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The media industry is one of the most important sectors out there, as it connects people and businesses with the content and information they love and need. One of the central drivers of the business side of the industry is the seemingly constant reinvention that occurs within the space.
Given its strong tendency toward consolidation, the media industry has seen a frantic pace of mergers, acquisitions, and spinoffs in recent years. As the media market changes in the year ahead, here's how the list of the largest media brands, as measured by market capitalization, shapes up.
Data source: Google Finance.
Let's look at two of these in greater detail: AT&T(NYSE: T) has aggressively bought its way into the industry andWalt Disney (NYSE: DIS) has seen investor confidence dwindle in light of its issues with cord-cutting. Each story line will create ripple effects throughout the broader industry, so let's examine these two important media industry story lines in greater detail.
AT&T becomes the world's biggest media company
Perhaps the most important but least talked about development in the industry in the past five years has been AT&T's (NYSE: T) ascent. Fueled primarily by two acquisitions, AT&T grew from a company that was once on the industry's periphery to one that will eclipse industry heavyweight Comcastin terms of total cable subscribersand cable-related revenuein the year to come.
In 2015, AT&T acquired satellite-TV operator DIRECTVfor $49 billion.This deal brought DIRECTV's 45 million cable subscribers across the U.S., Latin America, and the Caribbean into AT&T's corporate fold, giving AT&T an impressive slate of customers to whom it can now cross-sell its mobile, landline, broadband, and cable services. And with its pending blockbuster $85 billion acquisition of content giant Time Warner (NYSE: TWX), AT&T will become perhaps the best-poised company in media or communications to capitalize on an era when broadcast content is transmitted wirelessly and consumed increasingly on mobile devices. Time Warner, for its part, controls some of the most coveted broadcast properties in the world, including HBO, Cinemax,TBS, TNT, CNN,and Warner Bros. Entertainment.
Pending regulatory approval, AT&T's Time Warner buyout is expected to close in 2017. The deal is expected to become accretive to EPS in 2017,though given the increasingly mobile nature of our content consumption, the benefits to AT&T and its shareholders should extend well beyond next year.
Image source: ESPN.
Are the tides changing at Disney?
After outperforming the market in each of the past four years,shares of entertainment giant Walt Disney Company (NYSE: DIS) have dramatically underperformed over the past 12 months, losing 18% of their value, compared with a 5% gain for the S&P 500.
The anchor sinking Disney shares has been concerns over its media networks reporting segment, specifically ESPN, which has seen declining viewership. The segment, which produces the majority of Disney's operating profit, has seen both its revenue and operating profit decline in recent quarters.
The problem? Higher content costs and subscriber losses have eaten into the yearly contractual rate increases that had made ESPN the crown jewel of Disney's operating segments. Here's an alarming statistic: ESPN subscribers have declined from roughly 99 million in 2013 to somewhere in the ballpark of 87 million.Disney didn't provide an updated subscriber figure in its Nov. 10earnings release, but regardless of the specific number, the negative direction of ESPN's subscriber base has investors spooked.
However, that's only part of the story.Disney's recent $1 billion investment in BAMTech,the budding mobile sports broadcast company that Major League Baseball spun out into a stand-alone entity, suggests ESPN is probably preparing a long-awaited a la carte offering that could help attract both cord-cutters and new subscribers. In addition, Disney has made impressive strides to diversify its revenue and profit base away from ESPN in recent years.Opening new parks such as the Shanghai Disney Resort this year should enable the House of Mouse to reduce its dependence on ESPN by further monetizing Disney's renowned roster of characters.
So while problems at Disney's primary profit center do deserve careful observation, the recent lull in its share price might present an interesting entry point for investors looking to buy one of the most successful media companies in the world.
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Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Sky and Time Warner. 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.