benchmark, but added that it was unable to fulfil its objective of measuring the price that banks pay to borrow from each other because this activity has fallen so sharply since the 2008 financial crisis.

He said banks felt “increasing discomfort” about their estimates, making the situation “not only unsustainable, but also undesirable”.

The FCA head said the process of moving from Libor to alternative interest rate benchmarks would take four to five years. He said the FCA had persuaded banks to voluntarily continue producing Libor during that time.

A working group set up by the Bank of England to look at Libor alternatives recently selected a version of the sterling overnight index average, or Sonia, which was introduced in 1997.

Facebook frenzy

© Reuters

Facebook tried to tell investors to calm down this week, writes Hannah Kuchler.

Yes, the social network’s soaring second-quarter earnings and revenue had beaten expectations, as it squashed competition from companies such as Snap and Twitter to which it was once compared.

But executives tried to caution shareholders that growth would slow. Facebook may not be able to stuff more ads in the news feed, as per its own self-imposed limit, and its efforts to show them elsewhere, such as in its Messenger app, were still in their “early days”.

They warned that users may be drawn to the new video tab, and may spend less time in the feed, while desktop ads are unlikely to grow as fast as last year, when the company tackled the ad blockers that people were using on the site.

But shareholders do not care. Facebook is huge: it hit 2bn users and made $4bn in the quarter. For a company so large, to increase earnings by 71 per cent and revenue by 47 per cent in a year is exceptional. The space for advertising may not grow but it is making 24 per cent more per ad than in the same period last year.

Facebook is also tough: it has shown it does not care if it copies the competition, implanting Snapchat’s Stories feature, a collection of photos that last for 24 hours in Instagram and WhatsApp. Already, both Instagram Stories and WhatsApp Status have more daily active users than Snapchat.

So investors refused to be worried about tomorrow. Instead, they pushed its market capitalisation to $500bn, equivalent to the value of 40 Twitters or over 30 Snaps.

Mystic setback

Pascal Soriot, AstraZeneca chief executive © FT montage / Bloomberg

AstraZeneca was dealt a significant blow when a treatment that it hoped would replace chemotherapy for some lung cancer patients was found to be no better at preventing the disease from becoming worse in clinical tests.

The setback for one of the pharma group’s most promising drugs wiped £10bn off the value of its stock.

The appropriately named Mystic study had for months tantalised shareholders and analysts with its potential to transform Astra’s fortunes in immuno-therapy, where it has arrived relatively late compared with rivals such as Merck and Roche.

Astra believed that, having slipped behind the pack on monotherapies, it could seize a big share of the market in combination treatments.

However, its shares fell 15 per cent after the drug at the centre of the study, Imfinzi, failed to lengthen the time patients went without their cancer worsening compared to chemotherapy: so-called progression-free survival (PFS). This applied when the drug was used on its own and when combined with another AZ compound, tremelimumab.

The failure sent a wider tremor through the ranks of big pharma, with shares in Bristol-Myers Squibb, which is testing a similar drug combination for lung cancer, down almost 6 per cent.

Pascal Soriot, Astra chief executive, struck a defiant tone on Thursday — on both the eventual outcome of the Mystic trial as well as his own future. He emphasised that Astra had long believed the most significant data in the Mystic trial would not come until next year, postponing any definitive view on the potential of the medicine until 2018.

Markets, however, appeared reluctant to grant a stay of execution, with most analysts quickly discounting the drug’s chances of succeeding on the more important yardstick of “overall survival” in the months ahead. Analysts had previously estimated potential annual sales at about $2.5bn for the treatment.

HNA shrugs off ownership concerns

© FT montage/Bloomberg; AFP

China’s HNA, the domestic airline operator turned ultra-acquisitive conglomerate, has provided a glimpse into its ownership structure.

But the revelation that HNA had transferred ownership of a nearly 30 per cent stake away from a mysterious Chinese shareholder, Guan Jun, to a newly formed foundation in the US raised more questions than answers.

In an interview with the Financial Times, Adam Tan, chief executive, said HNA was able to transfer the stake without any payment because Mr Guan had never in fact actually owned it. “The stake is our own stake,” he said. “They had just held the stake for us.”

HNA spoke out after scrutiny of its ties to Wang Qishan, one of China’s most powerful politicians.

In an overseas $40bn deal spree in the past three years Hainan-based HNA has amassed stakes including a 9.9 per cent holding in Germany’s Deutsche Bank.

US tax authorities have not yet ruled on the foundation’s application for 501(c)(3) status, which would make it tax-exempt and allow donors to claim tax deductions.

HNA’s planned $416m investment in a US in-flight entertainment provider collapsed this week after the companies failed to secure approval from US national security regulators.

The news prompted questions over whether HNA would receive clearance for a planned purchase of SkyBridge Capital from its founder, Anthony Scaramucci, who was recently appointed director of communications at Donald Trump’s White House.

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