Short These Stocks and Blame Apple

Apple's (Nasdaq: AAPL  ) influence extends far beyond computers, phones, and tablets. Apple has managed to turn a number of industries on their heads through its App Store, allowing third-party companies to make innovative products. Intentionally or not, Apple is shaking up decades of ingrained business models with the flick of a finger.

Below I've identified three affected industries and three companies I will add underperform CAPScalls on, predicting they will underperform the market.

Video games
The video game industry has been built on a relatively constant business model for more than 30 years. Sell a critical mass of gaming consoles, driven initially by hard-core gamers, and leverage the base of consoles by selling high-margin games. Rinse and repeat every five to eight years.

Since new product launches often garner $60 for a hot title, not including now-common add-ons, gaming companies have enjoyed immense profits at the peak of this cycle.

Apple's iTunes store has turned that business on its head, changing the way Electronic Arts (Nasdaq: EA  ) and Activision (Nasdaq: ATVI  ) look at their games. Instead of selling $60 games, Apple has proliferated the $0.99 game, popularized by Angry Birds, Cut the Rope, and Fruit Ninja. Electronic Arts, in particular, has begun to move into this market, but revenue isn't nearly as strong as with a console game.

The company I really question is Activision, which has already started to lose World of Warcraft users. The company has made a killing on expansive multiplayer games and repeat releases like Guitar Hero, but I think the company's hot streak is soon coming to an end.

World of Warcraft subscriptions fell 15% in 201, and I think the company is reaching its limit of Call of Duty players. The games on iPhones, iPads, and any new Apple TV device could make these games much less attractive very quickly.

Revolutionizing the printed word
After being disrupted by the Internet, traditional news sources may be toppled by the new information ecosystem Apple made possible. Despite being a standard-bearer in news, The New York Times (NYSE: NYT  ) can't seem to stop the loss of revenue that the new age of news has brought. The company has tried to adopt new formats for iPhone and iPad devices, but revenue hasn't followed. In fact, the company reported a decrease of 4.9% in digital product revenue, and digital subscribers are still at anemic numbers. Apple has allowed new competitors to enter the picture and steal some of New York Times' thunder, which doesn't bode well for its stock.

Some companies will be able to thrive in the new environment. Apps for a variety of sources have brought me to new sites and Twitter has changed the way some of us devour information.

On the flip side of newspapers' struggles, Apple's influence on the book market was on display when it introduced its new iBooks textbook format. The company has a chance to upend some competitors there as well, but I see textbooks and more interactive offerings as an opportunity for publishers, rather than a threat. Education hasn't changed much in decades and it's time someone shook them up and offered new, innovative ways to learn. McGraw-Hill and Pearson are adopting this format quickly and could benefit greatly from Apple.

Cutting the cable cord
I consume a lot of media, but more and more has moved to online or on-demand sources. That's leaving traditional television behind, something cable providers don't want to hear.

I have my eye on you, Comcast (Nasdaq: CMCSA  ) and Time Warner Cable. Comcast and Time Warner provide the Internet connections Apple products use, but Apple may have its eye on innovating around the cable TV connection. In the past year, Comcast lost 135,000 video customers, showing that the cord is slowly starting to be cut.

With iTunes, Apple is partnering straight with media companies to provide content to consumers, and an upgrade of the Apple TV would likely take this to another level.

Foolish bottom line
Apple has created a platform that has affected video game, book, and media companies in different ways. Those companies that can innovate and adapt will grow, but it's difficult to give up an entrenched profitable business.

I'm adding underperform CAPScalls for Activision, The New York Times, and Comcast because of the impact I think Apple will have on their businesses. You can see all of my picks here.

To add these companies to My Watchlist, click on the links below.

Fool contributor Travis Hoium manages an account that owns shares of Apple. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Apple and Activision Blizzard and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard and Apple, as well as creating a bull call spread position in Apple and a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 22, 2012, at 1:46 PM, Raylanw wrote:

    I never really agreed with the notion that social gaming would eclipse classic hardcore gaming. In my opinion as a hardcore gamer, they target two different demographics. While one may slightly eat into the other's slice of pie, I think Activision won't feel much of the heat. Diablo 3, SC 2 Expansion and the "Titan" game in development will keep the game up for ATVI, and those are only the titles from the Blizzard segment. You may also want to look into the Real Money Auction Houses Blizz will implement in D3. You may be right, but I'm highly skeptical.

    Long ATVI, EA

  • Report this Comment On February 22, 2012, at 2:01 PM, doingwhatican wrote:

    no one wants to trade their PC gaming experience for a mobile one. this is something gamers understand, but wall street does not

  • Report this Comment On February 22, 2012, at 5:15 PM, chrisguns521 wrote:

    I agree with Raylanw, Diablo III will be successful as well as the SC2 expansion which I've personally been waiting for. I've never played Diablo before, but I'm going to give this new one a try for sure as it seems Blizzard doesn't make bad products ever. The funniest thing I keep hearing is the WoW subscribers decrease. I used to play WoW years ago for multiple years and I stopped right right before it's prime. The game is 8 years old now! Of course we are going to see 20% decrease in subscribers by now, I can't believe this many people even still play lol. The fact that is has even had 10mil+ subscribers for this many years is insane and clearly makes it the most popular ever! So Titan will be here in a year or 2 so silence you WoW haters and one thing u forgot to mention Raylanw was Bungie "new Project" will I doubt will disappoint. They are done with Halo and on to better things and they have a 10 year deal with ATVI.

  • Report this Comment On February 22, 2012, at 7:04 PM, mattysmitty wrote:

    If anything ATVI and EA capitalize on the iPhone iPad market

  • Report this Comment On February 23, 2012, at 9:48 AM, SirKeef wrote:

    World of Warcraft is 7 years old. Of course it's going to lose subscribers. There aren't many games in existence that have been played as much as World of Warcraft and people are starting to look for new options, one of which is EA's SWTOR.

    iPhone apps are largely a different demographic or at least serve a different need and Activision's model isn't primarily reliant on sale price, it's reliant on continuing subscription. They could give the game away for free and still make a huge profit.

    MMORPG gaming is its own niche and ATVI are the gold standard when it comes to making them. For people who understand this, now is a good time to invest while the price is low.

  • Report this Comment On February 23, 2012, at 5:39 PM, felixtsai wrote:

    I agree. This article looks like it's written by a nongamer. Casual games have been around forever. I remember playing tetris and lode runner on a Mac Classic in college. iPhones and iPads have simply brought those to the masses. Those games are relatively easy to produce but they do not provide the immersive experience of WoW or even John Madden Football.

    What's more likely to happen is ios, android, and windows 8 will develop to permits ever more complex games on tablets. Rovio or Zepto Labs doesn't have the skill set to build those games. It's EA or Activision that has the experience and talent to dominate that space.

  • Report this Comment On February 23, 2012, at 6:50 PM, CRNA1109 wrote:

    I agree with all the above. Respectfully , you could be right. Angry birds is something I play when I am stuck shopping with my wife and I'm bored to tears. Being a hardcore gamer I would nwver give up play on my console. You couldn't pry my controller from my cold dead fingers. We can be that fanatical. Besides, have you played COD vs Angry birds?

  • Report this Comment On February 23, 2012, at 10:34 PM, Raylanw wrote:

    I was unaware that Bungie had a project going on with Blizz. That should definitely be interesting. Being the Blizz fanatic that I am, surprised I've never heard of it. Do you have a link with more details?

    Long ATVI, EA (Blizz and Bioware, respectively)

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