Media: A competitive, complex market ripe with investment opportunities (Part 3 of 16)
(Continued from Part 2)
In the last part of this series, we learned that the US media sector is characterized by vertical integration. We also learned that content producers are often aggregators in the industry. This is due in large part to high media content production costs.
In this part of the series, we’ll look at media networks that are both content producers and aggregators. They include broadcasters and cable networks.
Broadcasters air television and radio content through owned or affiliated broadcasting stations. They often own some television and radio stations. Broadcasters make money largely through on-air advertising as well as fees to third parties for content retransmission.
Cable networks provide content to distributors, including cable, telecommunications, and satellite operators. They also make money selling air time for advertisements.
High competition among media networks
Media networks face stiff competition for acquisition and distribution of content. Quality as well as exclusivity of content add to the competition across the media value chain. Most networks seek content in categories such as sports with exclusive rights.
In terms of end users, or consumers, media networks compete for their engagement and approval ratings. As you can see in the above chart, The Walt Disney Company’s (DIS) ESPN network had the highest average total day audience among sports networks in 2013. These sports networks included 21st Century Fox’s (FOXA) sports channels, Comcast’s (CMCSA) NBC sports channels, and sports networks of major sports leagues.
You can take a diversified investment in 21st Century Fox and Comcast by investing in the Consumer Discretionary Select Sector SPDR Fund (XLY). The ETF held ~9.3% in these companies as of March 2, 2015. You can take an even more diversified exposure to these companies by investing in the SPDR S&P 500 ETF (SPY), which held ~1.2% in these companies on the same date.
Continue to Part 4
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