Transcript: Nightly Business Report – July 19, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Triple header. The Dow
and NASDAQ and S&P 500 all close at records, as corporate earnings helped
drive the big rally.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Tune in. Two media companies
with familiar television networks are reportedly in talks to combine to
increase their clout in a fast-changing entertainment industry.

MATHISEN: Retirement insecurity. Americans are losing faith in their
financial futures, but there are some things you can do to change that.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
July 19th.

HERERA: Good evening, everyone, and welcome.

The blue chip Dow index joined the S&P 500 and NASDAQ in record territory.
Corporate America`s quarterly results seemed recent enough for investors to
buy up stocks and as one investment strategist put it, last year, we saw an
earnings recession. Now, we have consecutive quarters of earnings growth.
As profits grow, so do their stock prices in theory, and companies
increased their investments and their hiring.

Today, the Dow Jones Industrial Average added 66 points to 21,640, the
Nasdaq gained 40, and S&P 500 rose 13.

MATHISEN: A lot of corporate news today came from the media industry,
which is changing very rapidly. Scripps, the parent company of HGTV and
the Food Network, reportedly is holding discussions about selling itself to
Discovery Communications (NASDAQ:DISCA). According to “The Wall Street
Journal,” terms not known and there is no guarantee that an agreement will
be reached. The two have discussed the tie up before, but abandoned talks
in 2014. Experts say the two companies are trying to chart a new course in
an evolving sector.

In an interview before this report surfaced, the CEO of Discovery said
there`s an immediate need to be relevant.

(BEGIN VIDEO CLIP)

DAVID ZASLOV, DISCOVERY COMMUNICATIONS CEO: We have a choice. We can hold
on to our existing business or try and do some of these new forms of
content or we can figure out how to disrupt ourselves. The question is not
how much money, the question is, can we be relevant on all platforms? And
if we are, then the — we will be rewarded by shareholders.

(END VIDEO CLIP)

MATHISEN: The report sent shares of both Scripps and Discovery higher.
Viacom (NYSE:VIA) also rose on a “Reuters” report that it may be interested
in Scripps.

HERERA: To see how the media industry is changing, look no further than
today`s announcement that NBC News is launching a twice daily news show on
Snapchat. The show will have morning and afternoon edition in its weekday
and one on the weekend, and will be about three minutes in length. The
show aims to connect with viewers who no longer get their news from
traditional television. NBC Universal (NYSE:UVV) invested $500 million in
Snap`s IPO earlier this year, and NBC Universal (NYSE:UVV) is the parent
company of CNBC, which produces this program.

MATHISEN: The entertainment business could undergo even more changes if
one media veteran has his way.

Julia Boorstin takes a look at Jeffrey Katzenberg`s plan to revolutionize
television.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Media
mogul Jeffrey Katzenberg has an ambitious plan to reinvent TV from mobile
devices and mobile viewers. He`s calling it New TV, original video series
with episodes of ten minutes and less, covering everything that`s on TV,
news and sports to sitcoms and reality shows. But what makes New TV
totally different is that the production cost and therefore, the quality,
will be in line with top tiered TV costs, as much as $125,000 per minute,
more than 10 times what`s traditionally spent on digital content.

And with those higher budgets, Katzenberg says he has top Hollywood show
runners on board, such as JJ Abrams, Mark Burnett, Jerry Bruckheimer and
Ron Howard. And Katzenberg tells me he`ll be able to license custom
content from all the top media companies, including Disney (NYSE:DIS), FOX,
CBS (NYSE:CBS) and Lionsgate by paying TV level feeds and enabling creators
to own long term content right.

(on camera): Katzenberg says it will take at least $2 billion to launch
the service, so he tells me he`s in active talks with all the major
platforms to find a distribution partner who may also help fund the
service.

(voice-over): Based on the meetings Katzenberg had in Sun Valley and my
understanding of the interested players, that includes Apple (NASDAQ:AAPL),
Google (NASDAQ:GOOG), AT&T (NYSE:T), Verizon (NYSE:VZ), T-Mobile, Snapchat
and Spotify. That distribution partner will help determine the final
business model. Presumably, a free version with ads and a premium version
for subscription fee.

