Media Wars Part 2 of 2: Focus on Content and Easy Digital Distribution
In the previous installment of this series, I blogged about how Walmart’s entry into the video download market would not impact companies like Netflix and Apple.
In this post, I will disclose the stocks that I believe are poised to succeed from the convergence of digital and traditional media.
Yahoo (YHOO)
I have been bullish on Yahoo for a long time, but only with limited success. Indeed until recently, when Yahoo surpassed the coveted $30 mark that it had flirted most of last year with, my call had been fruitless and at certain points even painful. With the current launch of Panama, and a management shake-up, Yahoo has nothing to lose and everything to gain. Once a dominant force in online search, Yahoo got beaten hands down by Google who came out of nowhere to grab market share that belonged to Yahoo. However, one needs to understand that while Panama will positively impact Yahoo’s paid search capability and revenues, it has equally significant components in other areas of the online market – namely del.icio.us, hotJobs, Yahoo Mail – which still has far more subscribers than anyone else, and above all, 130 million unique visitors daily.
With earnings poised to grow 30% in 2007, and Yahoo trading at 53 times those earnings, one could make a case that the stock is expensive here. But in reality, Yahoo has emerged into a giant media company (similar to how Amazon is a retailer) and as such, trades at a discount to other media conglomerates when you take into account that it will grow at 5 times faster than them.
I believe those who own Yahoo through 2007 will be hansomely rewarded – in fact, this year in the two months alone, Yahoo has returned a hefty 25% gain for investors, while its counterpart and fan favorite Google, has returned a mere 1.75%. Now this does not mean Google is out of the equation. In fact, I maintain that Google will hit $800 by 2010. But this year, I believe Yahoo will be the horse to bet on.
News Corp (NWS)
Back in October, I blogged about News Corp in a post titled The MySpace Factor, and as the title implies, News Corp made a very successful bet back in 2005 when it bought MySpace. No one knows the ture value of MySpace today, but with a user base in the tens of millions and an exclusive partnership with Google for AdSense, MySpace alone might be worth a few billion, a far cry from the 0.5 billion NWS paid for it. Since last October when I posted me blog, the stock is up 25%. I still like this company. They are one of the few media conglomerates who seem to understand the value of online content. In that regard, News Corp’s Fox also provides content for Yahoo TV.
Time Warner Cable (TWX)
With millions of users of AOL, not to mention another many million for their more popular Instant Messenger, TWX is poised well in the online space. AOL, which was formerly the black sheep after TWX shares tanked post the merger with it, is now proving to be a successful partner for Time Warner in the world of online content. The company has recently paid down debt, fought off an assault from Carl Icahn, sold off its unprofitable units and focusing on giving Comcast a run for their money, except that Comcast does not have the likes of AOL under its belt. The stock is down about 10% since its recent high and looks like it has found support above $21. For slow and steady investors, this one is another winner. One thing to watch out for here is the AOL/XM Satellite relationship. For those who don’t know, the new version of AOL’s instant Messenger (v 6.0) provides unlimited streaming music for free (although it is not free of advertising). With the possible merger of XM and Sirius, this might be a good thing for AOL.
Disney (DIS)
The main reasons I like Disney here are:
- Steve Jobs is on the board of directors.
- Disney has successfully revitalized ABC.
- They have piloted providing online content to Apple’s iTunes.
- With leisure travel picking up, Disney’s theme parks are back in favor.
A lot depends on how Disney keeps up its online efforts to supplement its traditional media. For now, its leading the space.
Apple (AAPL)
People need to understand Apple’s monopoly in the MP3 market. There is no one else. Forget Zune, forget SanDisk and Creative. iTunes has been wildly successful with hundreds of millions of song downloads and video downloads catching on fast. Apple has given rise to terms like podcasting, vodcasting and more. With iPhone, things can only get better, and more and more people are considering Macs over PC’s. But the biggest threat that Apple poses to the likes of Walmart, Netflix etc. is via the iTV. This has the potential of being the iTunes for TV and will keep the likes of Walmart at bay. I have written a lot about Apple in the past, so you can read about it here. In fact, I still believe Apple is worth $160 in 12-24 months.
– Faisal Laljee
Full Disclosure: I own YHOO, GOOG and NWS, but have no positions in WMT, AAPL, DIS and TWX. My positions might change anytime without notice.
Faisal, I think you’re missing some important points about VOD. Right now, I’m downloading independent films from Unbox, in about 40 minutes to my ZEN. I can watch on the train or plug it into my TV and watch in DVD quality. This allows me to watch sophisticated independent films, that I could only get from Netflix in the past, except now I don’t have to wait for the mailman and I can take my content where ever I want. It’s simple to use and less expensive that buying DVD’s at retail stores. Amazon got it right with Unbox. The also have content from all the studios except Disney and I don’t know many adults that care about Disney films anyway. ZEN is awesome – best quality image and awesome features not found on video iPods. HP will give Walmart a great platform for downloading and offer tons of titles not available on iTunes (who currently don’t have any independent content). HP will also provide DVD by mail for them, as well. EZTakes.com already has films for download that burn a DVD on your PC that you can play on any DVD player attached to your TV, so the technology is all in place to make it easy for people to use VOD. Neflix’s streaming doesn’t make any sense at all, as you have to watch it on your PC. Boring. People want their content to be viewable anytime, anywhere and now they can do it. CinemaNow and MovieLink were too paranoid about piracy, so their content is only studio based and viewable on a PC. I think Amazon and Walmart have a great chance of burning up the market with their VOD services.
Linda – great comment. I will respond to this comment with a blog post soon.
Faisal
Great points, Linda.
The independent angle is an important one. While most mainstream “popular” movies are looking for online distribution with Wal-Mart or iTunes, there is still a gap for the great indie content out there.
This is what we are trying to do with http://www.hungryflix.com
With the power of the internet and creating a “global niche”, indie films can really find their audience. You don’t have to worry about getting your independent fillm in blockbuster where maybe only 3 people in Town X are interested in indie film. You can now build a niche thru the millions of people online.
This is going to be huge. Cable TV couldn’t support a computer and gadget network like TechTV, there just wasn’t enough of an audience in cable TV terms, but now look at how many tech podcasts there are and they are thriving.
The small niche just doesn’t matter anymore. And advertisers will follow these small niches because this is a very targeted audience.