How Drone Usage Can Revolutionize the Media and Entertainment Industries

By Markets Fool.com

Image source: Getty Images.

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For investors, it's usually a good idea to greet pitches about the "next big thing" with a hefty dose of skepticism. After all, these hyped-up technologies rarely deliver the transformative shift that they promised. And even if the next Segway scooter or Kindle e-reader does somehow change the rules, that's no guarantee that it will produce good returns for the shareholders of the companies involved.

Yet that's no reason to ignore the major trends that threaten to reshape entire industries. One particularly powerful emerging technology is drones, those tiny flying vehicles that you're probably noticing zip through the skies around you with more frequency lately.

According to a recent report from PwC (link opens PDF), drones have the potential to replace $130 billion of business across key areas of the economy, including transportation, security, and agriculture. The media and entertainment sector is right in the crosshairs of this shift, with nearly $9 billion of possible impact.

Snap a great video

Start with the most obvious application: aerial photography and filming. After all, one of the key benefits of a drone is that it can capture images and video with more flexibility and at a tiny fraction of the cost of a helicopter.

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That's what makes the segment so attractive to GoPro (NASDAQ: GPRO), whose cameras already find themselves attached to drones that are produced by other companies. With its Karma release this week, the sport-camera specialist aims to tackle this space and begin to capitalize on the fact that consumers already see it as a drone company even though it hasn't sold one under its own brand.

Teaser video from the Karma drone. Source: GoPro.

"We're uniquely positioned to be successful out of the gates with Karma, given the strength of GoPro's brand in the drone category," the company's chief financial officer told investors early this year, adding, "even though GoPro has not had a drone product." That optimistic reading will be put to a serious test this holiday season.

Ambarella (NASDAQ: AMBA), which produces the tech that powers tiny portable cameras, is another important company to watch in this space. GoPro is one of its biggest customers, and a successful launch of Karma might help it recover its lost growth momentum.

However, Ambarella's high-end product focus, which includes features like 4K resolution and electronic image stabilization, also position it for growth in applications outside of the consumer world -- in places like the professional filming of commercials, movies, and sporting events. Investors are hoping that this quality focus is the right strategy to defend against low-cost competitors that are flooding the market.

Make a visual impact

Rather than just filming the entertainment, however, drones can also turn into the main draw themselves. Intel (NASDAQ: INTC) last year put on a light show that featured 100 drones moving in concert to orchestra music. "We have visions of going from 100 to 1,000, over time," CEO Brian Krzanich said, in a nod to how easily the technology could scale.

Source: Intel.

The applications of Intel's hardware and software solutions include sporting events where drones would entertain onlookers during breaks, as well as use in populated areas where they might project or carry advertisements. In any case, these devices will play a key role in its Internet of Things division.

Disney (NYSE: DIS) is also looking to be an early adopter of this technology for entertainment purposes. The House of Mouse plans to use drones around its theme parks for creating lighting effects and potentially replacing those loud nightly firework shows. The devices could eventually do much more, though, including animating dozens of small, or a handful of giant, flying puppet characters in the skies above its resorts. In a few years, the drone shows might just become a staple at Disney parks and help keep those ticket sales churn higher.

It's impossible to predict which companies, if any, will capture persistent returns from the emerging popularity of drones in the entertainment and media world. The good news is that investors have a wide range of risk-return matchups to consider -- everything from highly dependent companies like GoPro and Ambarella to more diversified options like Intel and Disney.

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Demitrios Kalogeropoulos owns shares of Walt Disney. The Motley Fool owns shares of and recommends Ambarella, GoPro, and Walt Disney. The Motley Fool recommends Intel. 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.