Media companies produce and distribute movies, television series, music, books, and podcasts. People are consuming more and more of these products – the proliferation of mobile devices and digital portals has greatly increased screen time over the past decade, and the COVID-19 pandemic has only accelerated this trend. Americans now spend more than thirteen hours a day using or interacting with some media platforms. In this article, we will consider the promise of investing in television and radio stocks.
The prospects of investments in media companies
Companies with a strong foothold in digital video continue to grow their consumer footprint, while legacy companies heavily reliant on older media formats find themselves in a tough spot; as a result, there have been many mergers and acquisitions in the industry over the past few years. The main strength in the industry is now concentrated in a few companies such as Walt Disney (NYSE: DIS), Discovery (NASDAQ: DISCA), and ViacomCBS (NASDAQ: VIAC).
Meanwhile, sometimes shares of media companies are acquired by telecommunications companies, as a result, we get a conglomerate of popular content and powerful distribution networks. The two big players in this area are AT&T (NYSE: T), owner of WarnerMedia, and Comcast (NASDAQ: CMCSA), owner of NBCUniversal.
Media-only companies are under increasing pressure from Netflix-style (NASDAQ: NFLX) direct-to-consumer content (DTC) services. Even radio stations have begun offering podcasts to capitalize on the shift to on-demand media consumption.
Top media companies
There are a lot of new prospective startups in the media field. However, in this article we are going to consider experienced companies to invest in. Let’s consider the best media stocks, which we recommend to evaluate before investing.
Discovery (NASDAQ: DISCA)
The company has heavily focused on one type of content (non-scripted TV) and one distribution method (cable), and the recent acquisition of Scripps greatly increases its scale. The company owns strong content and brands including HGTV, Food Network, and the channel of the same name. In addition, it has an even stronger position in international markets, where it owns a portfolio of rights to broadcast sports events, including the Olympic Games. In addition, at the international level, its ability to deliver content directly to the consumer far outstrips its capabilities domestically. Discovery merged its streaming divisions under the Discovery+ brand, increasing its competitiveness in the digital streaming industry.
Netflix (NASDAQ: NFLX)
This company is the world’s largest direct-to-consumer video service. It began creating its own content in 2013 and is making good money from the growing supply of original series and films; most other media companies are now looking to emulate Netflix by selling content directly to consumers. The sheer scale gives the company a wealth of data that it uses to make licensing and content production decisions, as well as to improve the user experience. While Netflix is taking on increasing amounts of debt to expand its content library, its current revenue is increasing and operating margins are improving, which should lead to higher cash flow and the ability to self-finance content purchases in the future.
Walt Disney (NYSE: DIS)
It is one of the largest media companies in the world, especially after acquiring most of 21st Century Fox. It has a very strong portfolio that includes Star Wars, Marvel, Pixar, and many classic Disney brands. It also holds a strong position in broadcaster stocks thanks to Disney+ and ESPN, which hold long-term contracts to broadcast premium sporting events.
The company owns world-famous theme parks and also licenses its characters to toy and game makers. These operations typically generate higher operating profits than the Disney studios, media networks, and direct-to-consumer divisions. As a result, theme parks and character licensing play a significant role in the enterprise’s overall operations. This is something to keep in mind when considering Disney as an option to invest in media stocks.
ViacomCBS (NASDAQ: VIAC)
The company profits from operating one of four US broadcast networks. This position in the market ensures wide distribution and a large audience. The company’s cable networks, including BET, Comedy Central, MTV, Nickelodeon, and Showtime, have a good level of diversification in terms of audience demographics. Although Viacom has run into numerous problems with cable providers in the past, the addition of CBS to the broadcast network should improve its position. At the same time, by merging CBS and Paramount, the company will be able to produce enough content to feed its own networks and license additional content for direct-to-consumer services. The company is also selling several non-core assets to fund additional acquisitions and scale-up. This will allow it to outperform other TV stocks.
What makes investing in media stocks profitable?
There are several attributes that qualify a media company as a good investment opportunity. Let’s consider them.
1. Differentiated content.
Unique intellectual property, long-term contracts with famous people, and licenses to broadcast sports events and awards ceremonies that attract large audiences – these factors attract and retain consumers. Owning strong brands that have value and meaning to viewers is also an important factor.
The larger the media company is, the more weight it has in negotiations with distributors and marketers. This can lead to the growth of distribution, affiliate fees and advertising rates, and access to additional marketing support. Moreover, the large operational scale creates cross-promotional opportunities among the company’s different offerings.
Top TV and radio companies are diversified across formats, distribution models, audience demographics, and geography.
Since direct-to-consumer content delivery services are at the forefront of today’s media landscape, owning the technology to support the massive distribution of DTCs can significantly improve profit margins.
5. Strong balance sheet.
Media companies need strong cash reserves to invest in content and release new movies, TV series, and other programs. A sufficient amount of money also allows companies to acquire controlling stakes in other media companies. But an investor should check to see if a media company’s debt is excessive, keeping in mind that constant cash flow (for example, associated with subscription fees) usually allows the company to increase its leverage.
Stocks of media companies are a good solution for both beginners and experienced investors. Before investing in a particular company, it is recommended to study the company’s operating model, its financial statements, etc. If you want to invest in media stocks using innovative tools, use the Gainy app. It provides users with a lot of useful tools to discover new effective investment strategies. The app is available for iOS users.