Despite Twists in Cable, Media Stocks Remain Undervalued
Recent developments strengthen our belief in the viability of the television bundle.
The TV ecosystem is evolving, and the traditional bundle model has come under pressure recently as a result of cord-cutting and cord-shaving. Our thesis is that the media industry thrives only when as many consumers as possible have access to popular content, and those capable of producing a wide variety of programming are as well positioned as ever. We have noted several trends in the distribution side of the business, including the emergence of new bundles created by traditional players as well as new entrants. Here, we examine how these new pay-TV bundles from a diverse group of companies, such as Sony (SNE), Dish (DISH), and Verizon (VZ), fit within and validate our thesis. We also look at major technology firms and the potential for their entrance into content distribution.
Our belief that the traditional content bundle is broken but not dead is central to our wide moat ratings for Walt Disney (DIS), Time Warner (TWX), and Twenty-First Century Fox (FOX). We believe these three media firms (along with Comcast (CMCSA)) own the networks necessary to remain relevant to any bundle and to render irrelevant a bundle without them. These three firms are also best situated from a content production and library standpoint to anticipate and adapt to potential changes arising from the transition away from traditional distribution channels. While we expect this transition period to be rocky, we believe Disney, Time Warner, and Fox will all survive and flourish in the evolving TV ecosystem, with Disney as the best positioned of the three.
Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.