Of all the changes brought about by the digital revolution, it seems few are more visible than those in the media industry.
From falling advertising dollars at newspapers to online competition for broadcasters, traditional media continues to be displaced.
Because there is only a certain amount of advertising dollars that can be spent on media, the rapid growth of digital media and the advent of desktop search and mobile advertising means traditional players are getting squeezed, says Jay Jacobs, director of research with Global X, which runs the Social Media Index exchange-traded fund (ticker: SOCL) and the Millennials Thematic ETF (MILN).
“They’re stealing market share from the other traditional media outlets,” he says.
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As the economic recovery continues, the overall revenue pie is growing and media companies all around are benefiting, he says.
But while cash flow from advertising for traditional media is cyclical, social media companies are able to tap revenue streams simply unavailable to traditional media, Jacobs says.
For example, social media advertising is much more scalable. While a local pizza shop would never take out an advertisement in a national outlet, they would find it useful to spend much less money for social media ads targeting specific neighborhoods. Social media also have a great amount of data on their users that they can sell.
Jacobs thinks the new media industry is entering a new phase in its development. First, the industry was in a stage of rapid user growth, and then it moved into a stage of shifting from desktop to mobile and monetizing users on their devices. He notes that several years ago, there was a question about how Facebook (FB) would be able to move from desktop to mobile and monetize its user base, but that question has been resoundingly answered.
Now, he thinks the industry is entering a more mature phase marked by consolidation, such as the deal between LinkedIn (LNKD) and Microsoft Corp. (MSFT), and Verizon Communication’s (VZ) purchase of Yahoo (YHOO).
That bodes well for investors in the industry as companies get bought at premiums, and deals can change how other parts of the industry are valued, Jacobs says.
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Not all agree that these deals are particularly media-centric or portentous for the industry.
James Wang, a research analyst for ARK Invest, says the most interesting trend in the media industry now is what’s happening in television consumption.
Although the shift to digital viewing has not happened to the same extent as the shift in music as older people still continue the same viewing habits, he believes that a younger generation whose first video experience has been on phones or tablets won’t feel the urge to expand to traditional TV as they age.
So, for now, overall TV viewing is trending only slightly lower, but once millennials move into the main stream of viewership, it will drastically decline, he says.
That means for investors wanting to buy and hold stocks, old media companies with broadcast assets like Twenty-First Century Fox (FOX), Time Warner (TWX), Viacom (VIAB) and, to a lesser extent, Walt Disney Co. (DIS) may not be a good bet, he says.
“Its hard to see a growth case for those companies,” he says.
Meanwhile, YouTube streams millions of hours of video per day, news breaks over social media like Facebook Live and Netflix (NFLX) is doing very well in the U.S., Wang says.
While timing the market is always difficult, Wang says that investors who want to get more exposure to new media stocks can average in their investments by buying in tranches.
“If you’re right on the opportunity, you’re going to be right in the long term,” Wang says.
ARK Invest’s Web x.0 (ARKW) Next Generation Internet ETF currently includes top holdings Netflix, Facebook, Amazon.com (AMZN) and Alphabet (GOOG, GOOGL).
The impact of people leaving traditional subscription cable in favor of video entertainment from other sources such as Netflix has impacted the likes of Fox, Discovery Communications (DISCA) and Disney, says Neil Macker, an equity analyst with Morningstar who tracks media and entertainment companies.
But he likes Disney over the longer term. “It’s a good value right now,” he says.
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There are certainly risks such as the loss of viewers for ESPN, ABC and the Disney Channel while rights to air sports events increase, he says. But over the longer term, Macker sees ESPN as a good brand that has sports rights locked up, and he thinks Disney’s studios such as Marvel Entertainment, Lucasfilm and Pixar will likely churn out more blockbusters. Additionally, Disney is good at turning its characters into consumer products, he says.
Best-Known Media Stocks
| Stock | Price | 1-Year Return |
| CBS Corp CBS | $52.09 | 1.44% |
| Time Warner Inc TWX | $77.83 | 11.13% |
| Viacom Inc VIA | $48.64 | 12.32% |
| Twenty-First Century Fox Inc FOX | $27.42 | 18.14% |
| Discovery Communications Inc DISCB | $25.82 | 18.42% |
| Walt Disney Company DIS | $96.09 | 19.20% |
| Viacom Inc VIAB | $43.99 | 19.39% |
| Twenty-First Century Fox Inc FOXA | $27.04 | 21.95% |
| Discovery Communications Inc DISCA | $26.83 | 24.98% |
Stock information correct as of Aug. 4, 2016, 9:00 a.m.
Or see the U.S. News list of Media Conglomerates.
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Investing in the Changing Media Landscape originally appeared on usnews.com