This idea would sound impossible come coming from pretty much anyone else.
But Katzenberg`s four-decade track record in Hollywood, including his
decade run in Walt Disney (NYSE:DIS) Studios and his role as CEO of
DreamWorks Animation, that and his close relationships with the media
giant, means his bold vision has a real shot.

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

(END VIDEOTAPE)

HERERA: And there`s a big reason why these media executives want to make
changes or create new tie-ups. According to one estimate, cable TV is
expected to lose more than a million subscribers in the latest quarter. If
true, it would be the first quarter in which paid TV net losses exceeded
the one million mark. The second quarter is historically weak, but the
industry is also facing new competition from streaming services like
Netflix (NASDAQ:NFLX), Hulu and YouTube.

MATHISEN: Let`s a little bit talk more about the current state of
television and where it may be headed. Thomas Eagen covers the industry
for the Telsey Advisory Group.

Mr. Eagan, welcome.

Let`s start with this possibility of a merger between Discovery and
Scripps. We heard earlier, David Zaslov, the CEO of Discovery, say
whatever happens, in the TV business, ultimately, after consolidation, the
winners are going to be the ones who are relevant digitally and who come up
with new products for the digital multiplatform era.

Do you agree with that?

THOMAS EAGAN, TELSEY ADVISORY GROUP: Well, I think there`s something to
that. So, I mean, today, the networks had to follow where the viewers are
and viewers are on mobile. As you know, ratings don`t reflect that. So,
most networks aren`t being paid adequately for all that mobile viewership.

So, I think this deal is very interesting. Although we`re not a huge
believer in massive contact consolidation, this deal is different and one
of the reasons why to us is because their brand resonate so well together,
we wouldn`t be surprised if the two companies rolled out some kind of
lifestyle culture skinny bundle. They could put all their networks into
one bundle for about 10 bucks.

HERERA: You say you`re not a big fan of large content combinations. Why
is that? Because it seems as though content is king.

EAGAN: Well, it`s different than on the cable side. On the cable
distribution side, remember that, you know, 40 percent of their costs are
just program costs. So if they can reduce those cuts by Charter buying
Time Warner (NYSE:TWX) Cable, that makes a lot of sense. You don`t reduce
your program costs by getting bigger. So, think about, you know, the
biggest media company doesn`t have he lowest cost. And, conversely, AMC,
which was the smallest media company, had some of biggest hits.

HERERA: So, here are two companies that have some well-known network
brands, Travel Channel, Discovery, Home and Garden Television. The idea
here is that they could create a mini bundle they could sell through whom
and to whom for what kind of price?

EAGAN: Well, I think, you know, what we`re hearing from consumers and from
the operator is, they`re trying to find a skinny bundle. And all of them
aren`t successful, but I bet if you put their channels together, you could
corner the market on lifestyle, culture and science and probably price it
at about $10.

HERERA: One of the issues has been, as you just mentioned, the measurement
or lack thereof on mobile devices, which, of course, then impacts the ad
revenue, because there`s no way to chart that if you can`t give a
reasonable kind of measurement.

EAGAN: Right.

HERERA: When do you or do you see that changing with the likes of Nielsen?

EAGAN: Yes. Well, you know, we are all graded on a lot of the programmers
right now, because the affiliate fees are kind of flat to down a little bit
and ad revenue was flat because as you`re seeing, Sue, ratings are, you
know, down. We think some of that does change in 2018 and `19 as more of
the programmers use the total platform measurement out of Nielsen and other
methods out (INAUDIBLE).

MATHISEN: All right. Thomas, thank you very much. We appreciate your
time tonight.

EAGAN: Of course.

MATHISEN: Thomas Eagan with Telsey Advisory Group.

HERERA: And still ahead, companies charge them and you pay them, all those
fees. And they don`t appear to be going away anytime soon.

