Owning content is an increasingly important aspect of the media world. Companies have been working over time to bulk up, usually through mergers and acquisitions. That makes a rumored deal between Time Warner Inc (NYSE:TWX) and CBS Corporation (NYSE:CBS) sound all the more likely.
An Upstart Changes Everything
Although the intrusion of cable companies unsettled things, the media industry managed to include that once new technology into its cozy little world. The basic model of selling content didn’t really change. However, the Internet is turning things on its head.
The culprit here is none other than Netflix, which allows users to pay a relatively low monthly fee for the privilege of watching what they want, when they want, how they want. The big push back from the media world has been Hulu, which is saddled with so many of the old ways of doing things (commercials, for example) that it hasn’t been able to gain a lot of traction.
What’s New?
The big shift that Netflix, Inc. (NASDAQ:NFLX) has engendered is in how to value content versus distribution. Time Warner Inc (NYSE:TWX), for example, has moved to get out of the distribution business completely. First it jettisoned AOL, Inc. (NYSE:AOL) and then it spun off its cable assets. It’s even looking to get out of its namesake printed publications.
Essentially, management has come to the realization that its video assets are its most important properties. Comcast (NASDAQ:CMCSA), interestingly, has bulked up its media assets with the purchase of NBC. That makes Comcast look a lot like Time Warner Inc (NYSE:TWX) did before it spun off its cable arm, and hints at the possibility of a future content/cable split.
Comcast Corporation (NASDAQ:CMCSA) shares have responded well to this notable acquisition and are now near all-time highs. That makes them much less compelling as an investment than before the media bulk up.
The Mouse
The Walt Disney Company (NYSE:DIS) is another media company bulking up fast. Adding Marvel and its massive collection of comic book stars was big news. Backing that up with the purchase of Lucas Films, owner of Star Wars and Indiana Jones, only goes to show how serious the company is about content.
Neflix Getting Picky
Focusing on quality is likely to be increasingly important, too. Netflix has openly stated that it no longer wants to buy content in bulk deals, taking anything and everything offered up. For example, it is set to let a Viacom, Inc. (NASDAQ:VIAB) deal lapse, instead looking to buy the right to stream only select shows. It is also looking to get exclusive rights to the content it streams.
Netflix and Disney have already inked an exclusive deal, that doesn’t include Lucas content. More such deals are clearly on the way. Although The Walt Disney Company (NYSE:DIS) shares are expensive, the company is among the largest and best positioned content owners in the media industry. Keep it on your watch list.
More is Better
The rumor of a deal between Time Warner Inc (NYSE:TWX) and CBS, put against this backdrop, makes complete sense. CBS is among the leading networks and Time Warner has a treasure trove of content. The pairing would look a lot like Disney, which owns ABC and key cable assets like ESPN and The Disney Channel. No wonder the shares of CBS and Time Warner both went up on the news. Normally, the purchaser’s shares would have fallen.
Time Warner Inc (NYSE:TWX) shares, while trading higher of late, have been range bound for about a decade. That means that this could be an opportunity to buy in before they push above that range. Buying CBS Corporation (NYSE:CBS) could be just the impetus needed to break through the ceiling. CBS shares, on the other hand, are at all-time highs, making them somewhat less appealing.
Good Even Without the Web
Bulking up, however, is good business even without the Internet. For example, there is a constant struggle between media owners and those that distribute content, like cable companies and television stations. The better content one has, the higher the prices that can be charged.
Essentially, this is the same dynamic that is playing out on the Internet. So, the moves to bulk up are good all around. Investors should keep an eye on the media space and this trend. The Walt Disney Company (NYSE:DIS) seems well positioned and should be on every investor’s watch list for a pull back.
Time Warner Inc (NYSE:TWX), meanwhile, could be at an important turning point in its re-positioning efforts. That could make now a good time to buy in for more aggressive investors.
The article The Media Bulk Up originally appeared on Fool.com and is written by Reuben Brewer.
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