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Oil industry to fight Trump proposal to raise ethanol blending limit


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

Oil industry to fight Trump proposal to raise ethanol blending limit

Lobby groups representing the U.S. refining industry and oil companies slammed a Trump administration proposal to allow blends of gasoline containing 15% ethanol, known as E15, in the U.S. motor fuel pool year-round.

President Donald Trump on Oct. 9 directed the U.S. Environmental Protection Agency to draft rules allowing E15 to be sold on a year-round basis, a change from current policy that only allows its sale during winter months because of concerns that its evaporation in hot weather contributes to smog pollution.

While the deal could help alleviate some of the challenges refiners face from the requirement to blend increasing volumes of biofuels into the transportation fuels they produce for the U.S. market, the policy change could reduce overall domestic sales of their gasoline production.

"Overall we see this news as a minor negative for US refiners as the impact of potential lost gasoline demand is more significant than small savings on [biofuel blending credit costs]," Tudor, Pickering, Holt & Co. analyst Matthew Blair wrote in an Oct. 10 report.

"The President's proposal to waive the rules for E15 is unlawful and could actually make the problems of the Renewable Fuel Standard worse," American Fuel and Petrochemical Manufacturers President and CEO Chet Thompson said Oct. 9. "The President has promised to broker a deal to reform the [Renewable Fuels Standard program] that works for all stakeholders. This isn't it."

While the EPA approved in 2011 the use of E15 in all light-duty vehicles built in 2001 or later, or approximately 90% of those on the road today, the American Petroleum Institute warned that three-quarters of vehicles on American roads are incompatible with higher-ethanol fuel, and some automakers have said using E15 could potentially void vehicle warranties. Blair called attention to the legal risk of selling E15 as an obstacle to its wider adoption, noting Ford and GM have said to only use E15 in vehicles from the 2012 model year and newer.

"[The] EPA has previously stated that it does not have the legal authority to grant the E15 waiver," API President and CEO Mike Sommers said Oct. 9. "The industry plans to aggressively pursue all available legal remedies against this waiver."

The renewable fuel standard program requires U.S. refiners and importers to blend biofuels such as ethanol into the transportation fuels they produce or import. Obligated parties that cannot meet the volume requirements set annually by the U.S. EPA must purchase renewable identification numbers, or RINs, in order to meet their compliance obligations.

Currently, regulations limit the amount of ethanol blended into gasoline to 10% during the summer months.

The refining industry has complained that an ethanol blend wall — or a maximum amount of ethanol that the gasoline market can absorb given market, technical and infrastructure barriers — contributed to rising RINs prices by forcing refiners to purchase RINs in order to meet compliance obligations.

Rather than a higher cap on the proportion of ethanol in the U.S. gasoline pool, the industry sought compliance waivers from the EPA in order to lower the cost of biofuel blending credits.

In January, PES Holdings blamed its bankruptcy on the renewable fuel standard program. In April, a federal bankruptcy judge approved a settlement where the EPA forgave a portion of PES' RINs obligations.

U.S. refiners outlined hundreds of millions of dollars in savings from that settlement as well as other compliance waivers granted by the EPA under Scott Pruitt's leadership to small refineries.

The ethanol industry, which on Oct. 9 expressed its approval of the Trump administration's proposal, had challenged those biofuel blending waivers in federal court.

"Securing fair market access for E15 and other higher blends has been our top regulatory priority for several years, and we are pleased that the first official step in this process is being taken," Renewable Fuels Association President Geoff Cooper said.

The RFA noted E15 is currently available at more than 1,300 retail stations in 29 states, and that it expects removing the summertime E15 ban will lead to the "rapid expansion" of its availability nationwide.

Blair said E15 accounts for a "miniscule" part of the total retail fuel market but suggested more gas stations could sell it to lure customers.

"Since ethanol only has about [two-thirds] the energy content of gasoline, it offers less fuel economy and thus should sell at a lower price," Blair wrote in and Oct. 10 note. "Fuel stations generally make at least [two-thirds] of their margin from in-store sales, and thus all things equal, a lower price at the pump may attract more customers into the store."

Blair said the current average U.S. ethanol blend rate is 10.2%.

"While we expect E15 to gain some acceptance, we would be surprised if these blend rates are above 10.7% in 2020," Blair said. "Nevertheless, this would still represent an incremental 0.5% headwind to gasoline demand over the next two years. While additional ethanol blending would increase RIN supply, RIN prices are currently in the 12 [cent per gallon] range, way below 74 [cents per gallon] last year at this time."

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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Every Industry Is Now A Technology Industry


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


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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