What a week for Hollywood. First, Netflix
Yet the thing about wars -- content or otherwise -- is that it's usually the arms dealers that get rich. Here, the "arms" equal content and the "dealers" are the studios. Now may be the time to bet on the big three: CBS
We interrupt this program for a brief word from Hollywood's sponsor
Before we get to the details, it may be worth looking at how the studios/networks compare at the highest level. The following table shows combined revenues for the segments that cover network and premium TV as well as box-office films.
|CBS||$8,865.8 million||$8,323.9 million||$8,143.3 million|
|Time Warner||$24,102 million||$22,319 million||$22,456 million|
|Walt Disney||$23,863 million||$22,345 million||$23,205 million|
Source: Capital IQ, a division of Standard & Poor's.
To be fair, these figures aren't 100% representative of Hollywood's content machine. Independent studios such as Legendary Pictures aren't included, yet Legendary owns substantial rights to the Batman films that have enriched Time Warner.
And that's just one studio. Most content has multiple owners with varying rights, making licensing a chore for distributors and a joy for contract attorneys. There's plenty of work for them to do. Here's a closer look at the assets each studio possesses.
CBS: catching a wave
The fastest grower, CBS has a small but very successful stable of hits produced through its TV studios (including Showtime). Both the CSI and NCIS franchises were born at CBS Television Studios, while the emerging drama The Good Wife has opened a niche in primetime political drama. CBS also owns rights to 90210, the campy teen series first created by the late Aaron Spelling in the early 1990s.
Any of these properties could command premium dollars for digital distribution. Some already are. Take The Good Wife. Though not yet available for Netflix streaming, all three seasons are available on iTunes, while Amazon's pay instant video carries seasons 2 and 3. Prices vary between services, which suggests that CBS is negotiating for the best deals it can get.
Disney: mighty mouse
Chances are you already know what Disney owns. Home to Pixar and Buena Vista Pictures, Disney has both the clout of a major movie studio and a distribution network via its own channel for kids. Hannah Montana, The Wizards of Waverly Place, and more are Disney productions.
The House of Mouse also controls ABC and ESPN, and its ABC Television Studios is behind the primetime romantic dramas Desperate Housewives and Grey's Anatomy.
Time Warner: obscured by the blackest night
Finally, there's Warner Bros. Studios, home to the summer flop Green Lantern and the now-completed Harry Potter franchise. Warner is also home to a wide range of popular television franchises through HBO. Its partnership with CBS includes owned hits The Big Bang Theory (BBT) and Two and a Half Men and a whole range of animated programs and films.
It's taken some time, but the studio is starting to explore digital distribution for some shows. BBT's fourth and fifth seasons recently became available on iTunes, while Amazon completed rights to sell all but the Season 3 content. (Which, again, would be odd if not for the complexity involved with the way rights are assigned and managed in Hollywood.)
A Foolish final thought: Own 'em all
I already own shares of Disney and Time Warner. In each case, I believe a rich library of content offered at good terms should lead to outsized profits, especially now that new means of distribution make getting content easier. Rising volume should lead to rising royalty rates, while networks enjoy ever-higher ad rates for shows that take a large share of streaming volume. But this also holds true for CBS, the fastest grower in terms of monetizing TV and film content.
All three also pay a dividend. There may come a point when one studio's content is so superior that it generates materially higher royalty or ad rates. Until that day, I'm prepared to own all three stocks. They're the ones Netflix, Amazon, and others will keep calling on -- wallets in hand.
Do you agree? Disagree? Please weigh in using the comments box below. You can also keep track of Hollywood by tracking these stocks using our My Watchlist tool: