Content Still has Value
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The internet has changed everything. If that sounds like a massive understatement, it's because it is. This disruptive new technology, which simultaneously provides connectivity and the ability to easily generate content, has democratized industries that were once dominated by professionals and specialists. Basically, the internet allows just about anyone to create content of virtually any type and put it online for the world to see.
The vast majority of the content put online is, of course, less than professional. However, there are just enough people posting high quality content for free that it has eroded the value of professionally created content. Moreover, there is a vast middle ground where people have created “good enough” content. Potential paying customers who find content that's free and meets their needs, even though it may not be as polished as professionally created content, have, more often than not, gone with the cheaper option.
An Industry In Decline
One of the hardest hit groups has been newspapers. The value of newspapers is in the curation of information. You are trusting reporters and editors to not only write competently, but to also provide you with the information that is important for you to know. It goes back to the old New York Times slogan, “All the news that's fit to print.”
Sadly, in an effort to gain customers online, most newspapers decided to post content for free. The logic was that free content could be supported by advertising alone. However, it hasn't worked out as planned and now more and more print publishers, including newspapers and magazines, are attempting to put the genie back in the bottle and charge subscription fees. Both The New York Times' (NYSE: NYT) namesake paper and News Corp's (NASDAQ: NWS) The Wall Street Journal have online subscription businesses, though nether can claim success in their efforts.
The newspaper industry has been one of the most negatively impacted industries. However, the internet has taken its toll on other industries, as well. The music business has gone through a trying period in which the ability to, effectively, steal music has devastated the industry's profitability. Video-based content is also going through changes. Google's YouTube, for example, attracts millions of viewers that might otherwise spend their time watching television or going to the movies.
Content Has Value
No matter what has happened, however, content has value. In fact, it is far more likely that the market is trying to figure out that value rather than what appears to be simply executing old line industries. For example, companies that sell financial information, such as Factset (NYSE: FDS) and Thomson Reuters (NYSE: TRI), are able to charge large sums for the information they provide to business customers over the Internet.
Factset is one of the heavyweights in the financial data industry. The amount of information it collects and distributes is massive, spanning from company data to economic information. The majority of its revenue comes from so-called “buy side” customers, or those who use the information to inform their own investing decisions. Thomson Reuters' operations are far more diverse, but it also earns a great deal of money from providing similar content to investors. In the finance industry, good information has value, especially if it is delivered in a timely and secure manner. This is, of course, one of the reasons that privately held Bloomberg is so profitable. The entire industry tends to have high renewal rates, making revenues annuity like. Factset has a modest dividend and an envious record of dividend increases, while Thomson Reuters has a similarly strong history of dividend increases but offers a compelling dividend yield of over 4%, largely because of weak performances at its other divisions.
Video Still Draws Customers
Video is another form of media that still has material value, if it is enticing enough. While it is easy enough to put written content online via services provided by Google or Facebook, it is usually desirable to only a small audience. Creating video content that lots of people want to watch is still quite difficult and expensive. Sure, the odd viral video catches on fire for a time, but there are few true serial videos online that can sustain any kind of audience.
An excellent example of the power of content in the video space is actually in the continued decline of Viacom's television business. Driven largely by Nickelodeon, the company had massive success with such hits as Dora the Explorer and Sponge Bob Square Pants. However, it began to rely heavily on Sponge Bob for viewers, to the point where viewers either grew too old to bother with the underwater “hero” or simply grew tired of him. Now, the network is struggling. Without fresh, desirable content, it will continue to struggle.
On the other side of the coin is Dow-30 member Disney (NYSE: DIS). The company has worked hard to acquire desirable content, from creating its own to buying it from others. Note the company's recent purchase of Lucas Films, the owner of the Star Wars and the Indiana Jones franchises. Although Indiana Jones is a bit long in the tooth, Star Wars likely has room to grow. And don't forget Disney's purchase of Marvel and its collection of high profile comic book heros, the underpinning of several highly successful movies. Of the two, Viacom has a higher yield, but Disney appears to hold more promise despite the premium the market usually attaches to its shares.
Don't Count Out Good Content
When looking at a company that makes content, you have to consider the internet and its impact. However, you shouldn't discount the value of good content. For example, Factset and Thompson Reuters have been able to use the internet to enhance their businesses. Other industries, such as television and video production, can also sidestep the ills created by the internet, but only if they continually create desirable content. What happens next to newspapers, however, is anyone's guess, but don't count out companies with storied names like The New York Times.
ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney and FactSet Research Systems. Motley Fool newsletter services recommend Walt Disney and FactSet Research Systems. 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!