(MUSIC)

HERERA: Thirty-two million Americans would lose their health insurance
under a Senate plan to repeal the Affordable Care Act. This is according
to analysis by the nonpartisan Congressional Budget Office. The number of
uninsured would rise by 17 million next year.

MATHISEN: Well, the Supreme Court gave the president a win and a loss
today on his travel ban. In the win column, the justices said the
administration could move ahead with plans to impose travel restrictions on
a broad group of refugees from certain countries.

But in a setback for the president, the court ruled that extended family
members including grandparents, aunts, uncles of U.S. residents could
continue to travel here and were exempt from the ban. The administration
had argued that such extended family was not a close enough relationship to
meet the court`s, quote, close connections standard. The court set oral
arguments in case for October 10th.

HERERA: Well, it looks like we may have a timetable for tax reform. In a
radio interview today, Speaker Paul Ryan said the House will start drafting
legislation to overhaul the nation`s tax code when Congress returns from
its summer break. Mr. Ryan`s comments come as the House panel debates the
Republican budget plan which was released yesterday and is the
steppingstone for any tax reform.

MATHISEN: And meantime, there`s a timetable as well for the first round of
talks to rework the North American Free Trade Agreement better known as
NAFTA. The U.S., Mexico and Canada will meet in Washington starting the
week of August 16th and at stake, about a trillion dollars worth of trade
between the countries. “Reuters” said the nations have agreed to an
expedited time frame of seven rounds of talks at three-week intervals in
order to avoid next year`s Mexican presidential election.

HERERA: Talks between the world`s two biggest economies may have gotten
off to a bit of a rocky start. Leader from the U.S. and China are meeting
to discuss some thorny issues, like trade, but also jobs. And with
tensions already high, the talks got underway during day three of the White
House`s Made in America Week.

Kayla Tausche has our report.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
President Trump campaigned on getting tough on trade, and today, he
highlighted counterfeits at a roundtable with CEOs of small businesses that
make coasters, gutters and pillows here in the United States.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: From day one, my
administration has been fighting to bring back our manufacturing jobs and
to crack down on foreign countries that cheat. A lot of them. We will end
the theft of American prosperity and we will stand up for our companies,
our factories and our workers.

TAUSCHE: At the same time, Treasury Secretary Mnuchin and Commerce
Secretary Ross hosted a Chinese delegation as part of the two country`s
comprehensive economic dialogue. A key issue, the U.S. trade deficit with
China, which stands at $138 billion so far this year.

WILBUR ROSS, COMMERCE SECRETARY: China now accounts for nearly 50 percent
of the U.S. goods trade deficit. If this were just the natural product of
free market forces, we could understand it. But it`s not.

TAUSCHE: Chinese Vice Premier Wang stressed cooperation as the country`s
economy talks entered their 12th year.

WANG YANG, CHINESE VICE PREMIER (through translator): Dialogue cannot
immediately address all differences, but confrontation will immediately
damage the interest of both.

TAUSCHE (on camera): It`s unclear exactly how the talks have proceeded or
whether they`ve broken down over a specific issue. Planned press
conferences to be held by each country were canceled within hours of when
they were scheduled to take place.

SCOTT KENNEDY, CSIS CHINA STUDIES CHAIR: I think the Chinese thought this
was going to be a meeting to establish broad plan for addressing issues
over the next year. I think the U.S. came to this meeting expecting bigger
concessions from China sooner than the Chinese wanted.

TAUSCHE: And one issue in particular, the U.S. plans pursue soon a
decision on whether to slap tariffs on Chinese steel and aluminum imports
to the U.S.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Washington.

(END VIDEOTAPE)

MATHISEN: Profits slips at American Express (NYSE:EXPR) (NYSE:AXP), and
that is where we begin tonight`s “Market Focus”.

The credit card company said the drop, which was smaller than expected was
probably because of an increase in spending to attract new customers and
hold on to existing ones. Revenues saw a slight gain and those results top
analysts` targets. Shares in initial after hours trading fell, but they
ended the regular day up fractionally at $85.93.

