Interestingly, the following three areas relate to one another:
- Books, television and radio.
And the implications of these associations have wide-ranging and profound impacts for investors in a variety of spaces.
In each of the three above-mentioned areas, I argue that consumers have, or ultimately will, take control of each space from industry and regulators. That goes against the popular notion that corporations rule all forms of media, rendering little in the way of choice and diversity to the end user. In this article, I summarize my take on the state of each of the three rather broad industries. Then, I tie things together by discussing the implications for investors.
For years now, many of us have lamented the decrease in the number of local bookstores and, subsequently, the tough times experienced by national bookstore chains. You can only find a relative abundance of local bookstores in a handful of North American cities. San Francisco ranks quite high in that regard. And it's becoming increasingly difficult to find one really good local bookstore, if any at all, in a growing number of urban and suburban habitats. Places like Powell's Books in Portland, Oregon, are few and far between.
On one hand, that's sad. There's nothing like spending hours in Powell's or walking along Valencia or Clement Streets in SF lingering in the many book shops. With books, however, it seemed at first like the now almost fully-emerged eBook trend, led by Amazon.com (NASDAQ:AMZN), would do nothing but give the shaft to consumers. Instead, it has opened up a new world of choices. Of course, you now must wade through more crap to get to the good stuff, but diversity abounds in publishing. And it's easier than ever to find.
Amazon took it to the publishers. They no longer control the game. Traditional publishing has always acted as gatekeeper to the material that will see the light of day. If major publishers do not think they can sell it - with a minimal amount of effort - it never makes it to print. And if you do not have a built-in "platform" from which to market your book (so that the publisher can do less work and spend less money), good luck getting published.
Until Amazon took control of the industry, self-publishing was little more than a fledgling shot in the dark for most authors. Now folks like James Altucher can build their own platforms, thanks to the Internet and social media blowing the doors off of any and all obstacles, and reach people with eBooks and other media. And Altucher is merely one example of thousands who have done well by leveraging the power of the web and eBooks. Let's face it, without the emergence of Seeking Alpha and Amazon.com opening up self-publishing, I could not have published books that people would actually buy. That was simply not possible 5-10 years ago. Or, at the very least, it was enormously more difficult to break through a decade ago.
While Netflix (NASDAQ:NFLX) deserves many more knocks than it receives, there's no question that its CEO Reed Hastings sees the future. Sadly, seeing the future does not always translate into long-term success if you have no clue how to manage the near-term, i.e., day-to-day strategic and business decisions.
Hastings saw where the consumer was headed. And he acted. Much like Pandora (NYSE:P), he has ensured that he gets Netflix onto every device and platform imaginable. And this has, yet again, opened the door not only for consumers, but for independent creators. Hastings definitely helped light a fire under old guard television programmers:
I don't know what a TV is anymore. It's kind of an anachronistic term.
-Melinda Witmer, Wall Street Journal, 3/25/2011
But, really, the consumer led the charge. It's happening across industries. In books, textbooks will soon to become exclusively eBooks because that's what consumers want and expect. They might even become less expensive in the process. In enterprise, Apple (NASDAQ:AAPL) eats Research In Motion's (RIMM) lunch because employees want to use iPhones, not Blackberries. And, in television, you will soon be able to watch any program or event anytime you want on any device you choose. That's just three examples of many.
Going forward, the companies who (A) control the most valuable content and (B) control the means of production (very Marxist, I know) and delivery will not only survive, but they'll win big. And the consumer will not only benefit from a multi-platform world, they'll have more options - that they ultimately control - than ever before.
It's a total insult to HBO and Showtime, but everybody thinks they can do original programming now. Hastings is nothing short of arrogant to think he can build at Netflix the type of franchise it took HBO about four decades to construct. And, of course, you have Google (NASDAQ:GOOG) entering the "original programming" fray via YouTube and Amazon threatening to do the same.
Without a misguided acquirer, Netflix will die an ugly death. However, in the meantime, you can access programming on Netflix that might not have been available without the company's existence. Ultimately, only the strong will survive and the deep, yet clear-headed sweatpants' pockets at Google and Amazon will win out. And the consumer will see things on YouTube that would not have made it to public access TV 10 years ago. Again, you'll have to wade through a lot of crap to get to the good stuff, but a diverse marketplace never hurt the consumer.
In less than 10 years, radio, as we have come to know it, will have completely changed. Sirius XM (NASDAQ:SIRI), unless it executes a drastic change of course, will be left alone on the dashboard as the only button that does not require an Internet connection to access. Operating from clunky satellites will make the company as throwback as an 8-track tape.
Thanks to innovators such as Intel (NASDAQ:INTC), you'll be connected to the Internet no matter where you are while mobile. That includes the car. Terrestrial radio will pretty much cease to exist. Radio companies will house all of their "physical properties" in one building and cut loose the stations that even give off a whiff of underperformance. Most spaces left on the AM and FM dials (if they stick around) will get used for their original and legal purpose - to serve the public, not play commercials in between dull and cookie-cutter content.
Apple, thanks to its dominance of delivery gadgets, and Internet radio pioneers ranging from Pandora to others who position themselves properly (that could be Spotify, Turntable.FM, Clear Channel's (CCMO.PK) iHeart Radio or others) will finalize the already evolving and dynamic process of redefining "radio."
The Investment Case
I have presented a rough sketch of how I see the future in three fascinating and very similar spaces. My past and future articles add color to my overarching qualitative themes. Just as change changes, so does my thought process. That said, most of my thoughts fall under the umbrella that the companies who control the best and most value content and control the largest numbers of the most (increasingly) efficient delivery methods will survive and prosper. That remains steadfast, whereas details can get tweaked along the way.
Here's where I intend to put about 50% of my money over the next decade, through a consistent and methodical plan of weekly and bi-weekly dollar-cost-averaging, dividend reinvestment and covered call writing.
Aggressive New Media Basket For Long-Term Investors
|Amazon.com||10%||Owns publishing, primary e-commerce hub, delivery platforms|
|Time Warner (NYSE:TWX)||20%||Controls prime content, multi-platform delivery, key partnerships|
|Disney (NYSE:DIS)||20%||Controls prime content, multi-platform delivery, key partnerships|
|Rogers Communications (NYSE:RCI)||20%||Effectively a telecommunications, media, content and entertainment monopoly in Canada. Owns rights to all key "appointment viewing" content as well as delivery methods and sports franchises/venues.|
|Bell Canada (NYSE:BCE)||20%||See Rogers AND see this excellent article|
|Pandora||10%||Internet radio pioneer, seizing mobile ad opportunity early, evolving multi-platform dominance|
*Short near-term OTM covered calls on all stocks where options market liquidity is suffice.
**Long ITM/ATM LEAPS calls, if available and as far out as possible, on all stocks.
I would sell and/or avoid all stocks where the company does not hold a a strong competitive position (see, e.g., NFLX) or lacks in the ability to situate itself for the future of new media (see, e.g., SIRI).
I plan to write a part two to this article, where I expand on how each company mentioned fits or does not fit in a future that multi-platform new and social media will dominate.
Additional disclosure: I may initiate a long position in AMZN, DIS at any time. I am long NFLX June $40 put options.