Most Fools have launched headlong into preparing for the end of this year, while attempting to determine which sectors may offer upside surprises in 2011. It's the latter task that continues to be akin to pulling one's own teeth.
Clearly, the sectors that will perform best in 2011 -- or any other year, for that matter -- are those that can provide the most meaningful upside surprises for investors and the world at large. On that basis alone, I'm not yet ready to dismiss the forlorn media companies as places where real profits might be around the corner. Media are undergoing substantial change, much of which is overdue. And for that reason alone, anyone placing even a toe in their water clearly should do so after careful study, sifting, and research.
The possibilities in the group are both substantial and varied. We can likely all agree without much deliberation that the newspaper publishers don't belong in our otherwise pristine portfolios, nor do the magazine types. Indeed, with virtually all the publishers you'll now encounter more analysts in their traditional hiding place -- the "hold" rating -- than the number of troops you might have found dug into foxholes during the Big War.
It's better on this side
Which leads us to the electronic and new media side of the industry. A truly noteworthy company during 2010 has been Netflix (Nasdaq: NFLX), a streaming content provider -- among other things -- and one of the key alternatives to cable and satellite companies' channel bundles.
Netflix's shares have tripled in value this year, while the company has come to be perceived as one of the culprits in cable and satellite customers' "cord cutting." However, I still find myself concurring with CBS (NYSE: CBS) CEO Les Moonves, who is delaying adopting Netflix and its peers until their world becomes more defined.
I also find it hard to quarrel with my fellow Fool Travis Hoium, who sees the continued rollout of Comcast's (Nasdaq: CMCSA) XFINITY, along with Hulu -- which is partially owned by NBC and will therefore soon be in Comcast's camp -- as helping to buttress its new parent against Netflix's challenges. And as Mark Cuban, CEO of HDNet (and owner of my Dallas Mavericks), has noted, "There is nothing Netflix can do that cable and satellite companies can't do."
Time to be demanding of cable
As some Fools know, I've been yammering for years about the cable companies' lethargic pace in implementing user-friendly video on demand. It seems to me that if streaming video really is a growing threat to traditional pay TV, TiVo (Nasdaq: TIVO) CEO Tom Rogers was right on when he noted earlier this week at the UBS media conference that cable companies clearly can best defend themselves by offering robust demand opportunities.
But beyond that, there appears to be a plethora of positive changes on the horizon for the cable providers. I've alluded to the pending Comcast takeover of General Electric's (NYSE: GE) NBC Universal, which should occur during the first part of 2011. I've been impressed by Comcast's leadership for more than a decade. For that reason, and while specifics remain illusive, I'm betting that the cable company's management will do far more with new acquired assets than has been accomplished by the powers that be at NBC.
Channels by choice
Furthermore, the biggest change of all may be spearheaded by Time Warner Cable (NYSE: TWC). The second-largest cable operator is intensifying a push to limit its offerings to the networks that customers really want. My Aunt Tillie doesn't care any more about ESPN than I do about the Oxygen channel. Why, then, must channels that we never watch be arbitrarily crammed into our respective packages? Persuading the programmers to go along with a la carte offerings -- a Herculean task in itself -- would go a long way toward reducing cable's reputation for steadily and cavalierly hiking fees.
Comcast has been skirmishing with Level 3 (Nasdaq: LVLT), the operator of an Internet network that improves the efficiency of customers' content distribution and a new partner of Netflix. Level 3 has accused Comcast of ignoring Federal Communications Commission guidelines by expecting higher compensation for the increased traffic the partnership will produce.
Interestingly, Comcast has received backing on the subject from Time Warner Cable CEO Glenn Britt, whose take on the dust-up is that, "If the traffic is way out of balance, somebody pays someone else." And if that weren't enough, Comcast has stated that it won't raise its charges for heavy Web users.
So with all that's going on, 2011 could be just the time to catch a ride on cable. For years, the group has been long on potential, but too often short -- or at least slow -- on delivery. But should the Comcast/NBC U combination come off successfully, demand video become more compelling, and strides be made toward personalized channel offerings, 2011 could see cable hit a new gear. I'd especially urge my Foolish friends to keep a closer eye on events at Comcast than you might have in the past.
