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Washington Wrap — Former top regulators share crisis-era lessons

Energy

Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Every Industry Is Now A Technology Industry

Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming


Washington Wrap — Former top regulators share crisis-era lessons

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com, declan.harty@spglobal.com and polo.rocha@spglobal.com.

The top U.S. financial regulators in charge a decade ago say they were successful in staving off a more catastrophic crisis. But they also have some pieces of advice for whoever tackles the next crisis, whenever it comes.

Key among those is communicating the need for aggressive action to ward off a financial crisis — and how failing to do so could mean even deeper pain for families.

"It's very hard to explain that finance is the lifeblood of the economy," former Treasury Secretary Hank Paulson said. "I mean, we tried to ... but it's a hard case to make, and we were unable to make it."

Paulson spoke Sept. 12 at the Brookings Institution, alongside Tim Geithner, who succeeded him at the Treasury but led the New York Fed during the crisis, and former Fed Chairman Ben Bernanke, who is now a fellow at Brookings. The conference centered on lessons that future policymakers should consider when dealing with a financial crisis, along with the difficulties officials faced at the time.

For example, former Fed Vice Chairman Donald Kohn and former top New York Fed official Brian Sack noted in a paper that Fed economists "chronically underestimated the extent of the financial disruptions and their consequences," making it tough for the central bank to decide the best way forward.

The inaccurate estimates from the Fed and private forecasters call for a "significant rethinking of standard" macroeconomic models, Bernanke wrote in another paper, saying those forecasts should better include the broad economic effects of disruptions in the credit markets.

On the fiscal policy front, former top Obama administration economist Jason Furman said fiscal stimulus can be particularly helpful when the Fed has slashed rates to near-zero levels. Still, he said, policymakers should add triggers in stimulus packages that automatically lead to larger fiscal boosts if the economy becomes dire, rather than relying on going back to Congress to approve more spending.

The panelists had some worries over whether regulators had adequate tools to solve the next crisis. Bernanke, Geithner and Paulson have written that the postcrisis regulatory system is significantly stronger, citing new mechanisms such as the orderly liquidation authority. But Congress also restricted some of the tools they relied on during the crisis, they wrote, pointing to the limits on the Fed's lender of last resort authority as one example.

William Dudley, who retired as New York Fed president this year, said that tool could be critical in shoring up a nonbank firm and that he is disappointed its return for such firms is not being "seriously debated."

He also said regulators should try to ensure their frameworks keep up with an evolving financial system but had a pessimistic take. "I think this is one where you're probably going to fail again and again, but that's the challenge," Dudley said.

At the SEC

Wall Street's securities regulator has rescinded two 14-year-old staff letters that permitted certain investment advisers to rely on recommendations from proxy advisory firms when voting at a company's annual meeting to avoid potential conflicts of interest.

The move was a win for public company executives and other industry participants who have argued that firms such as Glass Lewis & Co. LLC and Institutional Shareholder Services Inc. hold too much power in the proxy process. Issued to ISS and Egan-Jones Proxy Services in 2004, the letters said that investment advisers can "cleanse" their votes from conflicts by siding with a third-party recommendation, such as those made by proxy advisers, wrote Ning Chiu, counsel for Davis Polk's capital markets group, in a Sept. 13 post.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, applauded the agency's decision, saying in a statement that proxy advisory firms "have shown way too often that they are more focused on pushing special-interest agendas rather than serving investors."

Proxy advisory firms have played an increasingly large role in the operations of a public company. These firms provide data, research and recommendations to institutional investors, especially in regard to votes expected at companies' annual meetings. These recommendations range from deciding on CEO pay packages to approving acquisitions.

Both ISS and Glass Lewis pushed back on the implications that the SEC's move detracts from long-standing practices that have governed their operations. The decision to walk back the letters comes ahead of a November roundtable event that the SEC plans to host to discuss the proxy process.

"The SEC's withdrawal of the letters does not change the law, does not change the manner in which institutional investors are able to use proxy advisory firms, nor does it change the approach that institutions need to take in performing diligence on their proxy advisory firms," ISS General Counsel Steven Friedman said in a statement.

Glass Lewis CEO Katherine Rabin added in a statement that the SEC's decision "in no way changes any law, rule or regulation applicable to proxy advisers and the services they provide to institutional investors."


At the OCC

The Office of the Comptroller of the Currency will be facing a fresh round of lawsuits over its announcement that it will accept applications from financial technology companies seeking a special purpose bank charter. The Conference of State Bank Supervisors said Sept. 12 it would sue, and on Sept. 14, the New York Department of Financial Services filed its own suit. Both groups had sued the OCC when it originally proposed the fintech charter, but a federal court ruled that the issue was not yet ripe for consideration since the regulators had not committed to issuing charters at that time.


