Transcript: Wednesday, June 25, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Must see TV. The Supreme Court hands the television industry a major victory, sending shares of media companies higher and could have far-reaching implications for the sector.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Economic stunner. Growth contracted, almost 3 percent in the first quarter. So, why are investors brushing it off?

GHARIB: And oil slick. Could big changes becoming to the energy industry and what might that mean for prices here at home?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for this Wednesday, June 25th.

Good evening, everyone. I’m Susie Gharib.

GRIFFETH: And I’m Bill Griffeth, in tonight for Tyler Mathisen, once again.

Well, a ruling by the Supreme Court today was a major victory for TV broadcasters in their lawsuit against startup online TV service Aereo. The charge was violating copyrights on their programs and not paying transmission fees. Shares of CBS (NYSE:CBS) and other broadcasters involved in the lawsuit against Aereo rose higher today following the ruling. CBS (NYSE:CBS) shares led the way, up by more than 6 percent.

So, what does this mean for the media industry and will Aereo strike up licensing deals or just fade to black?

Julia Boorstin has our story tonight.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is a major win for the media industry, ensuring that the media giants will continue to be paid by cable, satellite and Internet TV companies for the right to rebroadcast their content, protecting a crucial and growing piece of revenue.

LESLIE MOONVES, CBS (NYSE:CBS) CEO: What the consumer is guaranteed is that we will continue to do the same high quality premium programming that we’ve done, that we will deliver it to them, and there are plenty of places to get it. So, this is a very pro-consumer thing and frankly for Aereo to say that it isn’t, you know, is a little bit of sour grapes.

BOORSTIN: With those valuable retransmission fees at stake, all the media giants that battled Aereo in court applauded the ruling, saying it’s a win for consumers and that it affirms important copyright protection.

DOUG CREUTZ, COWAN & CO. SENIOR ANALYST: I think the biggest thing is it does reaffirm that they have the right to control when and how and where their content is broadcast. I think that’s critical because it does allow them to continue to extract value from the content that they make and own in the way they have more for many years.

BOORSTIN: Shares of IAC, which invested in Aereo, declined slightly on the news. Chairman Barry Diller saying, “I do believe blocking this technology is a big loss for consumers.”

Aereo CEO Chet Kanojia says the battle isn’t over. Quote, “We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact.” We’ll see if that entails paying media companies.

The justices made a point to stress that this ruling should not have an impact on other Cloud services and emerging technologies.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

GHARIB: Let’s turn now to Tom Eagan for his analysis on the Aereo ruling. He’s senior research analyst at Telsey Advisory Group.

So, Tom, I mean, certainly CBS (NYSE:CBS) benefits, especially hearing Les Moonves in Julia’s story. What other media companies benefit and why?

TOM EAGAN, TELSEY ADVISORY GROUP SENIOR RESEARCH ANALYST: Well, it’s really good for any broadcasters because they can continue to charge retransmission fees. Also good, of course, for general media companies because they own the broadcasters. Lastly, for cable operators, it’s a minor positive because there is less return to churn now because you can’t get Aereo.

GRIFFETH: But here’s my question, Tom — what about the future of this technology that exists that Aereo created? It’s still there. It still would be a positive for consumers to be able to watch broadcast television using their mobile devices, using this technology. Is there a future for that technology and who should take advantage of that, do you think?

EAGAN: Well, I guess the question is, does the company continue to operate with, obviously, with a significantly higher cost? Or does Barry Diller shut it down? Or does he sell it?

I guess if he sells it, that could be interesting, especially if it’s bought by an over the top company.

GHARIB: But to Bill’s point, this raises the whole question about disruptive innovation. So, here was a new innovative thing that many consumers were very excited about. So, what does this ruling mean for future innovations, especially in the media space?

EAGAN: Yes, it’s really unclear because what the Supreme Court said was that Aereo is like a cable operator. They are taking the signal and they’re retransmitting it to customers. They said it’s not like a Xerox (NYSE:XRX) or a library card.

