Independent Networks Make For Great TV and Great Investments
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Lately, most of the attention has been paid to how content is being delivered, whether it's online or television. In my opinion, the focus should be on the quality of the content itself. The old saying is, "build it and they will come." With these independent networks, their mantra is create quality content and the viewers will come. These three stocks create the content that viewers want, and it's only a matter of time before one of the big media giants decides it wants to add one of these networks to its portfolio.
Mad about this network
There's nothing to be mad at AMC Networks (NASDAQ: AMCX) and it's hit show Mad Men, about. AMC owns independent cable channels AMC, IFC, Sundance, and WE. The network is best known for its original content; besides Mad Men, the network produces critically acclaimed shows Breaking Bad, The Walking Dead, and The Killing.
In addition to creating new content for growth, AMC has also expanded globally. It has expanded its Sundance channel into Europe and Asia. Its WE tv already has a growing presence in Asia. With the content AMC is creating, it can choose to run its original content on its own channels or sell the overseas rights to the highest bidder. In the case of The Walking Dead, AMC chose to sell to News Corp. CEO Josh Saban said of the deal:
We sold it to Fox for a price because we, frankly, found it very hard to turn the money down because our footprint of channels was not sufficiently large to justify being our own buyer. Should we come to the point where that footprint is large enough, then we can be our own buyer.
AMC is on the right path by creating content, and the company is continuing to think of new ways to capitalize on its content. In looking at the stock, even though it has appreciated over 65% in the past year, I still think there's room to go higher. The forward P/E is only 16 and the PEG ratio is less than 1 at 0.95. The Walking Dead was renewed for another season, and Mad Men is still in the middle of season six and going strong. These factors set AMC up for a strong second half in 2013.
The stars are on Starz
Starz (NASDAQ: STRZA) has transitioned itself from being a premium movie channel on cable, to an original content powerhouse. Before, the company's focus was on securing movie deals with the major studios to broadcast on its networks, Starz and Encore. With the rise of Netflix and the bidding war for content, CEO Chris Albrecht's goal is to recreate the magic he had at HBO. At HBO he helped develop hits Sex and the City, The Sopranos, Entourage, and Deadwood.
Starz has already achieved success with this new business model with its original shows Spartacus, Magic City, Boss, and Camelot. Upcoming shows include The Brink, Marco Polo, and The White Queen. By having this content in its portfolio, Starz can increase its offerings both online and on cable. The company just made its programming available on Kindle after having its programs available on iPhone, iPad, and Android devices.
What I like about Starz is that it's an undervalued stock with tremendous growth prospects. The market for entertainment is continuing to grow and Starz is making a push online and on cable. The company has over 56 million subscribers and sports a P/E of only 11. With a P/E of 11 and a growing subscriber base, Starz would be an attractive takeover candidate for one of the media giants.
There's a lot to discover with this channel
Discovery Communications (NASDAQ: DISCA) is the largest of the independent networks. It operates the Discovery Channel, TLC, Military Channel, Animal Planet, Science Channel, Investigation Discovery, Planet Green, Discovery Fit & Health, and Velocity. The company produces its own content for its networks and also creates educational curriculum for K-12 schools. At the end of last year, the company operated 180 distribution feeds in 40 languages.
Where I see growth from Discovery is in its partnership with Oprah Winfrey and her OWN network. This year two new shows are coming to the network from Tyler Perry, who has built a loyal audience with his movies and shows. This will greatly help the network as it has struggled since its launch. Even with the immense popularity of Oprah Winfrey, there wasn't enough content for viewers besides her signature talk show. By bringing Tyler Perry into the fold, it will add content the network desperately needs.
The market has currently discounted Discovery's potential with the Oprah Winfrey Network. A turnaround there would give Discovery a boost. The other exciting development for Discovery is its expansion into international markets. The company is finally expanding its international advertising sales program to increase viewership on its international channels. Between a turnaround at the Oprah Winfrey Network and expanded international viewership, Discovery is now forecasting revenue to be $5.7 billion for this year, which would be a 25% increase from last year. That kind of growth and a PEG ratio of 1 makes Discovery a good stock for the remainder of the year.
Currently, these 3 companies are independent of the big media conglomerates and are able to chart their own course. They have developed the content that their loyal viewers want. I see all 3 as being nimble enough to adjust to changing markets, and deliver the content viewers want, whenever and wherever. As they continue to grow, it makes them much more valuable and increases the price tag for a would-be buyer.
More about the future of TV from the Motley Fool
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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!