The Media Landscape Watch List
The opportunities are plentiful in media and the landscape is more and more exciting with every new development.
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Trying to change the mode...crack the code
Images conflicting into data overload
The Body Electric, Rush
I'm always thinking about the media landscape and what's needed today to deliver all forms of media to all kinds of devices. In the old days you had an antenna on your roof or a pair of rabbit ears and magically a TV show would appear. On the other end, either someone was pointing a camera at something and it was live, or a tape was playing what had been "previously recorded." Times have changed and the components needed to deliver media or data have become fragmented and complex. This tends to be the trend in many successful industries.
There are three phases to the development of mature industries. Whether it is automotive, retail, media or technology. It usually starts with a few small providers of a service, followed by steady expansion as others join the market and then massive consolidation as the new paradigm forms. Many times the cycle starts again. An example of this is the automotive industry. It was a business that was started by Ford, grew to the big three, expanded to niche providers (say Daimler (DCX) and Toyota (TM)) and also has gone through a tumultuous period of consolidation and shake out. It's a kind of natural selection. The same happens in media and we are in the middle of the second phase. This means there is a lot of room for growth and there will be tremendous consolidation over the next five to ten years.
The Three Elements of the Media Landscape
I love the media landscape because to deliver data, media and entertainment to your home, phone, computer, car, watch, office or plane (if you have one) is a complex task. However, this task can be broken down into three elements that together combine to make "it" work: Content, Network and Infrastructure.
While in the media business, I worked with Prodigy, Sun Microsystems (SUNW) and Qwest (Q) when it was laying fiber around the West/Midwest US . I was working on Qwest and Sun when I saw the proverbial "light."
With this thesis in mind, I can say with a 99% confidence level that data services will only go up for the foreseeable future. Barring any massive natural disaster, or God forbid a war on US soil, the growth of data services, video, audio, images and text (that's all there is folks) will expand.
Stocks to Watch Out For
I created what I believe is a solid watch list of providers and take-over targets that fit into my media matrix. These companies fit neatly into the three categories; content producers (The people who create data), network providers (the pipes) and infrastructure (things like servers, storage systems, basically the hardware needed to make it all work). Some of these companies like Comcast (CMCSA) and Time Warner (TWX) are further along in their evolution, or the consolidation phase. Time Warner is a content and a network provider and Comcast is rapidly moving in that direction.
After that, I created what I'm calling the Wassong Media Index. I made this real easy; I've taken $1000 and put it into each of these companies, which I'll update every week for the next year to see how it performs against the market. Keep in mind that this is a "watch list" and not necessarily an investment strategy. I own some of these companies, but not all.
Here are companies in each category to keep a close eye on:
- Yahoo! (YHOO): The company is really pumping the PR on the success of project Panama – this is supposed to be its salvo against Google (GOOG). Currently the company is touting a 5% increase in click-through rates. It's good PR, but unless advertisers are seeing the results, who knows. Time will tell and the numbers will show it at the end of 1Q. Also, YHOO has quietly gone through tremendous changes in corporate structure, elevating Todd Weiner to search guru and ousting Lloyd Braun. Yahoo's biggest issue is it has made a significant cultural shift, moving many staffers from the Bay area to LA. There's a reason San Fran and LA are so different. It will take a while for Yahoo to get its legs under it and if Panama is not a big win, it had BETTER have another big idea in the wings.
- Google (GOOG): Google is driven by technology and understands the new ad paradigm. The company made a strong salvo for print and radio ad sales and so far it looks like things have not worked out as planned. The two industries aren't so quick to let the new kid come in and cannibalize 50-100 years of an embedded business model. I've seen this before. Google is going to have to be patient. It will be and it will continue to do well.
- IAC: Barry Diller has a golden touch. He's smart and is not one to jump on a trend. IAC has a great portfolio and is figuring out ways to cross leverage assets.
- Disney (DIS): The House of Mouse is certainly a force to be reckoned with. Its purchase of Pixar last year is the infusion the company needed to reassert itself as a content leader. The Pixar technology alone accelerates Disney's synergy between film, TV and online and we should see new models and approaches. The company has done this with "The Incredibles, Rise of the Underminer." For those who've seen "The Incredibles" this is a game that picks up where the movie left off. This is a great example of media channel cross pollination.
- AT&T (T): AT&T is back to where it started. It has all the assets in place and it now comes down to the ability to deliver.
- Qwest Communications (Q): The dark horse – literally. What happened to ride the light? Where'd all that dark fiber go? Recent articles have speculated that we may be in for an "internet heart attack." In other words, the pipes are not big enough today to support the traffic. The old guard may be looking at the market place waiting to pounce. I happen to think Qwest could be in a good position to deliver more of the backbone for the internet.
- Verizon (VZ): Heck – the company is spending $23 billion through 2010 to transition subs to fiber. I think it will pay off. VZ has done a great job building a strong brand. It comes down to how fast VZ can build it and how much it can do to retain existing customers without giving away too much.
- Comcast (CMCSA): Comcast has a fantastic infrastructure and a growing share of the market. It is clearly looking for key acquisitions to control content development. Add to that the speculation that Comcast would buy a Sprint Nextel (S) and could now make a true run at AT&T (T) and Verizon (VZ), offering media to all devices.
- Level 3 (LVLT): I'm interested to see what Level 3 does over the next six months. With one of the most robust Fiber optic networks and the explosive growth of online video, it's interesting to see how much capacity the company will pick up.
- Sun Microsystems (SUNW): I own Sun. I like it now because it's being tuned. That tuning is either for a big push in infrastructure sales, storage, or a sale. Who would buy Sun? I still believe Google will make a play for a major tech company at some time in the next year. The rumors have always been abounding that Google is building its own network. What's to say it won't need the equipment to light it up?
- EMC (EMC), Seagate (STX) and Quantum (QTM): Storage! Storage! Storage! That's all I have to say. Where are we going to put all the YouTube videos?
- Juniper Networks (JNPR): Everyone should be doing their homework on the second tier of infrastructure.
- Cisco Systems (CSCO): The company just acquired Five Across – a social networking software. It has pushed IP Telephony for about seven years and is poised to break into a more mainstream market.
- Corning (GLW): Corning is certainly interesting as a manufacturer of fiber, it's a company that took a serious downturn when the bubble burst – I'm saying it's amazing it has survived. That said, the need for fiber is only going to grow.
Into the Future
This is the platform for my view of the media space. It's been the same since the mid 90's. Some of the names have changed. Many have morphed or been subsumed by other companies, but the segments remain.
In the next five to ten years, the lines between these segments will continue to blur. Apple (AAPL) will merge into a consumer electronics company as it already has with the introduction of the iPod and iPhone. Cisco MAY become a telecommunications company if not a network. Verizon could become a content provider and a major competitor to Time Warner. This makes the opportunities plentiful and the landscape more and more exciting with every new development. It's why Minyanville exists – to be at the forefront of a new media revolution and to provide content that people truly appreciate and can benefit from as they navigate this growing global financial landscape.
By the way, a great resource for Telecom information is the Wiki for Telecoms in the US. You can spider out from there to global telecoms and infrastructure companies. Here's the link. Enjoy.
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