So, it’s kind of unclear. But, certainly, we’ll have other innovators that will try to start new services.

GRIFFETH: And do you think that broadcasters themselves could do that? There was a time when Les Moonves of CBS (NYSE:CBS) said, if they lost the Supreme Court case, he would think about starting a competing service, a company that compete with Aereo. That wouldn’t stop him from doing it now, would it?

EAGAN: No, I think if they do start that kind of service, it does lower their leverage in asking for retransmission fees from the cable operators. Here they are creating something that competes with their customers.

GHARIB: Tom, you were telling me earlier that you think that this decision is going to open up a wave of mergers in the media space. What are possible linkups and what will that mean for consumers?

EAGAN: Well, I think with the consolidation on the cable side, you’re seeing them get a lot bigger and there was a question that maybe the media companies had to get bigger, too, in order to compete with them.

And I think the big question there was what would the broadcast’s financial future look like with the Aereo case in doubt (ph), now that we know that they are able to garner fees for transmission, it makes it easier for them to know their future, so we could see some M&A. I think that it makes — obviously, makes the value of the broadcasting groups that much higher.

GRIFFETH: I was just going to ask you — I mean, Les Moonves said today, you know, there are questions about advertising. That’s still their business model right now and all technology aside. There were questions about the strength of advertising right now that maybe it slowed down a bit. Les Moonves at CBS (NYSE:CBS) said that’s not the case.

How do you view advertising and do you like broadcasters right now as investments?

EAGAN: Well, I think, you know, you saw the broadcast move up a lot today because it shows you, because it was clear now they will get the fees that are significant. And I think that what we could see is some merging of, say, broadcasters and non-broadcast companies because it helps them become more diversified. So, for example, we might see a CBS (NYSE:CBS) rejoin with Viacom (NYSE:VIA).

GHARIB: That would be surprising because they join, they split, and now, they rejoin again?

EAGAN: Well, I think –remember, the reason they split up was because the company didn’t want CBS (NYSE:CBS) to drag down Viacom (NYSE:VIA). Clearly, that is not the case now. So, there is less reason for them to be separated.

GHARIB: All right. Tom, a lot of interesting information. Thank you so much.

Tom Eagan from the Telsey Advisory Group.

And NBC Universal (NYSE:UVV) was among the broadcasting companies opposing Aereo. So, just a programming note, NBC Universal (NYSE:UVV) is the parent company of CNBC, which produces this program.

GRIFFETH: Now, we have a bombshell today about the economy shrinking this past winter, as brutally cold temperatures and unrelenting snow was apparently a lot tougher on the economy than many of us earlier thought.

First quarter gross domestic product, when all was said and done, you know, the sum of all the goods and services produced in the U.S. and first three months of this year actually contracted by nearly 3 percent, far more than forecast.

But that was then. Since then, all that wicked winter weather has ended and the economy has seen a remarkable turnaround. And as Joshua Feinman, the chief economist at Deutsche Asset Management, predicts, there’s a lot of growth expected in the months ahead.

(BEGIN VIDEO CLIP)

JOSHUA FEINMAN, DEUTSCHE ASSET MANAGEMENT CHIEF ECONOMIST: The GDP data for the first quarter just seemed out of sync with the other data that we had, independently derived. So, it just — it just seems like — it doesn’t quite pass the smell test. But we put it behind us. I think going forward, the growth numbers are going to look much better. And, you know, the economy is building some momentum. It’s putting some of headwinds behind us.

(END VIDEO CLIP)

GRIFFETH: Maybe that’s why on Wall Street, investors were able to shrug off the disappointing GDP number, along with a 1 percent decline in durable goods orders for the month of May. Stocks moved modestly higher.

On the close, the Dow was up 49 points, the NASDAQ did well up 29, and S&P added nine points.