And Morgan Stanley (NYSE:MS) said strong performance from its wealth
management business helped the bank report earnings and revenue that
surpassed estimates. The bank did see a drop in bond trading, but unlike
it rivals who already reported this week or last, the fall was more modest.
Morgan Stanley (NYSE:MS) shares rose more than 3 percent to $46.62.

The spice maker McCormick (NYSE:MKC) will buy the food division of the
British consumer goods company Reckitt Benckiser Group for more than $4
billion. In the deal, McCormick (NYSE:MKC) will add French`s Mustard and
Frank`s RedHot Hot Sauce to its portfolio. McCormick (NYSE:MKC) shares
were off 5 percent to $92.07.

And despite posting a drop in earnings, industrial distributor WW Grainger
still managed to top profit expectations. Revenue in line with estimates.
The company also reaffirmed guidance for 2017 and its CFO is retiring at
the end of the year. Grainger down 7 percent, $162.19.

HERERA: T-Mobile posted earnings in sales that were well ahead of
estimates as that telecom giant added more phone subscriber who pay a
monthly bill. The company also expects that strength to continue and it
raised its forecast for postpaid customer addition. Shares initially rose
in afterhours trading and also finished the regularly day up nearly 1
percent to $61.97.

Higher costs caused asset management firm Northern Trust (NASDAQ:NTRS) to
report earnings and revenue that came up short. The company also said it
would establish a European Union banking base in Luxemburg, ahead of
Britain`s official departure from the E.U. Northern Trust (NASDAQ:NTRS)
shares fell more than 8 percent to $89.21.

And Select Energy Services, which provides water management to the oil and
gas industry, is merging with privately held rival Rockwater Energy
Solutions. It`s an all-stock deal worth nearly half a billion dollars.
Shares of Select Energy Services soared almost 20 percent to $14.92.

MATHISEN: United Airlines beat earnings estimates and saw profit and
revenue grow as we reported yesterday, but its revenue outlook is weighing
on shares this day. The carrier caught off guard by excess capacity in
their Pacific route, but the CEO says the airline is not off track.

(BEGIN VIDEO CLIP)

OSCAR MUNOZ, CEO, UNITED AIRLINES: With regard to third quarter guidance
again, I think United is firmly, I mean firmly, on the right path and a
quarter does not make a difference. The simple difference is others have
guided a little higher. Part of it is they`re cycling some issues from
last year and it`s the forecast. And so, we`ll see if the quarter
develops.

(END VIDEO CLIP)

MATHISEN: United fell nearly 6 percent today.

HERERA: And United generates a lot of its revenue from fees. The most of
any airline, but United isn`t alone. A new report from Idea Works show
that`s the top ten airlines worldwide generate nearly half of their annual
sale from those types of fees, indicating there`s a strong demand to pay
extras for things like priority boarding, better seats and upgrades.

MATHISEN: Well, the United Kingdom just made it illegal to charge
customers a fee to use a credit card. The fees which can run as high as 20
percent will be banned in that country starting in January. A British
treasury official says these chargers can add up for customers, but critics
of the move say banning surcharges will simply leave businesses to raise
their prices to cover the lost revenue. In the U.S., a handful of states
prohibit merchants from imposing specific credit card surcharges.

HERERA: So, as some companies pile on the additional fees and others work
to remove them, what can we expect to see from more businesses over time?
Will they become more reliant on these fees or not?

Here to discuss is KPMG`s chief economist, Constance Hunter.

Welcome. It`s nice to have you with us, Ms. Hunter.

CONSTANCE HUNTER, KPMG CHIEF ECONOMIST: Thank you. It`s great to be here.

HERERA: Do you think the businesses — I mean, I`d like to think they
would be less reliant and we wouldn`t get more fees. But I think that`s
wishful thinking.

HUNTER: Well, yes, economists have been studying this for a while. The
concern, of course, is that it reduces competitiveness and it tricks people
into buying things that they wouldn`t otherwise buy because they think the
price is lower, and the real crux of the matter hinges on whether those
fees are mandatory or optional.

