Old media still in the game
Analyst: Giants can persevere in brave new worldDon't count out the old conglomerates in the new-media world just yet.
Media giants including Viacom and the Walt Disney Co. could persevere despite the confusingly limitless number of content choices out there, Bear Stearns analyst Spencer Wang said in a presentation here last week.
But he also cautioned that new players such as Google/ YouTube, Yahoo! and Apple pose a threat to the bigger companies.
In his Nov. 27 presentation, "The Long Tail: Why Aggregation & Context and Not (Necessarily) Content Are King in Entertainment," Wang said the explosion of user-generated content, combined with the proliferation of broadband offerings, could create an environment that confuses consumers.
He concluded that this presents a need for middlemen to present multiple entertainment options in simple, convenient formats and at the same time filter out the increasingly cluttered environment.
"When you have a huge explosion of content, the middleman who can best connect users with their interests are the guys that will have the most value to their consumers," Wang said.
In an interview later in the week, Wang singled out Viacom as best positioned among the conglomerates because of its cable networks, which account for 95% of its cash flow. They encompass nearly all age groups and demographics, from children's programming with Nickelodeon to urban interests with BET.
He noted, though, that the lack of a detailed strategy on how Viacom will capitalize on its brands and how they will fit together hurts them in the eyes of investors.
"They certainly are well-positioned, but there's no overarching strategy they've articulated to Wall Street," Wang said.
Disney also could be hurt by the lack of a cohesive digital strategy, he said. Although it targets several important demographics with its Disney and ESPN brands, and its stock prices remain stable, the lack of a centralized Web hub and an overly broad strategy could damage its business in the long term.
"(Disney's) strategy is undefined right now," Wang said. "I'm sure it will get fine-tuned over time, but it could hurt them as more choices become available."
Time Warner Inc. and News Corp. are in similar positions. Both own heavily trafficked Web portals — AOL and MySpace, respectively — but both are at risk because they rely heavily on traditional media.
News Corp. may be hurt by its reliance on TV stations and newspapers. Wang sees many positives going forward with MySpace, though, including Internet ad revenue and a launching pad for News Corp.'s other media.
Wang said that because the major entertainment companies "don't have all the pieces to the puzzle," startups could be in a position to have a significant effect on their bottom line in three to five years. He said the conglomerates are safe for the short term, but much like what happened when cable posed a threat to the networks, the companies might have to change their strategy or make the right acquisitions to remain profitable.
Meanwhile, he said, Internet startups will be able to focus exclusively on context and aggregation on the Web without worrying about a "legacy TV business." "YouTube and Google strike me as very well-positioned," Wang said. "Consumers value choice, convenience and simplicity, and that's why YouTube is fairly successful."