LONG-TERM TREND: CONTENT IS KING, BUT DISTRIBUTION COMPANIES COULD ALSO PROVIDE INVESTMENT OPPORTUNITY
Over the course of the past few years, a primary theme within the Cable, Media, Entertainment, and Broadcasting industry has been the debate of whether Content or Distribution is King. MT's opinion is that Content is clearly King, provided specific entertainment or informational value is in demand. The relatively constrained supply of content can now be monetized on an expanding array of distribution platforms due to recent technological developments - new consumer products such as video iPods and cell phones; carriage by the telco's fiber operating systems (FiOS) and internet protocol television (IPTV); and web-based video streaming. MT applies this overarching theme to our top-down and bottom-up combination approach to investment recommendations.
While we are in favor of the long-term trend that Content is King, we recognize that investors, at times, can overbuy Content companies and can oversell Distribution companies, thereby creating opportunities for our clients to take advantage of these price discrepancies. For example, in the past, we have looked at stand-alone film studio companies as stocks to buy in advance of a sentiment run-up ahead of their box office releases. In the event that over-hyped films appear to create too high a valuation, we might then recommend a sale. Likewise, occasional headline risk from potential new competitors can cause pressure on trading multiples of sectors or companies we follow, despite strong long-term fundamentals such as entrenched market position, free cash flow, and greater potential EBITDA growth than might be discounted in the stock prices.