In the middle of the last century, there was a time when there were three major networks and maybe a couple of independent stations in your hometown. Now the choices are endless, and with the millennial generation leading the way, the over-the-top and streaming video on demand companies like Netflix, Hulu and Amazon are starting to own the viewers, as clearly the younger generation has no interest in paying huge cable or satellite bills for swaths of channels they will never watch.
In a new RBC report, the media team make the case that the content providers and TV studios are the ones that will clean up in this bold new world. Plus, the market is growing as the demand for new and edgy original programming continues to skyrocket. The report made this observation on the state of the sector:
In this unique deep dive on TV studios we examine the double-edged sword of The Golden Age of TV. Media investors (and couch potatoes) know we’re living in an unprecedented era of television content. Dynamics in TV content production are generally favorable and benefiting the TV studios that exist within most large cap Media companies.
The team also commented on the sheer size of the market:
We think the annual market for TV shows broadly defined is currently ~$45bn and growing rapidly due to the well-understood increase in original content spending. Demand is so strong that it’s creating per-episode price inflation both in production and in syndication. It’s a seller’s market so we see TV studios as bright spots in Media and consider them high multiple assets within Media companies.
Four top companies are rated Outperform at RBC, and they all make good sense for more progressive growth accounts looking to the future.
This large cap broadcaster’s shares are down over 20% from where they were trading this time last year and could be an incredible value. CBS Corp. (NYSE: CBS) may be in the best position of all the broadcast networks with an outstanding prime-time lineup, solid sports franchises like the NFL, March Madness College Basketball, The Masters and other top programming, the venerable network could once again be an outstanding stock for shareholders.
The company is leading in the ratings and is poised to continue the network’s programming dominance in 2016. The broadcasting giant is now in the midst of a significant stock repurchase process, and many on Wall Street expect the company to shrink its share base by around 25% over the next two years.
The company surged past Wall Street expectations in the first quarter, with the company crediting strength across all units. Revenue in the quarter ending March 31 increased 13% year over year to $3.76 billion, a company record for the quarter. Affiliate and subscription fee revenues shot up 16%, with retransmission revenues and fees from CBS Television Network rising 25% in the quarter.
CBS shareholders are paid a 1.32% dividend. RBC has a price target for the shares is $68, and the Wall Street consensus figure is set at $69.92. The stock closed Tuesday at $54.42 a share.