Meet Your Players
I've written a few articles in the past about the future of computing, home ecosystems, the evolution of cable, and the effect of companies like Netflix (NFLX), Hulu (DIS), Apple (AAPL) and Google (GOOG), but it was never something I covered in depth. Here, I want to talk about how to invest in the upcoming evolution of cable - and what to watch for.
Massive, planet-sized cable companies like DirectTV (DTV), Comcast (CMCSA) and Time Warner (TWC) are going to face breakneck infrastructure upgrade speeds forced by tech competition, and both Apple and Google appear to be setting up to go head to head to compete for your media integration and the OS in your home ecosystem: cars, TVs, computers, tablets, watches, glasses. Meanwhile, in terms of streaming content, Netflix and Hulu have also thrown their names into the hat. Outside contenders like Sony (SNE) and Microsoft (MSFT) have also thrown their names into the hat as well, using their video game systems as their way in.
In addition, I noted in several articles about Microsoft's new Xbox One, that video game consoles are also now vying to be the channel by which streaming media makes its way to your television. While I don't think this focus is necessarily the right decision for them right away, it's important to know all of the potential players in this semi-emerging way to get our media content. In a previous article that I wrote about the Xbox One, I toyed with it going head-to-head with an Apple brand TV, should they release one:
In a hypothetical situation where Apple releases a TV, it's going to have all of the features that the Xbox One has, plus more. If history serves us correctly, we'll note that when Apple introduces an entirely new product from scratch, they tend to blow everyone else out of the water. Examples? Compare the iPod to mp3 players at the time or the iPhone to phones at the time; Apple was light years ahead, and would do the same with releasing a TV.
Theoretically, a TV produced by Apple could have the same touch interface as an iPad, the voice command of Siri, the media integration tools of the current AppleTV and integration with your current cable box/cable provider.
It's clear the landscape is wide open for the coming evolution of cable, and there are already many names in the hat.
Cable's On It's Way Out
All of the disadvantages to cable - the fact that it's super expensive, there's tons of content that you pay for that you never ultimately experience, and the poor customer service, are problems that can ultimately be Achilles heels for "traditional" cable companies like Time Warner and Comcast. Streaming media does well to address all of these little niches, and that's going to make it a serious threat in the future that - if cable companies don't pay attention - could potentially sink them.
As someone who used to be a major sports buff, meaning there wasn't a game that I would ever miss, I loved having my cable. I loved having an evening where the chores around the house were done, I could crack open a cold one, and watch my favorite local baseball team play all 100+ games of their season - all covered by my local cable company.
At some point, years ago, I grew out of that. When I stopped relying on cable for live sports, I started to realize that all of the shows that I was watching on a consistent basis were first, available to buy on DVD (years ago), and now, available on iTunes and through streaming media like Hulu and Netflix for purchase. Not only that, but once purchased, you had carte blanche to watch these shows whenever and wherever you pleased. Recently, Apple TV has started to offer MLB, NBA, and NHL, as well as other programming to address the needs of sports nuts.
If your focus is primarily on watching the big name shows, there is really becoming less and less of a need for you to even have cable. In this vein, I have two family friends who do not have cable altogether, and power their home media strictly through an Apple TV and a Netflix account. If this trend continues to spread, it's something that cable companies are really going to need to have a hold on in the coming years - ignoring this evolution could be fatal.
Not only that, companies like Google are making it easier and easier to make the switch. Items like Chromecast, a small stick that plugs into your HDMI port, allow you to use your phone or tablets as a remote. It's available for just $35 - the price it costs you to "rent" your cable box for six months, not even counting the bills you incur. When writing about Chromecast, I noted:
The most important thing here is the fact that this is just another gesture pointing out the importance of media integration and how, eventually, everything in your house is going to be integrated into one unit. We have Microsoft, Sony, Google, Apple, Netflix, and Hulu all competing for your media integration needs. The best part? This is just a small nod in the direction that tech and electronics are heading.
Streaming is also a reason why you're going to need tons of bandwidth, as I touched on in a previous article claiming that Google Fiber is going to be another long-term moneymaker if they can implement it right:
It's also going to require a ton of bandwidth. One dedicated stream usually requires about 5mbps to go on without interruption. If you're going to be streaming and downloading music in one room, while a family member watches a movie in another room, and another family member plays Xbox live in another room, you're going to need super fast internet. 1 gbps solves any potential bandwidth problem with the streaming media centers of the near future.
Bandwidth is also something that your current cable provider is likely to be supplying you. How is this need for bandwidth from them going to effect you using their bandwidth for alternate ways to get your streaming? What will the effect be on cable companies if customers are using their bandwidth and not paying for cable, strictly for use in streaming other people's media?
These paradoxes are why I think Google is heading in the right direction trying to develop their very own infrastructure for streaming at discount prices. It's a long road ahead for Google, as they simply just have pilot programs set up in just one or two cities around the US, but it's a forward thinking move by them - as they likely know that the streaming bandwidth necessary to move your entire home to streaming is likely at the top end range of what your current cable provider offers; and it's likely very expensive.
How To Invest This Evolution
There are two main facets here that you're going to have to watch out for - the cable companies, and the companies that are trying to move streaming forward, and their role within the emerging niche.
Here's some of the major public company players, and the roles that they're going to have in the evolution of cable:
|Apple||Streaming Medium||Apple TV & iTunes|
|Streaming Medium||Google TV & Chromecast|
|Sony||Streaming Medium||Playstation 3 & 4|
|Microsoft||Streaming Medium||Xbox One|
|Time Warner||Cable Company||Serves 29 States|
|Comcast||Cable Company||Serves 40 States|
As someone who is generally bullish on cable companies, especially Comcast, I'm by no means advocating just bailing out on your cable company investment and throwing money into companies solely focused on streaming. I am, however, advocating that keeping an eye on how these companies like Comcast and Time Warner choose to evolve with streaming; this is going to be a very cogent indicator for potentially finding an entrance or exit point for your investment. It's also going to be important to note how other media companies like DirecTV adapt to this coming evolution.
The companies that I see changing with the times will be the ones that secure my investment for the long term, and the cable companies that don't make immediate strides over the next couple of years are going to be the likely short candidates for me.
Conversely, we're also going to need to keep a close eye on who is getting the traction with streaming media - and in a company like Netflix's case, where they have traction. Is the traction that they have worth the P/E ratio that the company yields? At this point, I haven't dove into any such company - even stupidly calling Netflix a short a one point months back based solely on it's P/E ratio.
In truth, the facts are that from a general sense, there's so much evolution that's going and so much room for growth in business and infrastructure, that this is a rare case where the P/E of 100 or more could possibly be worth the attention of a potential investment.
I hope this article has helped to offer some perspective to the direction that media is going to be heading in. There's surely going to be money to be made here from investing wisely. I'll be watching from sidelines, waiting for the right entry point to capitalize on this coming evolution. As always, I wish all investors the best of luck.