How to Invest in the Media Sector
The U.S. media industry is worth $717 billion, representing nearly a third of the global industry. It includes everything from movies, to commercials, streaming content, broadcast, radio, video games, publishing, and music.
As we continue to consume more information on our phones, the demand for media is likely to grow. Learning how to invest in the media sector is just one way to take advantage of this massive industry.
The Short Version
- Media stocks include everything from news, to film, music, and video games.
- The U.S. media sector is worth approximately $717 billion.
- Six companies control about 90% of U.S. media.
- There are lots of investment opportunities for investors interested in the media sector.
What Are Media Stocks?
In 1964, Canadian philosopher Marshall McLuhan wrote that the medium is the message, in his seminal work Understanding Media: The Extensions of Man. Media is the plural of medium, and refers to the way news, entertainment and communication is disseminated. Media, he argued, transforms human thought and the way we perceive the world.
Nearly 60 years later, the internet dominates the media in ways that McLuhan could not have foreseen. Virtually every media stock has some online component, even if the companies are not online media stocks themselves.
Media stocks run the gamut, with about 90% of U.S. media coming from one of six companies: Comcast, The Walt Disney Company, News Corporation, Time Warner, Viacom and CBS. Media stocks include:
Advertising: The advertising sector consists of public relations and marketing companies that connect manufacturers with consumers. If you’ve seen an ad on Facebook or read an advertorial in a magazine, chances are it’s from an advertising firm.
Book publishing: One of the more traditional media sectors, book publishing continues to be a strong industry. A lot of that is driven by the rise in e-publishing, and also includes educational and professional publishing.
Film entertainment: The film and television industry has been transformed by the popularity of streaming. Big players such as Disney have created their own services to compete with popular streaming services like Netflix.
News: From broadcast to newspapers, news was once one of the biggest media players. Today the news is largely concentrated in the hands of several major companies, with many turning online as print becomes too expensive.
Music: Global recorded music revenue was $23.1 billion in 2020. Music includes everything from streaming, to physical musical sales and sync licensing. Sync licensing includes any service that includes music, whether that’s an ad, a TV show, restaurant, live entertainment or radio.
Video games: While video games are often considered their own sector, they are part of the media industry. This $65.5 billion industry has a lot of big players including Activision Blizzard, Electronic Arts and even Microsoft.
How to Invest in the Media Sector
You undoubtedly have firsthand experience with media companies. How many streaming services do you currently subscribe to? Are there services you have stopped using and others you can’t imagine doing without? Maybe there’s a particular game developer you really like. Identifying the media companies you consume is a basic way to get started in determining possible media investment opportunities.
Large media companies are generally preferable to smaller ones. Size correlates with the ability to negotiate the best deals with marketers. Big media operates along a wide spectrum of brands, meaning companies can use one product or service to promote the others. That diversification is another crucial aspect. The more varied a company’s formats, the less likely weakness in one area will affect its bottom line.
If you want to invest in the media sector, it’s best to look for media companies using the latest in digital technology. At the end of the day, media companies are a type of tech company and innovation is critical.
When it comes to streaming stocks, content is king. The demand for content is insatiable, which is why companies supplying good content should continue to thrive. Other things to consider are the size of the company and, of course, the financial statements of the company itself.
Top Media Companies and Streaming Services to Invest In
There are a number of companies in the media sector that you can invest in. If you want to diversify your portfolio by investing in a media company, then check out some of the companies below. Remember that this list is not exhaustive, nor are we recommending you buy any of these companies. Only you know if these companies make sense for your portfolio.
1. Amazon (AMZN)
Amazon started out selling books online before branching out into selling virtually everything. Today Amazon Prime has more than 200 million subscribers, which gives them access to Prime Video and fast shipping. The company does not disclose just how many subscribers regularly view Prime Video, though its streaming selection is heavier on quantity than quality. The company also boasts its own TV and movie studio, Amazon Studios, and has won numerous awards for its shows.
