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Rivals plot their Super Bowl strategy
By halftime, you may know more about erectile dysfunction than you do about the Patriots. The stakes in these commercial-break battles are huge, the costs astronomical. We pick the winners.
By Michael Brush
When football fans settle in to watch the Carolina Panthers take on the New England Patriots this Sunday in Super Bowl XXXVIII, theyll be witnessing intense rivalries among top players. And in between the commercials where those rivalries play out, sports fans will also be watching a football game.
The off-field rivalries extend far beyond the usual vying for attention by advertisers, which will be paying $2.3 million for 30 seconds on average.
Sports fans who also are astute investors will spot deeper -- and more meaningful -- rivalries at work as well. Specifically, they'll notice that top players in three intensely competitive consumer markets this year are bringing their fights to the Super Bowl airwaves. Heres the other Super Bowl contests youll see:
Contest #1: The battle of the male enhancement drug. Rivals Eli Lilly (LLY, news, msgs), GlaxoSmithKline (GSK, news, msgs) and Pfizer (PFE, news, msgs) will be duking it out to win over fans for their Cialis, Levitra and Viagra erectile dysfunction (ED) pills. Our pick: Pfizer.
Contest #2: The battle for the moviegoer. This features the titan Warner Bros., a division of Time Warner (TWX, news, msgs), going up against Touchstone Pictures at Disney (DIS, news, msgs), Universal Studios at Vivendi (V, news, msgs), and Sony Pictures, a division of Sony Entertainment (SNE, news, msgs). Our pick: Time Warners Warner Bros.
Contest #3: The battle of the automakers. Car maker General Motors (GM, news, msgs) will continue to try to win over younger drivers to its classic Cadillac brand, while DaimlerChrysler (DCX, news, msgs) will pitch Dodge models and Mitsubishi Motors (MMTOF, news, msgs) will advertise as well. Because of several long-term challenges to the auto sector that none of these players can escape, we predict this contest will go into an overtime period that never ends. Heres how we picked our winners in these three parallel Super Bowls playing out alongside the football action and the five minutes worth of Budweiser ads.
'Male enhancement' drugs
If you think youve see enough male enhancement ads in your e-mail to last you a lifetime, just wait until you watch the Super Bowl this Sunday. No fewer than three erectile dysfunction (ED) drug makers will by vying to increase their market share with expensive ads during the big game.
They include relative upstarts to this particular market, Eli Lilly and GlaxoSmithKline, which will be plugging Cialis and Levitra. The third, of course, will be Pfizer, whose well-known Viagra got the ball rolling on ED drugs a few years back.
Who has the ED product with the most potential? We dont know from experience, but analysts at J.P. Morgan point out that Cialis lasts the longest -- up to 36 hours -- and it has the least risk for interacting badly with other things that users eat or drink. Since rivals Cialis and Levitra came on the market, though, growth in Viagra prescriptions has remained strong -- recently coming in at about 300,000 per week.
Ultimately, however, heavy spending by the drug companies to promote ED drugs may make them all winners because it will simply increase the size of the market so much. They are going to get a lot of visibility, so I would expect the market to grow, and they will all get their fair share, says Linda Miller, portfolio manager of the John Hancock Health Sciences fund (JHGRX). An estimated 70 million men in North America and Europe suffer from ED, but only 10% have sought treatment, says Morningstar analyst Heather Brilliant.
Instead, to figure out which of these three major drug companies will win the pharma Super Bowl ring, take a step back and see who has the most potential in two key areas: drug development pipeline and ability to cut costs. Here, Pfizer wins. Lilly has a pipeline, and Glaxo has cost cutting, but Pfizer has it all, both cost cutting and a pipeline, says Miller. Pfizer is a top-10 holding of her fund. The fund also owns a much smaller position in Lilly, but it doesnt own Glaxo.
As many as five potential blockbusters are rolling out of the Pfizer pipeline right now, says J.P. Morgan analyst Roopesh Patel, including Caduet and Inspra for heart problems and hypertension, Pregabalin for epilepsy and anxiety disorder, and Macugen for macular degeneration. He expects 20% earnings growth this year, and he has a $45 price target on the stock.
Glaxo is not pricey, but we dont see the new products, says Miller. Unless Lilly goes through another round of consolidation, they dont really have more cost cutting right now. As for Icos (ICOS, news, msgs), which is teaming up with Eli Lilly in the launch of Cialis, Hancocks Miller thinks the high cost of promoting the new ED drug will weigh on results for a while. The first year of a drug launch is risky and very expensive. These are very expensive products to advertise, she says.
More investing news and commentary on MSN Money
Competition for movie fans
To recoup their high costs, movies have to make a big splash in their first two weeks out -- and a killing at the box office -- so its no surprise that four of the top film studios have lined up to plug films to the estimated 83 million people who will be watching Super Bowl XXXVIII.
