Several years ago the video-based media pie was easy to cut. The studios and networks would create the content, and the cable and video rental companies would distribute it. Currently, the established companies such as Viacom, Inc. (NASDAQ:VIAB) and Comcast Corporation (NASDAQ:CMCSA) are increasingly competing with the likes of Google Inc (NASDAQ:GOOG) and Netflix, Inc. (NASDAQ:NFLX). While the old media companies still have an edge due to their predictable cash flow, it seems like their future is limited due to the following:
—faster growth rates at the new media companies,
—inability of the old media companies’ leadership to adapt to the new reality, and
—a drive toward user created content and content delivered on any mobile device.
Signs of these problems are the latest efforts of DISH Network Corp (NASDAQ:DISH), an established satellite cable TV provider, to acquire Clearwire, a provider of wireless broadband internet, and Comcast, which recently finalized a $40 billion purchase of NBC from General Electric Company (NYSE:GE). It is clear that the companies such as Viacom, Inc. (NASDAQ:VIAB) and Comcast Corporation (NASDAQ:CMCSA) are slowly but steadily losing major battles and relying on growth from acquisitions. Their newer competitors, such as Google and Netflix, are quickly gaining ground, and a few years from now the old timers will likely have to take out the white flag.
Growth vs. value
According to the digital analytics company COMSCORE, Inc. (NASDAQ:SCOR), the total number of videos viewed on the internet in May in the U.S. was nearly 41 billion (a 12% rise from the same period in 2012) with the top share of videos (14 billion or 34%) coming from Google related web sites. In fact, the first six companies in the comScore rankings are all newly established media companies with Viacom, Inc. (NASDAQ:VIAB) being the first of the old media companies in the list at number seven. And according to another media ad spending analytics firm, Nielsen Hldg NV (NYSE:NLSN), global TV ad spending grew by 4.3% in 2012 compared to 9.9% for internet ad spending.
With the increase in connected devices, it is clear that internet viewership will rise largely at the expense of TV viewership. This is already evident with the unprecedented TV series House of Cards and Downton Abbey being streamed exclusively on Netflix and Amazon.com respectively. Also, Amazon.com recently signed a deal with Viacom to stream exclusively some of Viacom’s own children content and Netflix signed a deal with Dreamworks Animation Skg Inc (NASDAQ:DWA) for TV shows made exclusively for Netflix.
In terms of revenue, cash flow and profits, the old media companies still have the lead while the new media companies are catching up with their faster growth rates. For example, during the quarter ending March 31 compared to the same period in 2012, Viacom, Comcast Corporation (NASDAQ:CMCSA), Google, and Netflix revenues changed by -6%, +3%, +22%, and +18%, respectively.
While Comcast experienced a slight increase in revenues, its cable video subscribers at the end of March were 21.9 million compared to 22.3 million at the end of March 2012 or a decline of nearly 2%. For comparison, Netflix domestic streaming subscribers at the end of the first quarter in were 27.9 million compared to 22 million at the end of the first quarter in 2012 or a 27% rise.