Content Is King: 2 Media Companies With Their Heads in the Right Place

Source: Thinkstock

Source: Thinkstock

If you’re a millennial, you’ve seen the entertainment industry evolve from physical rent-a-movie depots like Blockbuster to on-demand services like Netflix (NASDAQ:NFLX) and Hulu – which is primarily owned by Disney (NYSE:DIS) and Comcast (NYSE:CMCSA). If you belong to Generation X, you witnessed the rise of blockbusters (the category, not the company) and the advent of mega movie franchises like Star Wars and James Bond. If you’re a Boomer or older, your experience begins before modern entertainment industry as we know it existed, and you may get to see the industry once again evolve into something dramatically different than its predecessor.

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While Disney may evoke the feel-good nostalgia of the Lion King, the magical kingdom is much different today than it was in 1994. That film was released 20 years ago, before the dot-com bubble was even a storm cloud on the horizon of the most pessimistic market analyst. The entertainment media industry at the time was built around the idea of the movie theater as a destination and VHS as post-theater distribution. Consumption was effectively confined to those two venues, the theater and the home. But ubiquitous Internet and a glut of content forced a rethinking of media from every angle, and today the production, distribution, and consumption of media is fundamentally different than it was even 10 years ago.

“The key to Disney’s outperformance has been good old fashioned positive earnings revisions,” wrote analyst Michael Nathanson in a note seen by The Hollywood Reporter. “While the majority of the upside has come from a great run at the box office, Disney’s stock defies the Street truism that ‘nobody pays for studio’ because Disney is both creating and recurring franchises and is able to monetize these hits across its entire portfolio.”

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While companies like Disney and Time-Warner (NYSE:TWX) are still going strong, not every business is weathering this rethinking — call it a revolution, if you want to be dramatic about it — so well. Every facet of media from television to news distribution has changed dramatically and continues to change rapidly. Here’s a look at a couple of conglomerate media companies that had a hard time keeping up in the first half of 2014, but are well positioned to turn the ship around.

Sony (NYSE:SNE)

Sony is both a technology and a media company, but the latter is the focus here. Sony’s television production arm is behind classics like Jeopardy and Days of our Lives, as well as some newer productions like Comedians In Cars Getting Coffee. If you’re familiar with Crackle,which distributes TV-like web shows as well as more traditional films and TV content, the company is owned by Sony. Sony bought the digital streaming website, called Grouper at the time, in 2006 for $65 million.

If you follow the market then you may know that Sony stock has been beat to hell over the past year. Shares were down just over 22 percent on the year on July 3, before the holiday weekend, and year-to-date are off nearly 2 percent. This compares against 20 percent and nearly 8 percent growth for the S&P 500 for the same periods, respectively.

There are a couple of catalysts behind this decline, and one of them is that Sony’s media operations have appeared laggy in a rapidly moving market. However, with its recent adoption of Community, a sitcom previously managed by Comcast’s NBC, and the development of original content for Netflix, Sony could be positioning itself for long-term success.

 

CBS Corp. (NYSE:CBS)

Shares of CBS are up more than 26 percent on the year, which is better than the S&P 500, but year-to-date the stock is up less than 2 percent, underperforming the market. The media company — which is behind names like The Big Bang Theory, How I Met Your Mother, and Criminal Minds — has been one of the top competitors in the TV space for over a decade, fighting it out with 21st Century Fox (NASDAQ:FOX) for first place in the ratings.

Although CBS has lagged the market recently, CBS is well positioned to be a content leader in an industry where much of the cut-throat competition is occurring on the distribution front. Putting content first allows CBS to work with instead of against companies like Netflix, Hulu, and other giants like Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Amazon NASDAQ:AMZN. Disney and NBC are also in a similar position, although CBS is probably the purest media content company of the lot.

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