(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of DIS and NFLX.)
This could cause media companies such as the Walt Disney Co. (DIS) and Comcast Corp (CMCSA) to start thinking about finding partners to consolidate with or buy assets from. The consolidation would combine their content libraries, creating leverage. Or it could create new exclusive content to push directly to the consumer in a battle with big tech.
Disney and Comcast have been seeking to add content to their existing libraries in an attempt to build a direct-to-consumer product. There has been speculation that Twenty-First Century Fox Inc. (FOXA) is looking to sell assets, and players such as Disney and Comcast have been rumored to be potential suitors.
Since news first broke on November 6 that Disney was looking at Fox assets, shares of Disney have risen by nearly 4.5 percent, as investors started focusing more on Disney streaming opportunities. (See more: Disney Investors Suddenly Envision A Streaming Empire.)
There is no doubt that the way people watch TV today has changed dramatically over the past few years. Now, you can watch a whole season of a TV series in a single weekend. And you can pick and choose when and where you want to watch it.
Netflix has been leading the charge, spending billions of dollars a year to create its massive library. Meanwhile, Disney is now playing catch-up, finding itself already armed with an enormous library of content. It will now be building out its consumer product.
Just The Beginning
The wave of consolidation is likely in the very early phase. It will be a wave that will probably accelerate as deals start getting completed, potentially creating anxiety for those not jumping on the M&A bandwagon.
TV and the media business as we know it is coming to an end, and those that adapt the fastest are most likely to win. It is about creating exclusive content and capturing a loyal audience.
Have a lot of good content, build a big subscriber base, and you win. Who knows, it could be just that easy.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.