Now, there is some competition that`s pushing down fees. So, you mentioned
T-Mobile earlier. You may be aware of the T-Mobile`s ad. It`s a little
girl with a lemonade stand and it cost a dollar, but people walk up, she
says, oh, that will be $2.80. And they say, well, why is that? And then
she lifts the fees and it`s an advertisement for a fixed price phone
service.

And you can see that that drew more customers to T-Mobile in this most
recent quarter.

So, there is competitive pressure in the marketplace, but the problem is,
is that when you look at airlines, for example, if you look at total
revenues, these types of fees can be anywhere from 2 percent to 9 percent
of total revenues, and those that are charging less are often competing of
not going to charge you the extra fees.

HERERA: Right.

HUNTER: But airlines aren`t the only industry. I mean, for example,
there`s hotels, 16 percent of their revenues in 2016 were from hidden fees
and mandatory resort charges. So, this is — this is something that`s
rampant everywhere.

MATHISEN: I think the difference as you point out, Constance, is the idea
that some of these fees are mandatory and unavoidable. A resort charge, if
you`re not going to use the resort, all you`re going to do is go to the
hotel. But businesses have gotten —

HUNTER: Or if you don`t know about it in advance and then you`re stuck at
the check out and you have to pay it.

MATHISEN: And you`re stuck.

HUNTER: Yes.

MATHISEN: What it seems businesses have been able to do they`ve learned
how to fillet the customer really masterfully. Particularly, the airlines
know that. When can you fight a fee and get it reversed?

HUNTER: Well, that I`m not an expert in. But what I am an expert is
whether or not this hampers competitiveness or not. And there`s a lot of
economic research which suggests that it does hamper competitiveness. So,
what you`re going to see more governments examining this.

So, there`s already some bodies in the U.S. that are beginning to examine
certain aspects of these fees and whether or not they should be lifted up
front. So, there`s some regulations now from the FTC saying — I`m sorry,
from underlying regulatory body that says, you know, you`ve got to lift
these things up before the person buys the ticket so then they can compare
across different airlines. I think you`ll see more regulations.

HERERA: Very quickly, though. Are you surprised that the airlines —
United is the number one — that they generate so much of their money, of
their bottom line just from fees? I was surprised by that.

HUNTER: Well, I think the study you sent me, I interpreted it a little
differently when I looked at their total revenues. So, as I said, it`s 2
percent to 9 percent from the specific unintended fees that they receive in
revenues. When you compare it to another industry, for example, like
hotels, they`re receiving 16 percent of their revenues from these
unintended fees.

So, the report that you sent, one of the things they talked about was fees
from other sources, such as partnerships with mileage and stuff, so if you
break it down just into the hidden fees that the customer pays, that`s much
lower amount.

HERERA: All right.

HUNTER: But it`s still something there would be a backlash against.

HERERA: Constance, thank you very much. Constance Hunter with KPMG.

MATHISEN: Tell us about your least favorite fees on our Website, NBR.com.

HERERA: Yes, indeed.

MATHISEN: Write us.

Coming up, whether you`re a millennial, a mid-career person, an older
worker, like me, there are things you can do to feel — not you — more
secure about your retirement.

(MUSIC)

MATHISEN: Americans are feeling less secure about their retirement. A new
survey shows that the U.S. is falling further behind other countries. The
U.S. didn`t even crack the top 15. It came in at number 17, slipping three
notches from last year.

European nations dominated the top spots. Norway, where my forebears come
from, number one. Switzerland, number two. Iceland and Sweden are three
and four. The countries that ranked the best benefitted from strong social
program, accessible health care and low levels of income inequality.

HERERA: Here at home, millennials may be hurting their retirement
security. A new survey shows the risk-averse group isn`t as willing as
previous generations to invest in the stock market, and that could be
costing them financially over the long-term. We took our cameras to find
out what you think and many of you agreed.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I fear that kind of like gambling when it comes to
stock markets because it`s unpredictable and you don`t know. That`s why
it`s something that I don`t really look into or anything like that.

