3 Broadcasting Giants Worth Watching
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to MarketLine, the worldwide broadcasting and cable TV industry is expected to reach around $475 billion in 2015, showing growth of 27% annually. Out of this total market, TV advertisement contributes around 44%. Three broadcasting and TV companies are focusing on growth through production of new and existing hit series, joint ventures, and building a portfolio of growing businesses. Will their plans provide any exciting investment opportunities?
Standing tall on the shoulders of its holdings
Liberty Media (NASDAQ: LMCA) holds approximately 52% in Sirius XM Radio (NASDAQ: SIRI) and derives 70% of its stock value from this asset. Sirius XM, a satellite radio service provider, has a monopoly over satellite radio in the U.S. Sirius derives the bulk of its business from the U.S. automobile market. Sirius has partnered with 10,000 dealerships across the U.S. through the “Pre-owned Vehicle Program” in order to promote future growth. Under this program, franchised dealers are eligible to give a free three-month subscription to customers buying a pre-owned car. The basic subscription for Sirius is around $15 a month. Historically the conversion from trial to paid user for Sirius is around 45%, providing growth opportunity. Sirius expects total subscription revenue to reach $3.32 billion this year, up from $2.96 billion in 2012, which in turn will benefit Liberty Media.
Charter Communications (NASDAQ: CHTR), an asset of Liberty Media, completed the acquisition of Cablevision's Optimum West cable systems for $1.6 billion. Liberty Media holds 27% of Charter Communications. This acquisition will provide Charter Communications with 375,000 additional subscribers in Colorado, Montana, Wyoming, and Utah, boosting the company’s total subscribers 5.8 million across 29 states. The cable business of Optimum West, acquired by Charter, is one of the fastest-growing businesses in the cable multiple-system operator market (MSO) in the U.S. The acquisition is a major step forward for Charter to become a major player in cable MSO space, and it will gain additional annual advertisement revenue of around $10 million. In turn, this will benefit Liberty Media through its holding.
Growing royalties and pay-TV subscriptions
The royalty revenue earned by Televisa (NYSE: TV) from Univision in the second quarter ending in June this year was $70.5 million. Televisa receives royalties for giving exclusive rights of its programs to Univision for airing in the U.S through the joint venture “TuTV”. Televisa has 50% interest in the joint venture. The content provided by TuTV targets the Hispanic population living in the U.S., estimated at around 53 million. In addition, the Hispanic population has contributed around 60% of the total U.S. population growth, a benefit for Univision.
The viewership of TuTV has also increased due to live broadcasts, as its target audience prefers this to pre-recorded. Hence, the channel has gained viewers at the cost of its English-language broadcasters. Televisa’s royalty revenue from Univision is expected to reach $270 million in 2013.
Televisa is betting its growth in the pay-TV segment. Pay-television subscriptions have increased by 233,000 to 5.65 million in the second quarter of 2013, which resulted in a 12.8% increase year over year in the Sky segment's revenue, to $305 million. The growth in pay television is due to its low-cost packages. According to the Business Bureau, pay television has reached 14 million households and risen to 50% penetration in Mexico. At present, Televisa has more than 60% of the pay-television market in Mexico. The growth in pay television will continue because the free broadcast channel gives immense time to advertisers, whereas pay TV provides uninterrupted programs. This trend will continue to benefit Televisa.
Steady increases in advertisement and online streaming
CBS (NYSE: CBS) has completed 80% of its upfront advertisement sales at $2.65 billion for the season starting in September 2013 and ending in August 2014. The company attributes these initial sales to the success of television series like "The Big Bang Theory," "NCIS," "Elementary," and the airing of the Super Bowl. CBS had 12 of the top 25 series aired on television in the 2012-2013 season. The company will continue to attract more advertising revenue because of the company's impressive series lineup and the increasing loyal viewership it is garnering through airing these hit productions over time. This will help the company to increase its entertainment segment revenue to an expected $8.3 billion this year rising from $7.3 billion the last year.
CBS entered a deal with LOVEFiLM, a subsidiary of Amazon, to distribute its content for online streaming and boost its revenue from licensing. Currently the licensing fees constitute 20% of revenue. The licensing fees will be around $500 million this year and are estimated to reach $1 billion by 2017. The deal with LOVEFiLM is important because there is an increasing trend to view videos by online streaming via smartphones and tablets due to rising 3G/4G speeds and cheaper data rates. Licensed shows include hit CBS series like "The Good Wife" and "Blue Bloods."
With this deal, CBS will gain access to the British and German online-streaming market. In addition, the deal won’t have any impact on the revenue from other syndication, since the company already sold the programs available to LOVEFiLM to other networks for syndication.
Liberty Media’s holdings are expected to generate future cash flows by increasing their subscriber bases.
Televisa has a steady royalty base among the Hispanic population in the U.S., while its pay television business is track for growth.
CBS’s continued efforts in generating quality and superior content has differentiated it from competitors. Thus, the company continues to attract advertisers. Additionally, its increasing reach into the online streaming market will expand its revenue base.
I recommend a buy on all three stocks.
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