News and entertainment media developments – what do investors need to know?

The medium of news and entertainment is constantly evolving, and its evolution brings both opportunity and misfortune to entrepreneurs and investors alike. The advent of TV programming in the 1940s and 50s created an advertising bonanza but impacted cinema attendance, while the arrival of streaming services and social media platforms created new opportunities but has taken a good bite out of broadcast viewing figures and advertising revenue on linear platforms.

Shifting habits in consuming news and media

The number of people purchasing a paper to peruse with their morning coffee has been waning for decades and the cost of delivering hours of rolling reports has forced many outlets, including the BBC, to scale back.

Back in the early 2000s I worked for the short-lived ITV News Channel. It consumed material and its launch prompted a huge hiring surge which would have caused investors to wince. Drones like me worked round the clock to feed the beast with negligible impact on viewing numbers.

One man who understands the foibles of news better than most is Rupert Murdoch, so the shock announcement that he's quitting his position at the top of both Fox (FOX:NASDAQ) and News Corp (NWS:NASDAQ) was pretty momentous. Whatever you think about his political influence or his conservative values, he's put billions into his media empire which includes Fox News, The Sun and The Wall Street Journal.

Changing of the guard

The question is what now? Whilst succession plans have been carefully and strategically crafted, and the man himself has vowed he’ll still be very much involved in the day-to-day running of things, investors recognise times are changing. Murdoch is 92 years old, but even if he was still in his 60s the golden era of so called ‘legacy media’ seems to have lost its shine.

"July heralded a major milestone for traditional broadcast and cable television viewership in the United States when less than half of all viewing was on linear TV"

July heralded a major milestone for traditional broadcast and cable television viewership in the United States when less than half of all viewing was on linear TV according to Nielsen. At the same time Walt Disney’s (DIS:NYSE) returning boss Bob Iger made it clear he was considering sloughing off parts of the company that weren’t a strategic fit with the company’s future.

Among those parts, the glossy and costly ABC News. How much of that is about cushioning the costs of the company’s streaming platform and how much of that is future-proofing the businesses can only be speculated at.

"There have been plenty of rumours that Disney is ‘right-sizing’ itself ready to become a target for takeover"

Disney’s shares have had a bumpy ride over the past five years

Source: Refinitiv

There have been plenty of rumours that Disney is ‘right-sizing’ itself ready to become a target for takeover. Its network of theme parks, music studios, movie production houses and a handy place for all that output to be viewed makes sense as a holistic business, but its entertainment arm is something of an outlier. That's not to say it doesn't have value, just that it could require the kind of vision and support Rupert Murdoch always brought to his acquisitions, especially those news outlets.

Could Byron Allen be cut from a similar cloth? Comedian turned media mogul, Allen's bid was confirmed by his spokesperson, but the speculation ABC was one of the assets about to be sold sent a shiver through that newsroom, especially amongst some of the well-paid presenters. Disney's scale means it has deep pockets and there's concern a new owner might not be prepared or able to fund the operation in the same way.

But Disney's pockets have been mined to fund improvements elsewhere in its empire. Tens of billions are being funneled into its parks to boost attendance and bring the magic to new audiences in new places. The announcement of that level of capex spend rattled investors, but here the company can point to past success – it can't really do the same for news operations. Particularly given projections for a continued decline of traditional TV viewing.

Decline of traditional TV viewing

Big events, particularly sporting events, pull in audiences but even here the streamers are making inroads. For news itself, whether it be broadcast or print, there has been continued pressure not least from alternative news which thrives on conspiracy theories that mainstream media is merely a puppet of the elite. Even Murdoch’s Fox News, which is still the most popular news outlet in the United States, has faced huge criticism over its dealings with presidential contender Donald Trump.

The close relationship between media and politics was always something of a double-edged sword, but now more than ever it must be a consideration for investors. Players like Fox, News Corp, Disney, Comcast (CMCSA:NASDAQ), ITV (ITV) and Warner Bros Discovery (WBD:NASDAQ) are still profitable and popular with some investors. But the game has changed, and the players need to keep up.

Past performance is not a guide to future performance and some investments need to be held for the long term.