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By Matthew Coffina, CFA and Jeremy Glaser | 12-09-2015 03:00 PM

3 Media Stocks That Will Overcome Cord-Cutting

With their vast libraries of content and popular channels, Disney, Twenty-First Century Fox, and Time Warner are well positioned to withstand consumers' shift away from traditional viewing habits, says Morningstar's Matt Coffina.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. Media stocks have been under pressure recently as concerns about cord-cutting continue to pop up. I'm here with Matt Coffina--he is the editor of Morningstar StockInvestor newsletter--for a look at the sector.

Thanks for joining me, Matt.

Matt Coffina: Thanks for having me, Jeremy.

Glaser: Let's talk about these fears about cord-cutting. Do you think these are legitimate? Do you think there really is this secular shift away from these bundled packages to people purchasing more a la carte?

Coffina: I think the fears are definitely well founded. I think there is some very real risk here, but I also think that it's easy to overstate the pace of change in this industry. Anybody who has used Netflix (NFLX) knows what a great customer experience they provide. There is no advertising. The service is way cheaper than a cable bundle: You're talking $10 a month instead of $50 to $80 a month. You're able to choose entire seasons on-demand, watch straight from beginning to end. It's given rise to this idea of binge watching. Increasingly, Netflix has some great original programming, so you really do have to wonder, from the consumer's perspective, why people need cable subscriptions going forward.

On the other hand, I think investors ought to keep in mind that the average American watches somewhere around five hours of television per day, so this really is our primary leisure activity. People are devoting a huge chunk of their time to watching television. And for most people, Netflix, Amazon Prime, Hulu, and similar services are just add-ons to their traditional cable bundle. Most people are not actively today cutting their cable subscriptions. This is starting to change. In the past couple of quarters, for the first time ever, we've seen total cable subscribership in the U.S. start to decline; but it's still only declining at maybe 0.5% or 1% a year, and it's quite possible that it will accelerate as you get more and better streaming options available. But for most people, they want a lot of content, and they are willing to pay up for the content. As much as they gripe about their cable bills, their actions show that they are willing to pay for content, and it's really up to the traditional media firms to react to the great user experience that Netflix is providing and make sure that they maintain their relevance.

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