Content Is King With These Companies
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The old mantra was build it and they will come. Today it's create the content and everyone will be lining up to buy it. The film studios that produce original films and television shows are looking particularly attractive. With the rise of Netflix, there's a bidding war for content and pure-play content companies stand to benefit from this trend.
The small studio that keeps churning out blockbusters
Lions Gate Entertainment (NYSE: LGF) is considered the most commercially successful independent film and television distributor in North America. In film Lions Gate has achieved success with The Hunger Games, The Twilight Saga: Breaking Dawn – Part 2, The Expendables, and movies from popular actor and producer Tyler Perry.
On television the company has produced the series The Dead Zone, Weeds, Nurse Jackie, Anger Management, Tyler Perry's House of Payne, and Mad Men. The company also has a library of over 15,000 films and television shows.
For the 2013 fiscal year, revenues increased 71% to $2.71 billion. EBITDA grew to $329.7 million compared to $71.6 million in the prior year. Net income swung to $232.1 million from a loss of $39.1 million in the prior year.
Going forward, Lions Gates will benefit from the latest installment of The Hunger Games, which will open worldwide on November 22. The company continues to nurture its young adult franchises. Besides The Hunger Games and Twilight, the company will be launching its latest franchise Divergent, based on the popular books. Sales of the first two books in the series have topped 3 million and has developed a loyal fan base eager to see the movie. Lions Gate will also be launching the next installments of Red and The Expendables.
Lions Gate is also benefiting from its relationships with Netflix, Amazon and Hulu. A new series from Lions Gate called Orange Is The New Black will premiere on Netflix this month. New series are also in the works for Amazon and Hulu. By establishing partnerships with these new digital platforms, Lions Gate seeks to continue developing content for these platforms as they continue to grow.
The other large segment for growth is in the international market. Five years ago, Russia was not considered an active market for Lions Gate. Today, it is one of the company's top 5 international territories. Breaking Dawn 2 grossed nearly $50 million in Russia.
The biggest international opportunity, though, remains China. To succeed in that market, Lions Gate has has licensed more than 900 films and over 250 hours of television programming to the digital networks. There's room for Lions Gate to do a lot more expansion internationally.
The animation studio
DreamWorks Animation SKG (NASDAQ: DWA) is best known for its animated films. Its film franchises include Shrek, Madagascar, Kung Fu Panda and How To Train Your Dragon. To date, its 26 feature films have grossed over $11 billion worldwide and averaged $430 million.
In the first quarter of this year, DreamWorks hit a home run with its latest release, The Croods. Its performance was the second-best ever and is on track to gross $550 million worldwide. It will become the sixth franchise for DreamWorks.
Going forward, DreamWorks will be releasing its latest animated film, Turbo, on July 17. The film is a 3D comedy about a snail that dreams of competing in the Indianapolis 500. The film will open one day earlier in Macau to promote The DreamWorks Experience at the Venetian on the Cotai Strip. The DreamWorks Experience opened on July 1 and features characters from the DreamWorks movies.
The company's exposure in Asia is critical to its success. DreamWorks wants to be a consumer brand in the fast-growing Asia-Pacific region. DreamWorks has invested in the region with its animation studio Oriental DreamWorks. This new studio will produce The Tibet Code for Chinese audiences and also one-third of the upcoming Kung Fu Panda 3.
DreamWorks is also diversifying into television production to offset the company's reliance on blockbuster films. The company expects to generate $100 million in TV production revenue this year and $200 million by 2015. This is key considering that last year's revenues were $749 million. The plan is to have 1,200 television episodes within five years. DreamWorks just signed a deal with Netflix to provide 300 hours of new programming.
The studio giant
Time Warner (NYSE: TWX) is a multinational media conglomerate that owns the Warner Bros. film studio. Even though Time Warner isn't a pure-play studio, it has been working in that direction by spinning off divisions and will spin-off its Time publishing assets later this year. Time Warner also owns HBO and Turner Broadcasting System. Time Warner just released the blockbuster Man of Steel.
According to Time Warner CEO Jeffrey Bewkes on the spin-off of Time:
After the spin, Time Warner will be the leading pure-play video content company in the world, operating the largest cable networks business, the largest TV production company and the largest film studio with the largest library. We'll derive 80% of our profits from our cable networks.
Time Warner is unique compared to the other companies in that it seeks to develop programming and content for its own cable networks. The company has its own outlets for distribution, but realizes that it needs to continue developing compelling content to compete with the other outlets. Netflix is a key competitor to Time Warner's HBO division. HBO has launched HBO GO to allow subscribers to watch HBO programs anywhere.
Going forward, Time Warner is looking to leverage its characters like Superman from its DC Comics division. The latest Man of Steel was a success for Time Warner and now it can focus on continuing the Superman franchise. Later this year the next installment of The Hobbit will be released.
The best news for shareholders, though, will be the spin-off of Time later this year. The magazine division has been a drag on the company and the separation will allow Time Warner to focus on its content business. The slow-growing publishing business will be separate and Time Warner can trade more in-line with its chief competitor Disney. Time Warner has a P/E of 17 compared to Disney's 19.
Content remains the place to be in the media business. As more digital platforms emerge, content is only going to become more valuable. International markets have a strong desire for entertainment, and American movies remain one of our best exports. I see continued growth for these three companies as revenues grow as the demand for content continues.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation. 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!