4 Media Stocks Ready To Continue Their Winning Streak In 2019
Zacks Investment Research | Dec 11, 2018 09:04PM ET
Media stocks did well in 2018 courtesy of strong demand for political advertising in the United States related to mid-term election, increasing investments in original content and focus on providing quality entertainment.
The solid performance, to an extent, is reflected in Invesco Dynamic Media ETF’s (PBS) year-to-date return of 7.9% against the S&P 500 composite’s decline of 1.4%.
However, declining ratings due to persistent cord-cutting continued to hurt traditional media companies in 2018. Consumers unfavorable disposition toward advertising also hit the industry hard.
Nevertheless, rapid technological advances and evolution of distribution platforms continue to lead to frequent changes to the media industry. Moreover, increase in Internet penetration and smartphone adoption is expected to aid media stocks reach a global audience by providing variety of content in 2019.
Further, scope for cross promotional content may help the companies reduce cost while attracting subscribers.
Streaming Service Providers Disrupting Media Landscape
Streaming services like Netflix (NASDAQ:NFLX) , Hulu, HBO and Amazon (NASDAQ:AMZN) Prime are spending aggressively on content. Higher production values, innovative content and growing involvement of Hollywood stars are the key catalysts driving subscriber base expansion.
However, stiff competition from these streaming platforms is negatively impacting traditional broadcast and cable programming companies’ subscriber base.
In order to stay relevant, traditional media companies are now following the path of streaming platforms. Media giants like Disney (NYSE:DIS) , and Sinclair Broadcast Group are set to launch their own streaming services in 2019. The immense growth opportunity is also attracting non-media companies like AT&T (NYSE:T) and Apple (NASDAQ:AAPL).
In order to cater to the growing preference for digital and subscription services in place of linear pay television, most of the media companies are now offering a variety of alternative packages, including skinny bundles, at lower costs than traditional offerings.
However, increasing programming costs and retransmission fees are expected to drag down profitability of industry participants.
Media Consolidation to Continue in 2019
Year 2018 saw a series of consolidations in the media industry. After a prolonged regulatory battle, AT&T finally succeeded in acquiring Time Warner. The acquisition bought HBO under the telecom giant’s portfolio. Additionally, Comcast (NASDAQ:CMCSA) acquired European pay-TV giant Sky Plc (BE:BSBAy) after a bidding process against 21st Century Fox.
Another high-profile acquisition, 21st Century Fox by Disney, is expected to be completed in early 2019. As per regulatory requirement, Disney has to divest 22 regional sports networks (RSNs) including YES Network, which it is acquiring from Fox. Reportedly, Sinclair Broadcast in partnership with CVC Capital is Zacks Investment Research
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