GHARIB: But could confidence in U.S. economic growth mean higher interest rates as soon as next year? Speaking in Puerto Rico today, Bill Dudley, he’s the president of the New York Federal Reserve, says market expectations that key interest rates could rise by mid-2015 are, quote, “reasonable,” but he added that forecasts often go astray.

GRIFFETH: Elsewhere, House Speaker John Boehner said today he plans to file a lawsuit against President Obama over the president’s alleged abuse of executive power. The Ohio Republican said that Mr. Obama exceeded his constitutional authority by pushing through executive orders without any input from Congress, especially on environmental issues and changes to the Affordable Care Act.

GHARIB: More accusations of banks behaving badly.

New York state attorney general filed a lawsuit against Barclay’s Bank, saying it committed fraud by misrepresenting the risks of its alternative trading system known as a dark pool, for not disclosing prices and for giving high frequency traders systemic advantages over other traders.

(BEGIN VIDEO CLIP)

ERIC SCHNEIDERMAN, NEW YORK ATTORNEY GENERAL: The lawsuit filed today charges that Barclay grew its dark pool into one of the largest in the United States by telling investors they were diving into safe waters, when in fact, Barclay’s dark pool was full of predators who were there at Barclay’s invitation.

(END VIDEO CLIP)

GHARIB: So-called “dark pools” have come under scrutiny since author Michael Lewis published a book alleging the market is rigged in favor of high frequency traders.

GRIFFETH: Some potentially major news in the oil markets. The White House is easing up on a decades-long ban on exporting U.S. oil, allowing a handful of companies to begin sending certain oil products out of this country. Oil prices on the NYMEX rose nearly half a dollar a barrel on that news. The price of Brent Crude fell a fraction.

But we’re wondering, what could this mean for the energy sector down the road? Morgan Brennan takes a look.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Two U.S. companies could begin exporting a new type of oil, a move that could put more pressure on the country’s four-decade ban on oil exports.

According to reports, the Commerce Department has granted permission to Pioneer Natural Resources (NYSE:PXD) and Enterprise Products Partners (NYSE:EPD) to export condensate as soon as August.

(on camera): Condensate is an ultra-light gassy form of crude that’s plentiful in U.S. shale formations like in Eagle Ford in Texas. It can be easily converted into gasoline and jet fuel, and it’s also commonly blended with heavier crude to allow for better pipeline transport.

JOHN KINGSTON, PLATTS ENERGY GLOBAL DIRECTOR OF NEWS: The market is probably going to go to Asia. The numbers we run indicate Europe wouldn’t be a good market. You sent it to Asia to run through the petrochemical operations to make various petrochemical products. And so, it’s not a huge market for it.

BRENNAN (voice-over): The condensate that Pioneer and Enterprise will export will be distilled and minimally refined. That means it will be classified as a refined product, rather than as crude oil.

Crude oil has been banned from export since the 1970s, following the Arab oil embargo. But products have not. Experts say this could push the door open to a larger easing of that ban, especially as U.S. production climbs and geopolitical tensions mount.

KINGSTON: It could represent a beginning of the easing and it could be that as a result of this, you’re going to see more crude oil, more of this light crude oil put through the stabilization units and take the export. Remember, we’ve always been able to export products in this country, gasoline, diesel, et cetera. So, this condensate that coming off these units, there was a question whether that could be exported.

BRENNAN: The U.S. currently produces over 8 million barrels of oil per day, 60 percent more than in 2005 when U.S. production was at its lowest level. Condensate is a fraction of that total.

But while America is enjoying its largest oil output since 1988, it’s unlikely that Congress would consider an overhaul of the crude expert ban right now, with midterm elections looming and gas prices on the rise.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

GHARIB: As Morgan just reported, it was a good day for shareholders of Pioneer and Enterprise. These are the only two companies so far getting the OK to start exporting oil. Shares of Pioneer Natural Resources (NYSE:PXD) jumped 5 percent. Shares of Enterprise Products up more than 1 percent.