Banking regulators teamed up Sept. 11 to clarify that they would be paring back on the issuance of supervisory guidance and will avoid the use of numerical thresholds in future guidance. Responding to Congressional pressure on regulatory guidance, the agencies said guidance would not be interpreted to have the same force and effect of law, adding that they would not pursue enforcement actions based on guidance.

On Capitol Hill

The House Financial Services Committee passed 12 bills on Sept. 13, including one bill requiring the banking regulators to establish a federal standard for data security measures. The bill, introduced by Missouri Republican Blaine Luetkemeyer, would also require the creation of a notification system that responds to any breach or unauthorized access of customer information.

The committee also passed provisions that would require the Federal Open Market Committee to annually adopt up to three reference rules that would guide monetary policy decisions. Other provisions would clarify that the FOMC is responsible for establishing interest rates on reserve balances and for requiring the Fed vice chairman to provide semiannual testimony in the absence of a vice chairman for supervision.

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.


Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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Technology
Every Industry Is Now A Technology Industry

Highlights

And every company is now a technology company.

Sep. 28 2018 — As machine learning (ML), artificial intelligence (AI), and robotics become commonplace and enter the operations of mainstream organizations, leadership teams are finding that failure to harness and leverage AI puts them behind the competition. Repeatable tasks are carried out by bots in a fraction of the time and employees are more focused on adding value, which means companies on the forefront of technology can be more reliable, more user-friendly, and faster to market.

In this highly disruptive environment, one traditional truth of business has withstood, or has perhaps even guided, these technological advances: above all, the customer experience is king. More than ever before, businesses have effective technologies at their fingertips to quickly and effectively address customer pain points, while at the same time dramatically improving their internal operations.

At S&P Global Market Intelligence, we strive to get beyond the buzzwords and truly deliver essential insight. And second to this, we strive to adopt real operational efficiencies into our delivery that are paralleled by the workflow efficiencies we promise to our customers. To that end, we are committed to remaining on the cutting edge of emerging technologies, first through optimization, then automation.

Download a recent analysis of how we’re applying new technology like natural language processing to structure data, robotic process automation to deliver insights faster, and predictive analytics to stay ahead of the market.

You can also view this analysis in Spanish, Portuguese, Mandarin, and Japanese.

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Natural Language Processing – Part II: Stock Selection

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Natural Language Processing, Part I: Primer

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Technology, Media & Telecom
Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 20 2018 — Spending on home entertainment is rising toward levels not seen since 2004, when consumers spent $24.37 billion building massive home-video libraries of DVDs and VHS cassettes. Since then, the optical-disc market saw more than a decade of significant declines as consumers shifted to digital entertainment. By 2012, total spending on home entertainment was down to $20.13 billion, with $4.13 billion coming from online video while DVDs and Blu-ray discs accounted for $12.88 billion and multichannel PPV/VOD contributed the remaining $3.13 billion.

Fast forward to 2017 and the mix of consumer spending has changed significantly. Consumers spent a total of $22.62 billion on home entertainment from multichannel, online and disc retail/rental sources. Online spending accounted for $13.00 billion of that total while spending on discs dropped to $6.84 billion and multichannel PPV/VOD shrank to $2.79 billion.

While the data might seem like good news for traditional providers of home entertainment, a key component of the growth in digital spending is the rise of subscription video on demand. The majority of online spending is going to over-the-top services like Netflix, Hulu and Amazon Prime, which increasingly have focused on creating original programming (mainly episodic TV) rather than licensing content from Hollywood studios.

Removing subscription streaming from the consumer spending pool paints a less favorable picture for traditional content providers. In 2012, consumers spent just $1.43 billion on non-subscription online video purchase/rental, and a total of $17.44 billion excluding the SVOD component. By 2017, while consumer spending on online video overall had risen to $13.00 billion, some $10.47 of that came from streaming subscriptions versus $2.53 billion from online video purchase/rental, and total home-entertainment spending was just $12.16 billion excluding SVOD.

Spending on sell-through home video peaked in 2006 when consumers shelled out $16.53 billion for DVDs and VHS cassettes. Since then spending has declined by hundreds of millions (sometimes billions) each year. In 2017, consumers spent $6.50 billion on DVD and Blu-ray sell-through and electronic sell-through. This seems to suggest that people are becoming less and less interested in adding to their home-video libraries and are turning to the more affordable streaming options. The story is similar for the home-video rental segment, which saw consumer spending peak in 2001 at nearly $8.45 billion before dropping to $2.87 billion by the end of 2017.

This has to be a somewhat unsettling trend for the major film studios, and is likely a key factor in shifting their strategy to focus on major franchise films and low-cost genre fare. The former tend to have broad worldwide appeal and can still move enough video units to help offset their high production and distribution costs. The low-cost genre fare, on the other hand, may be more risky and not sell as well internationally, but has a fair chance to break even. If the latter films lose money, the successful franchise films typically cover the losses.

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US Online Video Outlook To Eclipse $15B In 2018

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DVD, Blu-ray Spending Down $1B-plus For 11th Year In A Row

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