The Wall Street Journal reports (paid sub. req'd) that MySpace, owned by News Corp. (NASDAQ:NWS), plans to begin offering $1.99-per-episode downloads of two seasons of 24. News Corp revealed on its recent conference call that MySpace is growing like a weed, and now has almost 80 million registered users. This is certainly imcrementally positive for News Corp. But who loses? Implications on the short side:
Incrementally negative for Apple Computer (NASDAQ:AAPL): News Corp views Apple as a distribution partner for its content. In fact, on its conference call, COO Peter Chernin specifically mentioned that News Corp had signed a deal to provide Apple with TV content. However, offering TV content via MySpace bypasses Apple with direct reach into an enormous young audience, the sweet-spot of Apple's iTunes market.
Incrementally positive for Time Warner (NYSE:TWX). Time Warner investors have been frustrated ever since the failed AOL acquisition. But this development bodes well for the integration of Time Warner and AOL, because Time Warner could sell its content directly via AOL. Investor sentiment is so negative on AOL that any profitable synergies will be seen as incrementally positive.
Incrementally negative for the entire movie rental sector. Yes, even Netflix Inc. (NASDAQ:NFLX), whose stock has been flying high on strong subscriber numbers, should take a hit from this news. And it goes without saying that this is a negative for the traditional (medieval?) movie rental companies Blockbuster (BBI) and Movie Gallery (MOVI). Why rent a movie when you can download it and own it?
Incrementally negative for would-be movie download company Amazon (NASDAQ:AMZN). Amazon Inc.'s aspirations to become a movie download business now look less plausible as the content companies acquire their own distribution.
Incrementally negative for Yahoo! (NASDAQ:YHOO). Yahoo's business model is to provide distribution to a targeted audience and to monetize that distribution with advertising and subscription-based businesses. News Corp is now a competitor to Yahoo in the teen market, and can bolster its product by offering paid downloads of its own content.
One other point. This also means:
More Internet acquisitions for media companies. Other media companies, such as Viacom (NASDAQ:VIAB), that produce and own TV, movie and music content will be encouraged to follow News Corp. and purchase Internet properties that give them targeted distribution. Top candidates: Metacafe and YouTube (both are private companies). Will investors like this? Probably, because it raises the value of media companies' content and should boost their margins if they can sell direct to consumers.