The way the film industry is developing, particularly with piracy, it becomes absolutely critical for the companies to 'open' the film with a lot of buzz, says Larry Haverty, an entertainment stock analyst with State Street Research in Boston.
During the Super Bowl, expect Warner Bros., a division of Time Warner, to advertise upcoming releases such as "Starsky & Hutch," "Scooby Doo II" or "Cat Woman," speculates Advertising Age magazine. Disneys Touchstone may plug "The Alamo" in a 30-second spot. Universal Studios will likely run ads for "The Chronicles of Riddick" with Vin Diesel and "The Bourne Supremacy" with Matt Damon. And Ad Age sees Sony Pictures plugging "Spider-Man II," opening in July, or "50 First Dates," an Adam Sandler-Drew Barrymore comedy.
But which of the companies behind these film units will take the Super Bowl ring for entertainment companies in the long run? We pick Time Warner, for the following reasons.
- Lets eliminate Vivendi because it is dumping its U.S. media assets -- with Universal Studios going to General Electric (GE, news, msgs). (GE owns CNBC.)
- We can pitch Sony, too. Yes, its film division has a big hit in the Spider-Man series. But that franchise is under challenge by Marvel Enterprises (MVL, news, msgs), points out Robert Routh, a sell-side media analyst with Natexis Bleichroeder in New York. (The firm used to be known as Arnhold and S. Bleichroeder.) And beyond Spidey, Sony Pictures movie releases have been erratic. Besides, Sony is really a consumer-electronics play, and that core business, accounting for two-thirds of sales, is showing only sporadic signs of life, says Morningstar analyst David Kathman.
- What about Disney? Its studio entertainment division is posting pretty hot annual revenue growth of around 27%, thanks in part to the success of hits like Finding Nemo and Pirates of the Caribbean. Unfortunately, theme parks, the ABC broadcasting network and cable are dragging that down with growth in the 3% to 7% range. Thats one reason Morgan Stanley analysts have a price target of $17 on the stock, even though it recently traded at $24.
That leaves Warner Bros. at Time Warner. But its more than just a winner by default. Warner Bros. is consistently a spectacular business, says Haverty. They really know what the heck they are doing. They have people that year after year routinely produce grand-slam home runs. |
Warner Bros., for instance, has produced The Wizard of Oz, "The Matrix and the "Harry Potter" series.
Whats more, the company has a vast international marketing franchise to support releases, reaching into 89 countries.
Beyond that, Time Warner has a stable of solid businesses in its magazine, cable and television network divisions. And it has done a good job of selling off non-core assets like its music business and the Comedy Central cable channel to bring down crushing debt loads, Routh says. Haverty is cautious on the stock, only because an ongoing Securities and Exchange Commission investigation into accounting practices at America Online could produce bombshells. But Routh says its the hands-down favorite among the parent companies of the film studios advertising this year in the Super Bowl. There is much more upside than at the others, he says.
Battle of the carmakers
Not surprisingly, auto companies will be out in force with splashy ads during this Super Bowl to reach the coveted young, male audience.
For General Motors, in particular, this makes sense. It's having some success bringing back the magic of the Cadillac of the 1950s -- by pitching newer versions to a younger audience. And its looking to grab more turf here. One Cadillac ad will feature the music of Led Zeppelin, Ad Age says, and GM will make an on-field presentation of the Cadillac of choice for the most valuable player.
DaimlerChrysler will be hawking a Dodge model, and Mitsubishi is slated to run an ad during the game as well. Only Ford (F, news, msgs) among the U.S. Big Three wont make an appearance during the game. But it will be selling its GT sports car in a pre-game show.
The trouble with picking a winner for the Super Bowl of carmakers is that they all face the same ugly prospects. Because of several challenges that will be tough to overcome, you can expect them to slug it out in a long and boring overtime, which could last for a year or more. No one holding shares of these companies will come out a winner.
Automakers face three big problems:
- Big interest rate risk. Theyve been offering cheap financing and other incentives to support sales -- and they've borrowed business from the future. Thats bad enough. But if interest rates go up because the economy is improving, demand will cool as car loans get more expensive. This dynamic is one reason that Ronald Tadross, an analyst with Banc of America Securities, has price targets of $48 and $40 for GM and DaimlerChrysler, respectively, well below recent prices of around $54 and $48 for these stocks.
They have borrowed from the future with the 0% financing, and that will kill them, agrees Christopher Bonavico, a money manager at Transamerica Premier Focus (TPAGX). There are going to be so many cars in the secondary market no one will want a new car because you can get one in the secondary market for nothing.
- The auto companies keep expanding capacity. Global overcapacity is simply keeping profitability at a minimum, Bonavico says.
- The automakers have big pension and health care liabilities. Pension claims at GM recently totaled near $80 billion -- or just under three times the current market cap of $30 billion.
All these factors make betting on a winner in the carmaker Super Bowl boring, at best. Says Morningstar analyst Brian Lund: The fundamentals of this industry should frighten any investor looking for long-term returns that exceed capital costs.
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