Best Media Stocks To Buy

Best Media Stocks To Buy: Developments in digital technology have touched every industry, increasing globalization, expanding markets, and transforming when, where, and how work gets done.

By many measures, the media industry has experienced some of the most dramatic changes. For example, content delivery is moving to mobile devices, and generating advertising revenue is an enormous challenge.

In response, some major organizations have consolidated, while others have added delivery channels. In some cases, they are abandoning traditional broadcast and cable television altogether in favor of streaming services, based on changing consumer expectations.

Consumers are looking beyond traditional broadcast and cable television, turning instead to streaming video services for a customized experience. In fact, the most recent Deloitte Digital Media Trends survey shows that while 69 percent of respondents reported subscribing to at least one streaming video service, just 65 percent indicated that they continue to pay for a premium television subscription. A mere 43 percent of US consumers have both.

Clearly, the tide has turned against traditional media, and a transition to digital is a must to stay competitive in the current market.

Some media giants are making proactive moves to get ahead of the trends and establish themselves as industry leaders. Others are still holding onto the methods that have served them for decades, making it difficult for them to compete in the digital age. For investors, the question is, which are the best media stocks to buy?

Can The Walt Disney Company Bounce Back? 

The Walt Disney Company was on a roll before the COVID-19 pandemic. It was enjoying the on-going success of its four market-leading divisions:

• Media Networks,
• Parks & Experiences,
• Studio Entertainment, and
• Direct-to-Consumer.

These divisions are made up of a large, diverse collection of brands, including Hulu, 21st Century Fox, ABC, ESPN, and Touchstone Pictures.

In short, Disney has deep roots in nearly every media market, and it is still working to grow and expand its reach.

When Chairman and Chief Executive Officer Bob Iger announced first quarter results for fiscal 2020 on February 4, 2020, investors and analysts were pleased. Disney Plus, Disney’s own streaming video service, had enrolled an astonishing 28.6 Million subscribers – a figure higher than even the most optimistic projections. Iger said:

“We had a strong first quarter, highlighted by the launch of Disney+, which has exceeded even our greatest expectations.

Thanks to our incredible collection of brands, outstanding content from our creative engines and state-of-the-art technology, we believe our direct-to-consumer services, including Disney+, ESPN+ and Hulu, position us well for continued growth in today’s dynamic media environment.”

Unfortunately, within a few weeks of this announcement, the novel coronavirus had caused dramatic disruption in Disney’s revenue streams.

Among other things, the cancellation of entire sports seasons left ESPN with little to air, and Disney parks around the world were closed for extended periods.

In response, Disney stock prices dropped significantly in March, and they aren’t expected to rebound anytime soon. The good news is that Disney is a particularly resilient company, and it is making the most of its assets during this trying time.

For example, Disney Plus is launching in international markets, and the service is gaining new members at a rapid rate as parents try to comply with social distancing measures. For investors that already hold Disney stock, this could be a good time to add additional shares to your portfolio.

Those thinking of buying in for the first time can do so at an uncommonly low price, understanding that there may be more losses to come and it might be some time before shares regain their former value.

ViacomCBS Vs Netflix (& Others…)

Viacom and CBS have a relationship that goes back decades. In 1952, Viacom was launched as a subsidiary of CBS, but the two companies divorced in 1971. Then, in 1999, Viacom bought CBS, bringing the two companies back together.

The reunification didn’t last, and by 2006, CBS and Viacom were separate companies again. However, they decided to join forces once more in 2019 with a merger that was finalized on December 4th.

Unfortunately, the combined company hasn’t fared well from an investment perspective, and shares have lost 30 percent of their value since the completion of the merger.

ViacomCBS is losing market share among critical audiences. Ratings have declined, and even before the merger, Viacom had decided to reduce fees related to maintaining distribution.

Despite business leaders’ protests to the contrary, ViacomCBS appears unable to launch a product capable of competing in the streaming space. Instead, it is limiting expenses by supplying content to streaming services like Netflix. This could be successful over time – but it could also backfire in spectacular fashion.

As with most other organizations, the pandemic has taken its toll on ViacomCBS. Worse still, a critical component of its revenue strategy includes renewing NFL licensing for the upcoming season. While the games are still months away, nothing is certain in the current environment – including whether and when the football season will kick off.

In short, ViacomCBS has not yet demonstrated its ability to compete in a digital world. While it may still turn things around, especially after the dust settles on the merger, for now it’s a fairly risky buy.

Impressive Fox Corporation Ratings Growth

When Disney proposed its acquisition of 21st Century Fox, the deal came with a few caveats. Among other things, Disney was unwilling to purchase certain divisions of the large media conglomerate.

This resulted in the spin-off of certain Fox businesses, including Fox News Media, Fox Sports, Fox Entertainment, and Fox TV Stations. Together, they make up the new Fox Corporation.

Individually, these businesses are recognized as leaders in their respective markets. At the end of 2018, Fox News was the most-watched network on basic cable for the third consecutive year, and it was the top national cable news channel for the 17th consecutive year. The Fox streaming service, Fox Nation, offers premium content to subscribers, and Fox Business News is a leader in financial news.

Fox Sports broadcasts the NFL’s America’s Game of the Week, which has been the most watched program on television for the past ten years, and Fox Entertainment has been in the top two networks for primetime programming for 23 consecutive years. While all other major networks are seeing their ratings decline, Fox has delivered ratings growth in the most recent broadcast season.

For the quarter ending December 31, 2019, Fox reported total revenues of $3.78 billion. This is a 5 percent increase year-over-year and includes affiliate revenue growth of 7 percent. Advertising revenues increased by one percent, despite significant challenges, and growth in the Cable Network Programming contributed substantially to the quarter’s revenue.

Considering the fact that Fox is still establishing itself after becoming a standalone company in March 2019, these figures have given investors and analysts reason to be optimistic about the company’s long-term success.

AT&T Has Strong History Paying Dividends

At the end of 2019, analysts were questioning whether AT&T would be able to compete in the changing media marketplace. In 2018 and 2019, AT&T’s subscription-based television business DIRECTV lost millions of customers, and the customer base for its U-verse brand declined, as well.

For a period, it seemed that the company’s primary solution for offsetting those losses was the launch of its HBO Max streaming service. However, most analysts were pessimistic about HBO Max’s prospects for standing out in an increasingly crowded streaming marketplace.

Meanwhile, the continued profitability of AT&T’s wireless division appears uncertain, as the company will have to make heavy investments in 5G technology. This, coupled with the questions surrounding AT&T’s ability to compete in the media space, has many investors concerned about buying at today’s prices.

With that said, AT&T has a strong history of paying dividends, regardless of market conditions, which makes these shares appealing given today’s volatile conditions. If share prices continue to drift downward and dividends remain steady, buying is a smart move to increase income at value pricing.

Best Media Stocks: The Bottom Line

When it comes to media stocks, the bottom line is that the best investments are companies that have established themselves as leaders in technology. Disney falls into this category with its popular new streaming service, and AT&T shows promise long-term if it makes the most of opportunities presented by 5G technology.

While Fox Corporation is a bit more of an unknown, it appears to be thriving in the current media environment. That leaves ViacomCBS as the odd-man-out – at least for now. ViacomCBS will have to demonstrate an ability to transition from it’s traditional model to one that works in the digital age before it can be recommended as a buy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.