Note: The original article incorrectly identifies Time Warner Cable Inc (NYSE:TWC) as Time Warner. This has been corrected and Motley Fool apologizes for the error.
“In the midst of chaos, there is also opportunity.”
2,500 years ago, Sun Tzu wrote the Art of War. Its unlikely modern military generals still prescribe to his practices, but there is one battlefield where his guidance is still headed: Wall Street.
Technology will continue to evolve, but the principles of war are timeless. The current battle between content providers and content distributors is no exception. This war isn’t over, and I believe a diligent investor can predict who’s going to come out on top. Here are two battles happening right now and how you can be on the winning side.
Cable digs in
The argument comes down to re-transmission fees (the rights to re-transmit a signal back to customers). CBS Corporation (NYSE:CBS) is the number one prime-time network in America, and in an internal memo, argued that it is not in the top 10 of Time Warner Cable Inc (NYSE:TWC)’s fee recipients. The second largest cable provider in America, Time Warner Cable Inc (NYSE:TWC), fired back by saying that CBS Corporation (NYSE:CBS) is asking for a fee raise of 600%, a price increase that the rest of the market does not reflect.
While both sides have made their trenches and don’t appear to be moving, a deal must be struck before July 30th or else CBS Corporation (NYSE:CBS) may go dark to Time Warner Cable Inc (NYSE:TWC)’s customers. If you’re worried about trying to get on the winning side of this battle, don’t be overly concerned. I believe both companies will be victorious.
Sun Tzu said it best when he wrote “There is no instance of a nation benefiting from prolonged warfare.” Each company stands to make money on the deal and the siege shouldn’t last long. The way each company’s stock has performed, investors can even profit on both fronts of this battle.
The companies release earnings soon and things should be looking up for both factions. CBS Corporation (NYSE:CBS)’s board has authorized a $6 billion dollar buyback program to increase shareholder value, and Time Warner Cable Inc (NYSE:TWC) has reported strong earnings in 3 of the last 4 quarters.
Contents shifting alliance
Last month, the biggest names in content and streaming went head to head. Streaming giant Netflix, Inc. (NASDAQ:NFLX) opted to let its contract with Viacom, Inc. (NASDAQ:VIAB) expire. Household Netflix subscribers immediately voiced their concern as Viacom provided Netflix with content such as Dora the Explorer and SpongeBob for younger demographics.
In addition to Nick Jr., Viacom, Inc. (NASDAQ:VIAB) also owns big name brands like Comedy Central, MTV, and BET. This content provider is a whale, and rival Amazon.com, Inc. (NASDAQ:AMZN) recognized that they could be a key ally. The two companies signed a multi-year deal to bring over 4,000 TV shows to the Amazon Prime streaming service.
Letting Viacom, Inc. (NASDAQ:VIAB) go was a calculated risk for Netflix, Inc. (NASDAQ:NFLX). The company believes it can attract more business by focusing on exclusive content rather than offering the largest selection of shows. In accordance with its new strategy, Netflix signed its own multi-year deal with Dreamworks Animation Skg Inc (NASDAQ:DWA). The contract brings original TV shows based off of DreamWorks characters such as Shrek and the Croods to Netflix. While the company will get over 300 hours of original content, the shows won’t be delivered until early 2014, a long time for angered parents to switch to Amazon.com, Inc. (NASDAQ:AMZN) Prime.
Again, these deals point to one thing: everyone will win. While Amazon.com, Inc. (NASDAQ:AMZN) is slowly catching up to Netflix, Inc. (NASDAQ:NFLX) in terms of content quality, Netflix still holds a commanding lead. Its exclusive content, including House of Cards and Arrested Development, are already award-winning attractions. From content providers to streaming services, if a company is making deals, it will be victorious in the entertainment industry.
Sun Tzu and you
The Art of War is full of memorable quotes, but none illustrate Sun Tzu’s message during the “content battles” as well as the following:
“Opportunities multiply as they are seized.”
Companies that are making deals will make money. Every company mentioned is either on or very near their all-time high. As the entertainment industry continues to grow, companies that can make deals and secure content will be the victors. Place an order today, and you might find yourself with a larger war chest for future battles.
The article Be the Victor in the Battle Over Content originally appeared on Fool.com and is written by Marie Palumbo.
This article was written by Joshua Sauer and edited by Chris Marasco. Chris Marasco is Head Editor of ADifferentAngle. The Motley Fool recommends Amazon.com, DreamWorks Animation, and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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