Stocks to Watch in Movies and Television

By Markets Fool.com

No matter how the world and society may change in the future, one thing is for certain: Human beings will always need some form of entertainment. The two great entertainment media of the 20th century -- movies and television -- are still going strong, but like the rest of our world, they are changing quickly in the face of technological advancement.

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Keeping a watchful eye on movie and TV-related investments these days is critical. With that in mind, here are three prominent companies that will shape and influence the industry in the years to come.

Walt Disney
Over the decades, this high-profile entertainment powerhouse has become the big name in movies and TV.

Few consumers of entertainment can avoid Disney. Through its studios division, it cranks out big budget films, while its media networks unit controls one of the Big Four TV networks, ABC, plus the top sports channels (the ESPN family) and numerous other outlets.

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Thanks to these assets and many others, Disney produces big returns for its shareholders -- fiscal 2014 net profit ($7.5 billion) and revenue (nearly $49 billion) both set records, while the stock price has risen 32% over the past year.

Disney has been so successful, because its various businesses are tightly and very effectively integrated. A hit movie can beget a new line of merchandise linked to the film and/or its characters (the company has an extensive and very profitable consumer products division), an associated TV show, and perhaps even a new theme park attraction.

The high costs of the film entertainment business typically mean that any major project needs to be a hit in order to make money. With its integration model and its ability to leverage intellectual property across product categories, Disney mitigates these risks while profiting handsomely on those efforts that do find a big audience.

DreamWorks Animation
For the most part, today's major film studios are units of much larger companies. Warner Bros., for example, is part of sprawling entertainment giantTime Warner, while Paramount belongs to Viacom.

DreamWorks Animation is a throwback to the old days of standalone studios (save for the distribution of its films, which is handled by 21st Century Fox). So, like those enterprises of yore, flops can really hurt the finances. In 2014, the company suffered $57 million in losses on a pair of underperformers:The Penguins of Madagascar and Mr. Peabody & Sherman.

But this is 2015, not the old days of single-screen movie theaters and 13-channel TV sets. Broadcast media is wide and deep, and the company is doing an increasingly good job of broadening its range to take advantage of that. It has a growing slate of TV series airing on Netflix.These days, between its TV work and licensing for DreamWorks films, the streaming service is responsible for 44% of DreamWorks revenue.

Meanwhile, in the wake of an ugly bottom line loss of nearly $310 million last year,DreamWorks is trying to reign in costs. If this effort succeeds, and the company survives on its own, it will be an indication that the old way of making money in Hollywood -- by going it more or less alone -- can work in what has become a business run by conglomerates.

Amazon.com
This company loves to proclaim that it sells the biggest selection of retail goods on earth. It probably would not mind being the biggest movie and TV producer/distributor either, given what we have seen so far.

In 2010, it launched Amazon Studios, a film and TV development enterprise. The division has been active, airing the buzzy, gender-bending dramedy Transparentand the political satire Alpha House. Several more shows are on the way.

All are (or will be) available to subscribers of Amazon Prime. Meanwhile, 13 potential movies crowd the development slate. The finished works, presumably, will also be featured on Prime.

Amazon Studios actively solicits material from outside the Hollywood mainstream. It has an open call for both TV and movies, awarding cash payments to projects it selects for potential development. It also reaches out to the masses for help, allowing the public to review and vote on properties in consideration.

Amazon Studios, then, is using crowd-sourcing methods to help build its content. That is a real detour from the traditional model, which for years has meant project origination and development were confined to a relatively small, select group of entertainment professionals.

So, Amazon has the potential to upend, or at least influence, this long-established culture. Should any of the company's TV series or movies become a true blockbuster hit, we can expect established studios to at least adapt some aspects of this open-development model.

The article Stocks to Watch in Movies and Television originally appeared on Fool.com.

Eric Volkman owns shares of Walt Disney. The Motley Fool recommends Amazon.com, Apple, DreamWorks Animation, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Apple, 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.