An idea so contrarian that few ETFs exist to capitalize on it.
For the past few years, taking an investment in the beleaguered traditional media space has been the very definition of a contrarian view.
"Old media" companies have ridden a roller coaster in recent years as investors first questioned their competitive positions, their high levels of debt in some cases, and ultimately some firms' very survival. Investors then saw many of these names come roaring back in 2009 and, in some cases, 2010 as well.
Whether debt-laden newspaper publishers who have seen their ad revenues siphoned away by the Internet, radio station operators who find their businesses under siege both by the Internet and by satellite radio, or even TV station owners who have lost viewers to fragmentation, cable, and the Internet, traditional media companies clearly have required a view vastly different from the masses. Investors also have needed nerves of steel. A perfect example is the newspaper publisher McClatchy
For investors interested in investing in media but understandably wary of single-stock risk, the ETF structure would seem to be an ideal option. However, in the ETF universe, there are surprisingly few options for investors interested in owning a diverse set of media companies--particularly involving old media. Here, we will spell out the current dynamic for traditional media companies and then discuss what ETF options investors have to invest in the space.
Despite recent rebounds, old media companies aren't out of the woods by a long shot, with secular trends continuing to favor migration to digitally oriented media--particularly from newspapers--and clear questions remaining over what the level of digital advertising will look like for such firms and whether any lost revenue can be supplemented by pay walls. My colleague Joscelyn MacKay recently noted that despite an improving economy, newspapers' year-over-year revenue growth remains negative, even as TV and online ads have sharply recovered. She called attention to the vicious cycle that publishers are facing: U.S. newspaper circulation has fallen during each of the past 15 years, and newspapers' share of ad spending decreased to 23% in 2009 from 31% in 2002.
Can digital advertising growth save traditional newspapers? Morningstar's equity analysts do not believe so. Joscelyn predicted that publishers will be unable to cut costs as rapidly as long-term revenue declines take place and expressed skepticism about publishers' abilities to monetize digital content, noting that the USA Today and New York Times websites and iPhone apps all receive high traffic but remain free. She also questioned whether any meaningful revenue ultimately will be generated from subscriptions to websites and apps. For all those reasons, Joscelyn argued that the shares of publishers Gannett
Meanwhile, on the broadcasting side, TV stations and networks continue to wrestle with how to deliver content in an environment where cable networks have been producing more and more compelling content, and increasingly savvy viewers prefer watching shows when they want, through the use of digital video recorders and on-demand services. That said, several TV broadcasters have posted especially impressive numbers in recent quarters, the result of strong political advertising in 2010 and a local and national spot advertising recovery. CBS
Media conglomerates--Walt Disney