Forget Apple, bet on big media conglomerates

Companies such as Time Warner, Comcast and News Corp hold the cards. They know this. And soon they will rule the entertainment world.

By TheStreet Staff Feb 14, 2013 3:56PM

Watching television copyright image100, Corbisthestreet logoBy Rocco Pendola

You might hate them for one reason or another, but don't bet against big media companies.

Over the last year, it's been a powerful, Apple (AAPL)-beating run.

See the chart below, but names such as News Corp (NWSA), Time Warner (TWX), Comcast (CMCSA), Disney (DIS), CBS (CBS) and Canada's BCE (BCE) and Rogers Communications (RCI) have easily outperformed AAPL.

Why single out AAPL?

Because we focus so much of our attention on that one stock's fate when, as I noted on The Street earlier this year, so many better investments exist, particularly in the media space.

So, I'm not dogging Apple. You know I advise against counting the company out (as if there's even the slightest reason to do this in the first place); however, market sentiment is not in Apple's favor.

Somewhat quietly, big media names have helped -- in no small way -- fuel this rally.

Don't let anybody tell you the rally is over. Or that Comcast's move to assume complete control of NBCUniversal from General Electric (GE) was a bad one. It was anything but.

Here's the primary takeaway from this and other key moves: You're witnessing the biggest boys in the media (A) build empires, (B) jockey for control against one another and (C) work in concert, even if unknowingly, to ensure new media, particularly Netflix (NFLX), stays in its proper place.

 

price % change chart

 

In addition to the Comcast/GE deal, we also have reports that Time Warner will sell most of its publishing business, but possibly keep brands such as Sports Illustrated. At the same time, News Corp prepares to spin off its publishing division this summer. Meanwhile, all three companies continue to secure contracts to crucial appointment viewing -- sports programming -- in the U.S. and abroad.

Pay attention. This is big. It's one of the most exciting stories that impacts the stock market going forward.

If big media is smart -- and guys like Rupert Murdoch and Jeff Bewkes (love 'em or hate 'em) are sharp as tacks -- it will operate, in some respects, as partners. There will always be battlegrounds like prime time television, news ratings, and sports deals, but, as the dust settles, these companies need to find a way to pioneer digital platforms away from Netflix.

It doesn't look like that will ever get done via Hulu so, if I'm at NWSA, TWX, CMCSA, DIS and CBS, I come together and devise some type of streaming plan going forward. Call it collusion if you will, but that's just a minor detail. These guys are not stupid. At day's end, they have common goals:
  • Preserve and protect the cash cow that is the cable/satellite model;
  • Become truly multi-platform because it not only furthers their traction with consumers, but opens up billions in new (or shifted) advertising dollars; and
  • Build long-term, impenetrable digital offerings that (A) bring in an end to the presently-disjointed TV Everywhere scheme and (B) halt the dog and pony show of short-term revenue grabs by doing deals with Netflix.
Sometimes they play dumb, but they're not. Most big media executives know the score (read the stuff Jeff Bewkes says, talk to people at HBO). They know they control the content and hold the cards. As they build larger empires -- encompassing everything from the content to networks to delivery systems to actual sports franchises and venues -- the time will arrive to take digital into their own hands, completely, and away from unnecessary third parties.

For somebody like Jeff Bezos at Amazon.com (AMZN) or Tim Cook at Apple, that's a minor bump in the road, but, for Reed Hastings at Netflix, who has hooked his wagon to a one-trick pony and the pipe dream of an original programming powerhouse, it's armageddon.


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