But it was a different story for American oil refiners. They may have to start paying higher prices for crude as more is exported out of the country. Shares of Valero, Western, Marathon and Tesoro all sharply lower today.

GRIFFETH: And certainly, U.S. oil exports could help bring global crude prices in check, but what a lot of consumers really want to know is, will it mean cheaper prices at the pump?

Jackie DeAngelis takes a look.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): First, it was Russia and Ukraine, now Iraq. Geopolitical tensions keeping oil prices high, but the rise comes as the U.S. is ramping production, raising the question, is now the time to lift the 40-year-old ban on oil exports?

Proponents say exporting domestic crude could ease price tensions in the global marketplace and it just may be that Washington is listening. “The Wall Street Journal” reporting yesterday that U.S. officials allowed two companies to export ultra light crude.

ANTHONY GRISANTI, GRZ ENERGY PRESIDENT: Right now, we have WTI crude oil approximately about $106 a barrel. We have Brent Crude oil about $114 a barrel. If you open up the WTI to the world markets, of course, the world market is going to go for the cheaper crude oil.

DEANGELIS: While exporting could bring global prices down, it would raise prices here at home, bringing domestic crude, WTI, more in line with the international benchmark, Brent.

GRISANTI: What it does is it makes WTI crude oil, the crude oil that’s produced here in the United States more viable, more attractive to the world energy markets.

DEANGELIS: And high oil price haves a trickle down effect, consumers feel it when they heat and cool their homes. They also feel the pain at the pump.

UNIDENTIFIED MALE: Everything is going up. That’s the way the economy is working.

UNIDENTIFIED FEMALE: I have a gas guzzler. I have a Cherokee (NASDAQ:CHKE) Jeep, and it takes a lot of gas. And so, I ride my bicycle for errands.

UNIDENTIFIED FEMALE: I try to do all my local errands in one day. And (INAUDIBLE), I used to go maybe twice or three times a week. And now, I just go one day a week now.

DEANGELIS (on camera): Deutsche Bank says that every penny increasing gas prices accounts for an additional billion dollars in energy consumption, an additional billion dollars presumably not spent elsewhere.

Already, gas prices are 13 cents higher than they were at this time last year, according to AAA, and traders say that we could see another 10 to 15 cents in the coming weeks.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

GHARIB: Still ahead, cereal killer. Americans are changing what they eat for breakfast so what companies are keeping up best with consumer taste?

(MUSIC)

GHARIB: Another setback for General Motors (NYSE:GM). According to “Reuters”, the automaker is telling its North American dealers to stop selling new and used 2013 and 2014 Chevrolet Cruz sedans because of potential problems with the air bag. G.M. has not yet recalling the cars, but so far this year, the company has recalled more than 17 million vehicles in the United States.

GRIFFETH: Well, you had earnings this morning from General Mills (NYSE:GIS), the maker of Cheerios and Lucky Charms, as well as Yoplait Yogurt and Pillsbury products. Profits rose there by 10 percent last quarter, but most of that was due to cost cutting. Earnings were still below forecast, with total sales sliding by 3 percent. Investors lost their taste for the cereal giant apparently, sending shares down by nearly 4 percent today. *

GHARIB: Well, one of the challenges General Mills (NYSE:GIS) and other cereal makers are facing is a big shift in what Americans eat for breakfast.

Sara Eisen has more on what food companies are bringing to the table to satisfy consumers.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The big brands behind our breakfast are scrambling to keep up with the major shift in the way we eat. Sales of cereal have been declining for over a year and there’s no sign of a turn around. That’s hurting companies like General Mills (NYSE:GIS), which makes Cheerios and Chex, and reported sales today that disappointed Wall Street.

General Mills (NYSE:GIS) is trying to launch new products and advertising to inform people cereal is healthy and has natural ingredients, things that consumers are demanding.

