Investing in Media Stocks

Updated: April 28, 2020, 3:19 p.m.

Media companies produce and distribute films, television series, music, books, and radio programming. And we’re consuming more and more of them. The proliferation of mobile devices led to a 1.5-hour increase in daily media consumption in the U.S. between 2009 and 2015. We now spend over 12 hours per day interacting with media in one form or another.

As companies with a strong foothold in digital video entertainment keep growing engagement and businesses heavily reliant on legacy media formats struggle, the industry has seen a lot of mergers and acquisitions over the last few years. The bulk of the industry’s power is consolidated in just a handful of companies, like Walt Disney (NYSE:DIS), Discovery (NASDAQ:DISCA), and ViacomCBS (NASDAQ:VIAC).

Meanwhile, some media companies have been acquired by telecom companies in a marriage of popular content and powerful distribution. Two big players in this field are AT&T (NYSE:T), owner of WarnerMedia, and Comcast (NASDAQ:CMCSA), owner of NBCUniversal. That’s put greater pressure on companies that specialize in media to offer direct-to-consumer services a la Netflix (NASDAQ:NFLX). Even radio producers have turned to podcasts to capitalize on the move toward on-demand media consumption.

The latest

The media industry is rapidly changing in the current economic climate. Find the latest information in the newsfeed at the end of this article.

Icon person with chart

Top media companies

Through the noise of new platforms, ideas, and companies, a handful of publicly traded media organizations deserve special consideration. Here are a few of my top picks, which I recommend you evaluate.

Discovery Communications

While Discovery is heavily concentrated on one type of content and distribution method -- unscripted cable television -- acquiring Scripps has given it significant scale. The company owns strong content and brands, including HGTV, the Food Network, and its namesake channel. Additionally, it may be even stronger in international markets, where it owns a nice portfolio of sports rights, including those for the Olympics, and its direct-to-consumer efforts are well ahead of its domestic operations.

Netflix

Netflix is the largest direct-to-consumer video service in the world. It started moving into original production in 2013, and it’s become increasingly reliant on its own original series and films as other media companies look to go direct to consumers as well. Its massive scale provides it with a lot of data it can use to inform content licensing and production decisions and improve the user experience. While it’s fueled its content library expansion through increased debt, the company’s growing recurring revenue and improved operating margin should lead to improved cash flow and the ability to self-fund content investments in the future.

Walt Disney

Walt Disney is one of the biggest media companies in the world since acquiring most of 21st Century Fox. It has a very strong portfolio of intellectual properties, including Star Wars, Marvel, Pixar, and its classic Disney brands. It also has strong television brands in Disney and ESPN, which owns long-term contracts to broadcast premium sporting events including Monday Night Football. Its push into direct-to-consumer streaming has gone well since it acquired operational control of Hulu and launched Disney+. Both are bolstered by its acquisition of BAMTech, a streaming technology provider.

Disney also owns a theme-park business and licenses its characters to toy and game makers. Those operations typically produce a higher operating margin than Disney’s media networks, film studio, and direct-to-consumer businesses. As a result they play a significant role in the company’s overall performance. That’s something to keep in mind when considering Disney as a media investment.

ViacomCBS

ViacomCBS benefits from operating one of the four broadcast networks in the United States. That ensures broad distribution and large audiences. Its cable networks -- which include BET, Comedy Central, MTV, Nickelodeon, and Showtime -- are well diversified across audience demographics. Although Viacom has faced numerous carriage disputes with distributors in the past, the addition of the CBS broadcast network should improve its negotiating power.

Meanwhile, the combined studio output of CBS and Paramount should be enough content for the company to feed its own networks and license to other channels, including direct-to-consumer services. Additionally, the company holds several non-core assets that it could sell or spin off in order to fund additional acquisitions and increase its scale.

Related topics

What makes a good media company investment?

There are several attributes to look for in a good media company investment.

  • Differentiated content: Unique intellectual property, long-term contracts with well-known personalities, and licenses to events that draw big audiences, like sports or awards ceremonies, all draw in consumers. Nearly as important is owning strong brands that strike a chord with viewers.
  • Scale: The larger the media company, the more negotiating power it has with distributors and marketers. That can mean broader distribution, higher rates for affiliate fees and advertising, and additional marketing support. Additionally, sufficient scale provides cross-promotional opportunities between the media company’s properties.
  • Diversification: The best media companies are diversified across formats, distribution methods, audience demographics, and geographies.
  • Technology: As more media consumption moves toward direct-to-consumer services, owning the technology to support direct distribution can provide a significant benefit to profit margins at scale.
  • A strong balance sheet: Media companies need a good amount of cash reserves to be able to bid on content and produce new films, television series, and other programming. Cash also enables more acquisitions and mergers. Investors want to make sure debt isn’t out of hand, though. More consistent cash flow -- from subscription revenue, for example -- should allow for greater leverage.

Recent articles

Cash rocket

3 High-Growth Stocks That Could Soar

These rocket ships have tons of long-term growth fuel left in their tanks.

Okta Mckinnon

Unfazed by COVID-19, Okta Shows Off Another Strong Quarter

The cloud identity specialist racked up another round of strong growth.

Better Buy: Amazon.com vs. Google

Two top tech names face off in an epic battle for your investment dollars.

young woman holding credit card and smartphone and thinking with chin on fist -- online mobile shopping e-commerce

Could MercadoLibre Be a Millionaire-Maker Stock?

It’s not a small business anymore, but the mega-cap potential is there.

Young person wearing headphones while looking at mobile phone outdoors

Better Buy: Spotify vs. T-Mobile

These two companies are enjoying great success. Which has the edge as the better investment?

Shopify logo on a virtual bag

Where Will Shopify Be in 1 Year?

However 2020 shapes up, the company's momentum could be unstoppable in a post-coronavirus economy.

Apple_new-iphone-se-black-camera-and-touch-id_04152020_big.jpg.large_2x

Where Will Apple Be in 10 Years?

The iPhone-maker will become a broader services ecosystem over the next decade, but the iPhone will still be key.

GettyImages-online shopping

3 Ways to Invest in the Acceleration of E-Commerce That Aren't Amazon

Online sales are booming. Here are the companies to watch.

top-growth-tech-stocks-to-buy-right-now

Have $1,000? Here Are 2 Top Growth Stocks to Buy in June

These two stocks have potential to double your money over the next five to seven years.

playing video games streaming

Better Buy: Activision Blizzard vs. NVIDIA

Gaming is the bread and butter of both companies, but which stock should you buy?