The 3 Best Stocks for Investing in Hollywood

By Markets Fool.com

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Amid the billion-dollar box offices, Lions Gate is quietly assembling a low-rent empire that should reward shareholders for years to come. Credit: Lions Gate.

How big is Hollywood? U.S. box offices generally sell between 1.2 billion-1.5 billion tickets to moviegoers each year, resulting in $10 billion or more in grosses.Add in tens of billions more for TV production and you have one of America's staple industries.

Yet, it's also changing. Moneyed interests aren't as all-powerful as they used to be. Cameras are doing more without costing more. Desktop computers provide the tools for powerful visual effects. And of course there's the Internet and services such as YouTube and Vimeo, which make worldwide distribution cheap for creators who would have been shut out in years past.

Consider the story of Whiplash, an upstart film that started as a short, securing feature-length funding from Sony only after winning awards at the Sundance Film Festival. Director Damien Chazelle found a workaround to a process that favors known properties backed by big names, and audiences yielded the benefits. Whiplash is a byproduct of creative destruction of the old Hollywood studio system.

Something old, something new, and something tried and true
For shareholders, that's an opportunity as much as it is a threat. Investing in Hollywood means betting on the right businesses. Here are three well-positioned options:

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  1. Disney The top studio in Hollywood right now is also home to the world's largest licensing business. Thanks to brands like Marvel and Star Wars, the House of Mouse generated $1.36 billion in Consumer Products revenue from merchandising agreements and related tie-ups last year. And this is durable business. Mickey Mouse and the various Disney princesses stretch back decades yet still produce huge sums from brands that pay to use their likenesses.
  2. Netflix While it's tough to know just how durable the streaming business is, credit is due to Netflix chief Reed Hastings for taking no chances. Bets on original programming have allowed Netflix to pioneer what I've been calling the "global premiere," or a show that goes live in dozens of territories around the world at the same time without the aid of a network of affiliated TV stations. Next, Netflix plans to directlyfund original productions in order to develop a long tail of licensing revenue.
  3. Lions Gate Entertainment You'd be hard pressed to find a more enterprising studio. Not only is Lions Gate one of television's more prolific producers of unusual fare -- think Mad Men on AMC, Nurse Jackie on Showtime, and Orange Is the New Black on Netflix -- it's also the most frugal of the major producers, ensuring that no single project can sink the company while betting enough on franchises to capture upside where it can. A good-but-not-great global box officefor Insurgent speaks to the importance of the company's legendary prudence.

Go for the triple-feature
Hollywood is an ever-shifting sand pit for the actors in movies and on TV. Shows come and go, as do businesses and business models. Streaming wasn't a thing five years ago. Now, thanks to the rising influence of Netflix and Hulu, it seems to be the only thing that matters. Presuming it'll remain this way for the duration when investing in Hollywood would be dangerous for your portfolio.

So, be smarter than that. Like the cinephile who travels from genre to genre, indulging a wide variety of tastes along the way, use these three stocks to build a diversified entertainment portfolio that endures the long term. After all, Hollywood may be here to stay but Hollywood's Next Big Thing will last only as long as audiences pay to see it.

The article The 3 Best Stocks for Investing in Hollywood originally appeared on Fool.com.

Tim Beyers invests in Hollywood every time he goes to the movie theater. He's also a member of theMotley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission and owned shares of Apple, Netflix, and Walt Disneyat the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends Apple, Lions Gate Entertainment, Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Lions Gate Entertainment, Netflix, and Walt Disney. 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.