Two Media Giants Focusing on Video

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

Disney (NYSE: DIS) is a world leader in entertainment. Like so many other companies in the space, it's shifting its business more and more toward video content. Gannett (NYSE: GCI) is making a similar shift, but has more to prove.

More Than Content

Disney has an enviable collection of content that was built on its world-famous Mickey Mouse and pals. Over the years that's expanded to include a long list of fairy tale princesses and other assorted creatures, robots, and sprites. The kids, particularly girls, simply love Disney.

Over the last few years, however, the company has gotten more serious about courting boys. To that end, it purchased Marvel and Lucasfilm, the owner of Star Wars. This complements its already leading position in sports via the ESPN brand.

Add in ABC, the company's cable channels, and a long list of movies (despite some notable flops along the way), and Disney is nothing short of a content power house. But the company also owns a cruise line and amusement parks, which it uses to leverage its brands and customer loyalty.

Focusing on Video

The company's strength is in video content. So it wasn't a surprise to see that Disney is selling its Hyperion book business. That's a good call, overall, but even better since Disney will keep publishing its kids books. Children are the company's core market, and it wouldn't make sense to give up control of that space. It's a statement about the company that it had the forethought to protect this key avenue for reaching its most important customers. After all, there's a special magic about a good bed-time story that the Internet hasn't managed to change yet.

Disney shares have an around 20 price to earnings ratio and a yield of around 1.1%. The shares are almost always afforded a premium by the market. That premium is justified and the Hyperion sale shows exactly why. The bottom line more than tripling over the past 10 years is another good reason. Growth and income investors should keep this content leader on their wish list for a pull back, while growth investors should probably consider owning it.

Another Media Refocus

If Disney shares are too expensive for your tastes, however, another media company refocusing around video is Gannett. The company is one of the largest newspaper publishers in the country, a struggling business that should scare most investors. However, it also owns a large collection of television stations that have been performing relatively well of late.

And Gannett recently inked a $1.5 billion deal to buy Belo (NYSE: BLC) and its twenty television stations, which will further bolster the position of its television business. In fact, it nearly doubles Gannett's station count. This notably increases the company's bargaining power when purchasing content, which should help to keep costs low and profits high.

Investors cheered the deal, sending the shares of both Belo and Gannett higher. Normally only the company being acquired sees its shares jump. That's an indication of how important this shift is for Gannett.

All Cash, Jump Ship

Gannett is paying for the deal with cash, which means Belo shareholders don't have much reason to stick around and wait. They should lock in their gains. That's particularly true since media purchases often get more scrutiny than others because of the influence that these companies can have on public opinion.

Although regulators have softened their stance since the Internet has made information so available, there's not enough upside potential to take the risk. On the flip side, if the deal falls through, investors might want to take a second at look Belo since the shares are likely to sell off hard on sentiment alone.

Indeed, Belo appears to be getting back on track after making big adjustments to its own business over the last decade. Notably, although 2011 saw declines on both the top and bottom line, 2012 looks like it could have been a turning point. And, the first quarter saw solid year over year growth in revenues and earnings.

Gannett, meanwhile, is continuing to prosper despite the decline of its newspaper business. Although it slashed its dividend during the 2007 to 2009 recession, it started to increase it again in 2011 as its business solidified. The top-line turned higher in 2012, and earnings appear heading in that direction again, too, with earnings up almost 60% year over year in the first quarter. With a PE of around 14 and an increasingly video focused business, 3% or so yielding Gannett shares are worth a second look after the news of the acquisition fades for growth and income investors looking for a turnaround play.

Changing with the Times

Gannett is clearly changing with the times while Disney is pretty much in tune with the times and is only pruning around the edges. Both are interesting plays on the video content space. Disney is the better company but is more expensive. Gannett is being driven by merger news, but could be a good option for those willing to wait for its turnaround efforts to take hold.

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Reuben Brewer has no position in any stocks mentioned. 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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