Will The TV Networks Make Me Money?

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

What do Americans do a lot of? Watch TV, of course! The nation spends 30+ hours watching TV every week. That’s over 4 hours per day! There are companies making heaps of cash out of this habit that the nation has. Advertisers, TV networks, content producers, and more all reap the benefits of this TV watching, even if we start cutting the cable.

One of the big trends that Nielsen noticed in 2011/2012 was that we had started watching our content more on mobile devices rather than sitting in front of the TV. Despite this, I think that the TV networks will still manage to get their content in front of viewers both on TV and on a device such as the iPad. The major TV networks such as Walt Disney’s (NYSE: DIS) ABC, CBS (NYSE: CBS) and News Corp.’s (NASDAQ: NWS) will continue to produce quality content while selling advertising to America’s largest companies even if a technological advancement comes along.

TV Content

Disney, CBS, and Fox are three of the largest content producers on the planet. Shows like Two and a Half Men from CBS are aired worldwide. Fox has some of the great, worldwide recognized, animated brands under their wing with The Simpsons and Family Guy. Then there’s Disney, their Disney channel is broadcast around the world with all the content that they produce for it. Disney shows such as Once Upon a Time also have a worldwide following.

Content costs a lot to produce on the levels that these networks produce on. Such high levels of entry into the business leave these companies atop the podium, only competing with themselves.

How Do They Make Money?

Disney, Fox, and CBS make money by airing advertisements on their networks. They also make great returns on their content investment by licensing their shows to networks in other countries, online content providers such as Netflix and Hulu, and to memorabilia manufacturers who produce tangible goods based on the shows.

What they’re essentially building is a great big nest of characters, content, jokes, and images that could one day be sold on for more money. One of the great examples is that of Marvel, a company that Disney acquired. Marvel created one of the largest character and content libraries on the face of the planet. They then made sure that people knew who Spiderman and The Hulk were. Once people know the characters, and if they’re loveable enough, a treasure trove of cash awaits.

Biggest Successes

All three companies have great troves of content that they could one day sell on. The aforementioned Two and a Half Men from CBS has been airing since 2003 around the world. The countless shirts, mugs, and other content from the show that has been sold has earned this show a spot atop the hall of fame when it comes to brand creation. Another CBS success is that of The Big Bang Theory. I can’t count the number of times I’ve seen the word “BAZINGA” across the front of a shirt, a line the shows main character, Sheldon, made famous.

Fox has been hugely successful with their animated features. The Simpsons has been running for well over twenty years on the Network and has managed to surpass the 500 episode mark. I think you’d be hard pressed to find someone in the U.S. that can’t name Homer Simpson. One of Homer’s favorite lines “D’oh!” has actually been added to the English language, I don’t think you can get more successful.

ABC has managed to create some great programs recently. Take Wipeout for example, the TV show has its own hit game on the Xbox, that game even has a sequel. How about Modern Family, a hugely successful comedy that is watched around the world. The Bachelor and Bachelorette are also watched by millions every single week that they air. ABC has also been trying its hand at online originals with the 2007 release of Voicemail.

Investment Worthy?

So, they have lots of great content but does it make these companies investment worthy? Let’s take a look.

CBS is the least diversified of the bunch. Their money is made wholly from TV, Radio and Advertising with a little bit of publishing on the side. 2009 total revenues for CBS were around the $13 billion mark and had grown to $14.24 billion in FY 2011. EPS has also been growing at the company and 2012 is one of the best years yet for CBS. The current P/E at the company is 18 and the company is negatively priced to tangible book, two pretty hefty warning signals for anyone looking to invest over the long term. Debt at CBS isn’t too bad as long term debt to equity sits at 0.58. The last thing to look at is the return on investment figure. Over the last year, CBS’s ROI was 9.6% but the average over 5 years is -8.9%.

Fox is part of News Corp., a worldwide media conglomerate that owns a movie studio, numerous broadcasting venues and the Wall Street Journal. News Corp is expected to see some great growth in the coming years in terms of EPS. FY 2013 is expected to be a boost of 23.5% over FY 2012 and analysts expect to see FY 2014 EPS jump another 14% over the 2013 figure. The current P/E at News Corp. is on the high end at 25.59. Return on equity is at 10.51% at the company and they’re running with a profit margin of 7.89%. The current yield is 0.6% and it has plenty of room to grow.

Disney is the best positioned of the three companies with their theme parks, massive bay of content and huge merchandise sales. Five year EPS growth at Disney is 6.16% per year and revenues have also seen growth of 3.36% per year over the same time period. The P/E ratio is relatively low for a company with so many prospects at 17.4 and long term debt is well managed with a 0.28 long term debt to equity ratio. The five year average return on investment is 9.4%, not too bad for a huge company.

Final Verdict

All three companies are here to stay. Picking the better one is something that will take a bit of researching time. I am an owner of Disney stock and I have been more than happy with the company’s returns over the past few years. I like the look of News Corp. but I think I’d wait for a bigger pullback on the stock before buying any. CBS has some funky numbers that I think I’ll be avoiding for now. 

Ash1402 owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. 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!

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