Altisource exits force-placed insurance “brokerage” business

Today, Altisource stated that it is discontinuing its lender placed insurance brokerage business (press release).

The discontinuation of this business line is expected to reduce Altisource’s quarterly diluted earnings per share by an average of approximately $0.50 – $0.65 for the period October 1, 2014 through December 31, 2015.

My guess is that Altisource was involved in taking kickbacks for force-placed insurance.  It is Ocwen that should decide whether or not to take kickbacks and it is Ocwen that would get to keep such kickbacks.  However, it could be the case that Ocwen took its kickbacks as a lump sum fee when it sold Beltline Road Insurance to Altisource.  See this Associated Press article which explains how it works.  The article quotes a source that argues that what Ocwen/Altisource are doing is wrong.

Currently, Erbey wants Altisource to get out of (kickbacks on) force-placed insurance due to “uncertainties with industry-wide litigation and the regulatory environment”.

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Notes on cable – Part 3 – Monetizing content

This post will look at how the content of a show, its monetization strategy, and avenues of distribution all interact with each other.  In the end, I think that the most important factor in monetizing content is scale.  Being able to monetize a piece of content repeatedly creates incredible value.

LMCA and LBRDA valuation spreadsheets

LMCA: https://docs.google.com/spreadsheets/d/1Jh4eIMnqoVPMmfSnhzCPmHca8_aKgzdzHafYVxMERbw/edit?usp=sharing

LBRDA: https://docs.google.com/spreadsheets/d/1g1ZIuZWFOS5ep6CsKR0el-Icz6c1R_tGUpip0bsJVtA/edit?usp=sharing
See Liberty Broadband valuation spreadsheet.

Important caveats:

1. Google Finance might lag behind real-time quotes.
2. My spreadsheets often contain errors in them.  I make a lot of mistakes.
3. The valuation of some assets is subjective.  These should be highlighted with a light red background.
4. Not all of the prices in the LMCA spreadsheet are updated.  The prices for non-American publicly-traded stakes are old.

Links

LMCA/LMCK share class arbitrage

Tracking John Malone (Part 5) – Nov 2014 update + Why control matters

John Malone continues to create more tracking stocks and spinoffs.  Click the diagram below for a larger image.

The Canadian media landscape

I think that the biggest driving force in the Canadian media industry is the CRTC (Canadian Radio-television and Telecommunications Commission).  This government regulator’s most notable  actions have been:

1. Forcing cable and telephone companies to open up their networks to independent ISPs (Internet Service Providers).  The competition from independent ISPs continues to drive down prices and to hurt the profitability of the incumbent cable and telephone companies.
2. What I call the “CanCon tax”.  Most Canadian broadcasters and cable channels are forced to subsidize Canadian content and to devote airtime to Canadian content.  This hurts the quality of their product and hurts their profitability.

This environment is very good for over-the-top companies such as Netflix because they benefit from cheap Internet and don’t have to pay the CanCon tax.

Portfolio update November 2014

Overall, my portfolio is down several percent YTD mainly due to a longshot bet on Yongye put options and mark-to-market losses on Altisource common shares.

On the short side, shorting common stock has worked incredibly well for me this year.  Unfortunately, my gains were offset by losses on Yongye puts.

On the long side, I made massive bets on Kinder Morgan warrants and Altisource common stock.  The former has been profitable while the latter hasn’t.  Altisource has been beaten down -53% YTD and I have been adding to my position on the way down.  While Altisource continues to have absurd earnings growth, its share price has fallen dramatically due to fears that regulation may hurt the company.

Liberty Global (LBTYA/B/K): Cable on a global scale + yet another Malone tracking stock

There are parts of the cable industry where scale is a massive advantage.

1. On the content side, a broadcast network or cable channel with scale is incredibly profitable and is very difficult to compete against.  Scale allows dominant companies to outspend their competitors on content because their per-viewer costs are lower.  Because they have better content, they retain their dominant market share.  Historically, it has been extremely difficult for competitors to compete against superior scale.
2. On the infrastructure side, a lot of equipment and software costs come from the fixed cost of R&D.  Scale allows a cable company to purchase in bulk and to get reduced pricing on set-top boxes, cable modems, and other equipment.

While Liberty Global largely owns cable systems (with a mishmash of other assets from its various acquisitions), it is also looking to use its subscriber base to get into the content game.