KEN POWELL, GENERAL MILLS CEO: We’re rolling out some great taste focused renovations, more Cinnamon Toast taste on Cinnamon Toast Crunch, new fruitier tasting tricks. Consumers today are seeking more protein at breakfast and we’re responding.

EISEN: Kellogg (NYSE:K) is also feeling the pain. The company behind Special K, Rice Krispies and Frosted Mini-Wheats is launching cereal pouches or snacks to get people eating cereal at other times of the day.

While cereal is declining, yogurt is booming, thanks to its rich protein content, which is in high demand right now and growth in Greek yogurt.

POWELL: Retail sales of Greek yogurt grew 41 percent last year and our share of the Greek segment is now running at 10 percent. In addition, our original style Yoplait business posted retail sales growth for the full year in 2014, with results strengthening in recent months.

EISEN: In 2003, only 1/3 of adults ate yogurt regularly. Ten year later, it’s exploded to half of the adult population.

Bill Pecoriello of Consumer Edge Research says it’s the Chobani and private companies that are reaping the biggest benefits.

And there is another shift in the way we start the morning, eating out.

Looking at traffic patterns for restaurants across the country, breakfast is actually the only time of day that is experiencing growth this year. That explains why Burger King, Starbucks (NASDAQ:SBUX), Dunkin brands and Taco Bell are chasing after the McDonald’s (NYSE:MCD) for breakfast customer.

(on camera): Who wins in the new world of breakfast eating?

Dave Palmer, an analyst at RBC, picks Starbucks (NASDAQ:SBUX). But that doesn’t mean that General Mills (NYSE:GIS) and Kellogg (NYSE:K) are losers, as they pivot, with new products and new messages about cereal, traders and analysts are speculating the sector would be ripe for a deal. That’s one reason their stocks have held up real relatively well on hope that they’ll be bought out by bigger food companies.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen.

(END VIDEOTAPE)

GRIFFETH: A new chapter for Barnes & Noble (NYSE:NE) (NYSE:BKS). It is spinning off its Nook digital book business. That’s where we begin tonight’s “Market Focus”.

The bookseller is hoping to up shareholder value by splitting its company into two divisions, one including its Nook and college textbooks, and the other will include the retail business. It expects to complete the separation by March of next year.

And by the way, the company also reported a smaller quarterly loss today. So shares popped more than 5 percent to close at $21.65.

Elsewhere, Monsanto (NYSE:MON) saw its earnings dip in the company’s third quarter, but results still beat and it announced a big share buyback plan which sent that stock higher, as well. It blamed lower sells of biotech seeds for the decrease, but it expects a bigger feature. The seed and pesticide maker raised its 2014 outlook and announce add new two-year $10 billion share repurchase program. That’s the company’s biggest ever, by the way. That stock up 5 percent, closed at $126.73.

And Apollo Education group reported a better than expected quarterly profit, even as new enrolments decline by the smallest amount in a year. The for-profit education provider has been struggling lately with declining student registrations at the schools like the University of Phoenix. Shares were up more than 6 percent today to $31.08.

And Medical Action, the maker of disposable medical and surgical products, surged on news that it’s being acquired by health care logistics company Owens & Minor (NYSE:OMI), for more than $200 million. That purchase gives Owens better access to cost effective and specific equipment. Shares of Medical Action nearly doubled, get that, up 93 percent to $13.68. Shares of Owens & Minor (NYSE:OMI) rose about a percent and half to close at $35.38.

GHARIB: Lockheed Martin (NYSE:LMT) clinched a big contract from the U.S. Air Force to work on two missile warning satellite. It’s a $2 billion deal and the project is part of the space based infrared system. The contract runs through the year 2022. But despite that, shares of Lockheed were off a bit to $162.45.

Shares of Hanes Brand got a lift on news that the underwear maker is buying its former sister company DB Apparel. The deal which values France’s DB at more than half a billion dollars lets Hanes Brand expands in Europe. Shares jumped to $96.72.