UNIDENTIFIED FEMALE: You definitely don`t want to put your money away and
then, all of a sudden, you hear that the market crashed. And your money
goes into wherever. I don`t think — no, I don`t think I would check (ph)
at all.

UNIDENTIFIED MALE: Right now, because I`m at the earlier stage of
investing for my retirement, I`m OK with doing a riskier investment now
that I`ll ultimately level out overtime. And that`s how my 401k is set up
right now, is a little bit higher percentage on the riskier stocks.

(END VIDEO CLIP)

HERERA: According to Nerd Wallet, millennials who put their savings just
in a bank account or under the mattress will end up 40 years later with $3
million to $4 million less than if they had invested in the stock market.

MATHISEN: All right. Here to talk about what you can do to feel more
secure about your retirement, no matter your age, is Arielle O`Shea. She`s
the investing and retirement specialist with personal finance Website Nerd
Wallet.

We`re going to nerd out here, Arielle. It`s going to be fun.

Let`s go sort of age group by age group to tell me the kind of things that
you advise people to do to grab their retirement savings by the throat and
start going. Let`s start with the start out people, the millennials age 22
to 35 or so.

ARIELLE O`SHEA, NERD WALLET INVESTING AND RETIREMENT SPECIALIST: Sure.
So, when you first starting out, the most important thing you can do is get
an employer match if you have a 401(k) at work. So, that`s free money.
You want to take advantage of it. Your employer will match your
contributions as long as you`re contributing to that plan.

And then once you`ve done that, you can consider contributing elsewhere.
So, an individual retirement account is a great option, a Roth IRA in
particular is often great for younger workers. And they really have a long
time for their money to grow.

HERERA: Now, let`s — we have some other tips on screen. Don`t let
student loans push off your retirement savings, et cetera. Now, let`s go
forward to tips for people at the midpoint of their career, and you say put
savings for retirement above almost any other goal.

O`SHEA: Yes, so there are a lot of competing priorities at the midpoint of
your career. You may feel compelled to start saving for your children`s
college, for instance. That`s what problem for many parents, you feel like
you need to put them above yourself, but really, retirement comes first.
There`s not financial aid for retirement and there are a lot of resources
for your children`s college.

The other thing is that, you know, you may be seeing a lot of raises and
raises are a great opportunity to put more money away from retirement.
Every time you get a raise, you should put a little bit extra in your
401(k). Boost your contribution rate. Ramp up your IRA savings if you
can. That`s a great way to sort of increase your savings.

MATHISEN: Yes. I`ve often heard the same thing, if you can`t bank your
entire raise for savings this year, because you need to capital, try and
bank half it or try and increase the amount you put into your retirement
savings by 1 percentage point every year. That way, you`ll get up to where
you need to go.

O`SHEA: Exactly.

MATHISEN: Let`s say you`re in my — we`ll call it more experienced
demographic.

HERERA: Seasoned.

MATHISEN: Seasoned demographic. I`ve got 10 years or so until I might
retire, what should I be doing? Quickly.

O`SHEA: Well, you get the benefit of saving a little bit more. So 401(k)s
have catch up contributions, you get to save an extra a $6,000 a year if
you`re 50 or older. IRAs have a similar catch up. You get to save an
extra $1,000 if you`re 50 or older. So, that`s a great time to buckle down
and ramp up your savings effort.

It`s also important to remained investment. A retirement time horizon
doesn`t stop when you get to retirement. You still need your money —

MATHISEN: Right.

O`SHEA: — to continue to grow for, you know, 20, maybe 30 years, and so,
you don`t want stop investing right when you hit retirement.

MATHISEN: I`m hoping it`s going to grow for 20, 30, 40 years. Thanks,
Arielle.

Arielle O`Shea with Nerd Wallet.

O`SHEA: Sure, thank you.

HERERA: It will.

MATHISEN: I hope so.

HERERA: Certainly will. That does it for us tonight. I`m Sue Herera.
Thanks for joining us.

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great
evening, everybody. Get saving. We`ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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