Who Will Lead the Content Game in 2013 and Beyond?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In downloading and streaming, content has become the mantra of success for online vendors. Today, I will focus on Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) to determine which will become the next leader in the content game.
E-Book Market in Decline
E-book readers were the cutting edge of content delivery until technology allowed for the seamless delivery of digital content. Mobile devices dominate content delivery where e-book readers once ruled the market. IHS predicts a decline in the e-book reader market, with readers such as the Kindle and Kobo likely to sell at cost or less than cost in the future. The decline in the e-book reader market will be beneficial for media tablet suppliers. The tablet devices market is expected to double from 2011 to 2014 to $10 billion.
E-book reader sales are slated to fall 14.9 million units, a 36% drop from last year, according the IHS iSupply survey. The price point of e-book readers is attractive, in some cases below $100 per unit, but many users are choosing to pay extra for the features of a tablet. This trend will be particularly negative for manufacturers that make only dedicated e-book readers such as KOBO.
Growth of Content Viewing on Mobile Devices
The Social Video Report states that 46% of internet users watch brand related videos, or long form product advertisements every week. 54% of these users are watching videos that are informative or entertaining, which leads to visits to the brand website. Consumers are now more likely to regularly watch videos using smartphones, tablets or home televisions instead of the household PC or laptop. Almost six in ten internet users have gone on to purchase an item after seeing it in an online video, a figure that rises to seven in ten amongst males aged 15 to 34. Forbes quoted a ComScore study that finds the average person spends more than 21 hours per month watching more than 200 content videos.
Amazon’s content expanded to music and movies produced by third parties. Amazon has now entered into the content creation game by producing six new shows through its production arm, Amazon Studios. The shows will be released via Amazon Instant Video and the pickup to series will depend on user feedback. Along with these six pilots, there are a total of 14 projects, including some children’s programming.
Whether or not it becomes a core revenue source for Amazon remains to be seen. The growth in Amazon’s share price will come from the company’s ability to improve profit margins and maintain steady income growth. These are two areas in which the company’s desire to dominate focus has become tired to the investing community. It is time for Amazon to switch its focus from growth to profitability in order to retain investor interest.
Netflix will provide a broad cross section of content which it mostly acquires from third party producers. The in house production of product such as the widely anticipated re-boot of “Arrested Development” will determine the success of its content production business. Netflix wins in the entertainment content provision category as it integrates content provision over many home theater options. It currently has no other format of content other than entertainment which may leave it lacking across delivery platforms. Its provision of entertainment and games may be what makes it the next e-book reader story. If it is unable to change and adapt, it may get left behind, taken over by a larger concern or have its content production and distribution arms split up and sold off piecemeal.
Google & Apple
Google has entered into the content market, purchasing Frommer’s Travel Guide and the review site, Zagat. It has discontinued 11 services, and some applications to streamline and simplify and will continue to focus on big data through storage management and cloud computing services. Its business will eventually morph into bigger and better content through its ownership of YouTube and its Android applications.
Google is expending up to $200 million in marketing support to its channels, with YouTube partners getting up to $5 million each. The partners will have to earn back that advance before they start sharing ad revenue with Google. This is the same model as advertisers and content producers in the early days of television and similar to distribution advances paid to traditional content producers. Advances are paid based on estimates of how much each project will sell in each worldwide territory. Producers use these advances to fund content production and receive a share of distribution revenues after the advances are repaid from those territories – in theory. Practically speaking, any money over and above repayment of advances rarely factors into the equation for producers but that is a whole other article on the book-keeping practices in the film and television content industries.
Apple's digital media sales account for about $8 billion in revenue. Apple acolytes are awaiting new product from the new Apple TV, which is another growth area for Apple along with its digital products and apps business. Apple was at the forefront of the digital music business with the iPod and iTunes and it is moving to do the same with books, news media and films.
Apple will likely become an exclusive distributor of content that will sell more devices. It may be that it can produce its own content by using the same standards of excellence in development and production of content that it does to its device manufacturing. This would provide another area of growth for earnings.
I think that Netflix has a better chance to offer more content across more channels than Amazon and these other traditional content providers. With Icahn in the picture, the company may be acquired by a more well capitalized provider in the same space. If Icahn’s previous investing habits are any indication, its production and distribution arms will be separated and sold off to the highest bidder.
Apple and Google have the best profit margins and earnings growth potential, but Netflix and Amazon will be the leaders in the new order.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Netflix. Motley Fool newsletter services recommend Apple, Amazon.com, Google, and Netflix. 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!