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Conundrums of Media Stocks (Part 1)

18 October 2007 - Features - Editor

High profile media stocks are so coveted by their owners that all investors must want to own some! Is media a high profit and growth sector? Why do entrepreneurs prefer this sector to other avenues of application for their funds? It is common knowledge that the mainstream media is a pillar of democratic functioning, with sizeable influences on social and political trends. The media is also a reservoir of big business: newspapers account for revenues of over $50 billion a year in the United States alone. Advertising campaigns on television run in to millions of dollars. Information and entertainment are so integral to modern living that media appears to have essential roles in our lives. However, discerning investors may still shy away from media stocks, harboring doubts that the sector will not be able to maintain past trends of financial success.

Earth shaking and turbulent changes threaten the stability of even top media stocks. The glaring failure of AOL Time Warner demonstrates that no giant is secure from the severely buffeting changes which characterize this sector. New technologies, break-downs of entrenched monopolies, and revolutions in audience information needs and entertainment preferences, are the 3 most telling drivers of fundamental changes in prospects for media stocks.

Though the United States has over 1500 newspapers and over 2 thousand entities in the publishing of books and magazines, electronic options threaten much deeper fragmentation. Run-away successes of social networking web sites prove that citizen journalism threatens the professional variety, especially in matters of entertainment. The music industry is also on its back feet in fighting to protect its proprietary rights.

Globalization is a related but distinct issue. Many traditional publications from the mainstream survive on domain monopolies. They could be the only local newspapers in town, or serve the needs of special interest groups, or have fresh issues on the street in afternoons. However, communities are losing isolated interests, and want to stay abreast of new developments in far corners of the globe.

Media companies of earlier centuries are on thin ice in the new Millennium. No industrial or commercial sector is free from sweeping changes, but media stocks are more affected than others. Corporations which have produced steady revenues for decades are liable to face stagnation, decay, and ultimate demise.

Overall, sentiment for media stocks is mixed. Some investors cannot do without them, while other portfolios avoid them altogether. It may be that some media barons wield political powers through their print and electronic media. This could also have enticed corporations such as General Electric, which owns NBC Television, to buy large blocks of media stocks. However, the sector seems set for such major changes, that many companies in this business may not survive for many years in to the future, even as some of the new start-ups rise exponentially with exciting initial public offerings (IPOs). What should investors do with such confusing signals?

Conundrums of Media Stocks (Part 2)

 


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