Media and Internet Joining Forces: Potential for Profit?
One of the biggest challenges facing media companies is striking digital-distribution deals with Internet companies like Netflix (NFLX) and Hulu, reports Bloomberg's Edmund Lee.
The value of the digital space these distribution deals provide is important for expanding viewership and creating new revenue streams for media companies. The value of Internet distribution deals is especially strong for older video, including older TV shows and movies that are generating little revenue elsewhere.
Over the next five years, News Corp (NAS: NWSA) Chief Operating Officer Chase Cary calls the plan to strike deals with Internet distribution companies "the number one issue we'll have to navigate."
The race for contracts
Netflix CEO Reed Hastings has called the competition for top content among online video companies an "arms race."
Carey demonstrates this by noting that Netflix "recently secured an exclusive streaming deal with DreamWorksAnimation (NAS: DWA) , allowing the studio to shift away from HBO." He adds that media companies such as News Corp., Time Warner (NYS: TWX) , Viacom and CBS (NYS: CBS) are already experimenting with online distribution of television and movie content.
Bloomberg reports content providers like Viacom have been open to exclusive streaming deals as well. "Viacom's Paramount movie division signed exclusive rights to some of its films to Netflix, which CEO Philippe Dauman sees as lucrative."
So, besides Netflix, what companies are getting in on the action?
According to Netflix CEO Reed Hastings, "the competitor we fear most is HBO Go... HBO is becoming more Netflix-like and we're becoming more HBO-like. The two of us will compete for a very long time."
According to Janney Montgomery Scott LLC, "Deep-pocketed players have emerged to offer distribution over the Internet. Aside from Hulu and Netflix, Amazon (NAS: AMZN) markets a streaming service and Apple (NAS: AAPL) offers digital downloads. Verizon Communications (NYS: VZ) , the second-largest U.S. telephone company, could soon offer a Netflix competitor." (via Bloomberg)
CBS chief Leslie Moonves told investors at a UBS AG media and communications conference to expect more digital distribution deals in the future.
The media distribution landscape is changing quickly, and investors might be wondering how to get in on the action. To help you visualize the key players, we list below all of the companies mentioned above that are trading on the U.S. stock exchanges. Do you think any of these names might see a boost in value?
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. Apple: Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap of $365.83B. Might be undervalued at current levels, with a PEG ratio at 0.76, and P/FCF ratio at 12.16. The stock has gained 23.1% over the last year.
2. Amazon.com: Operates as an online retailer in North America and internationally. Market cap of $87.78B. The stock has gained 9.91% over the last year.
3. CBS: Operates as a mass media company in the United States and internationally. Market cap of $17.43B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.23). Might be undervalued at current levels, with a PEG ratio at 0.9, and P/FCF ratio at 12.51. The stock has gained 49.66% over the last year.
4. DreamWorks Animation: Engages in the development, production, and exploitation of animated feature films and characters worldwide. Market cap of $1.50B. The stock is a short squeeze candidate, with a short float at 22.03% (equivalent to 15.04 days of average volume). The stock has lost 42.59% over the last year.
5. Netflix: Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap of $3.92B. Relatively low correlation to the market (beta = 0.47), which may be appealing to risk averse investors. The stock has had a couple of great days, gaining 6.81% over the last week. The stock has performed poorly over the last month, losing 19.49%.
6. News Corp.: Operates as a diversified media company worldwide. Market cap of $44.26B. The stock has gained 21.52% over the last year.
7. Time Warner: Operates as a media and entertainment company in the United States and internationally. Market cap of $34.63B. The stock has gained 11.94% over the last year.
8. Verizon Communications: Provides communication services. Market cap of $108.80B. Relatively low correlation to the market (beta = 0.58), which may be appealing to risk averse investors. The stock has gained 19.02% over the last year.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Disclosure: Kapitall's Rebecca Lipman owns shares of AMZN. Data sourced from Finviz.
At the time this article was published The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Apple, DreamWorks Animation SKG, Amazon.com, and Netflix. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.