And then after the market closed, Bed Bath & Beyond (NASDAQ:BBBY) shares fell sharply after the retailer reported quarterly earnings that missed analysts’ estimates. Sells also came in below expectations as well as earnings guidance for the current quarter. The stock fell as much as 7 percent in after-hours trading. The stock was up a fraction to $61.11 in the regular session.

GRIFFETH: A warning today from a federal financial regulator about a return to perhaps risky bank lending. The Office of the Comptroller of Currency said that low interest rates and tough competition are leading banks to loosen their lending standards again and that could mean more risky loans are being made right now.

Another stern warning, this time from Nobel laureate Robert Merton. The noted economist and MIT professor said that 401k retirement accounts are facing a crisis. Merton says that administrators need to overhaul investments away from target date funds and the obsession with annual returns. He suggests they focus on the amount of sustainable income employees should expect to receive after they retire.

GRIFFETH: Coming up, investors got a peak inside Google’s product line. You will, too. Were they impressed? We’ll find out.

(MUSIC)

GRIFFETH: Well, the FAA is grounding the commercial use of delivery drones. The plans by companies like Amazon (NASDAQ:AMZN).com to use drone aircraft to make deliveries for other commercial uses will not happen. They are illegal it says. The FAA does allow drones, by the way, to be flown for fun as long as they are kept below 400 feet.

GHARIB: Well, talking about fun, a lot of buzz today about Google (NASDAQ:GOOG) from its annual developer’s conference in San Francisco. Shares rose more than 2 percent after the company unveiled a big update in extension for its Android operating system, as well as new wearable gadgets and a smart home device.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: And today, we’re happy to announce Android Auto.

UNIDENTIFIED MALE: Android TV.

UNIDENTIFIED MALE: Android Wear.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s an Android World, that was the theme at this year’s Google (NASDAQ:GOOG) Developers Conference in San Francisco. The tech titan made it clear it wants users on its operating system no matter where they are — at home, at work, even in their cars.

PATRICK BRADY, ANDROID DIRECTOR OF ENGINEERING: We’ve redesigned the android platform for automotive making it easier and safer to use the connective apps and services drivers want in the car and most importantly, Android Auto is completely voice-enabled, so that you can keep your hands on the wheel and your eyes on the road.

LIPTON: In addition to cars, Google (NASDAQ:GOOG) wants to push harder into your living room.

DAVID BURKE, ANDROID DIRECTOR OF ENGINEERING: We’re simply giving TV the same level of attention as phones and tablets have traditionally enjoyed.

LIPTON: So, it introduced Android TV, a new platform that allows you to access and organize all your media content. It will be available on set top boxes later this year and inside TVs in 2015.

DAVID SINGLETON: It’s finally possible to make a powerful computer small enough to wear comfortably on your body all day long.

LIPTON: A big theme at this year’s conference, new wearables. No surprise demand is strong. Nineteen million units of new wearables will ship this year. That’s triple last year, according to IDC.

(on camera): Bottom line, Google (NASDAQ:GOOG) wants to broaden and strengthen its echo system, be everywhere you are.

Josh Lipton, NIGHTLY BUSINESS REPORT, San Francisco.

(END VIDEOTAPE)

LIPTON: Finally tonight, here is something you don’t see every day, even in New York City. A Chinese tycoon bought lunch for about 200 homeless New Yorkers at an upscale eatery inside Central Park, and he’s saying, “We are the world”, and even handed out a few $100 bills before a shelter convinced him to donate that money the organization, instead of the $300 in cash that he had promised each of his guest.

By the way, the Chinese businessman said he wants to improve relations between the U.S. and China and disprove the image of rich Chinese spending their money on luxuries only.

GHARIB: He’s off to a good start.

GRIFFETH: Yes, he is.

GHARIB: That’s NIGHTLY BUSINESS REPORT for tonight. Thanks for joining us. I’m Susie Gharib.

GRIFFETH: I’m Bill Griffeth. Have a good evening. We’ll see you again tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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