In addition to streaming services, Amazon Media Group offers advanced advertising, both on and off Amazon’s site, and focuses on large Amazon vendors. Books are still an important part of the scene, with popular movies and TV series based on books bolstering Amazon’s sales.
2. AMC Entertainment Holdings Inc. (AMC)
The world’s largest movie theater operation managed to weather the pandemic, and now audiences are returning to the movies. In August, AMC CEO Adam Aron said U.S. ticket revenue was on track to reach 45% of 2019 third-quarter revenue, before Covid-19 brought moviegoing to a halt. AMC also has a deal with Warner Brothers for a 45-day exclusive theatrical release of all its films prior to home release, starting in 2022. Also in 2022, moviegoers can pay for tickets and concessions via Bitcoin.
3. Comcast Corporation (CMCSA)
Comcast is one of the top players in the entertainment industry. It’s the parent company of NBC, NBCUniversal, Xfinity, Sky — one of Europe’s leading entertainment companies — DreamWorks Animation, Universal Pictures, Telemundo and many more well known brands. Due to the diversification of its revenue streams, a downturn in one area doesn’t necessarily impair Comcast's overall financials.
Comcast also has a strong presence in wireless services, video, high-speed internet and related industries in the U.S. and Europe. Its revenue diversity makes it a popular investment choice, as it usually performs well in good and bad times.
4. Discovery Communications Inc. (DISCA)
Discovery and WarnerMedia are planning to merge, which will create the second-largest media company in the world — with only Disney surpassing it in terms of revenue. Currently, Discovery’s brand portfolio includes top names such as the Discovery Channel, Eurosport, Food Network, HGTV, Animal Planet, TLC and the Oprah Winfrey Network. The WarnerMedia merger adds such cable powerhouses as HBO, Turner Entertainment Networks, CNN Worldwide, The Cartoon Network and a host of others. There’s also the Warner Brothers film and television studios and their dozens of subsidiaries.
Outside of the U.S., Discovery International covers major satellite and cable markets in Africa, Asia, Europe, Latin America and the Middle East.
5. Netflix (NFLX)
When it comes to streaming stocks to invest in, Netflix has proved a winner. Although its financial performance has fallen since the early days of the pandemic, it has more than 207 million subscribers worldwide as of mid-2021. Over the past five years, Netflix stock has risen 450%.
In July 2021, Netflix announced it will add video gaming to its repertoire, moving beyond film and TV. Netflix plans to offer video games on its platform within one year, at no extra charge to subscribers. Mike Verdu — who previously worked with developers at Facebook to bring virtual reality games to Oculus VR headsets — has been hired as vice president of game development. He is also the former senior vice president at Electronic Arts, where he oversaw major mobile game studios.
None of Netflix's streaming rivals currently offer gaming, and Netflix also plans to move into podcasts. The company looks poised to continue its strong run. It remains a content leader, producing Emmy and Oscar-winning material, and its new ventures should add to its revenue.
6. Roku (ROKU)
Roku offers streaming devices where customers pay only for subscription channels or TV shows or film rentals. With the Roku Channel, consumers can manage all of their streaming packages in one place.
Roku devices are relatively inexpensive and account for a small percentage of the company’s profits. Roku makes the bulk of its money through its Platform segment, which includes advertising, content distribution, licensing deals with other platforms and premium subscriptions. If you use a Roku device to stream, you may have noticed the branded buttons on the remote. Click on Netflix, Disney, Hulu or another offering, and Roku makes a bit of money.
Supply chain problems are affecting the hardware side, but that should straighten out as the global chip shortage is rectified. The shortage has affected stock prices but Roku should continue its robust growth as consumers cut cords and turn to this leader in the field.
7. Walt Disney (DIS)
Everybody knows the Mouse, and Disney is synonymous with family entertainment. With its extensive film library and the success of its Disney+ streaming service, Disney is a sound choice for those investing in streaming TV. While the pandemic hit Disney stock hard as its theme parks closed, cruises ceased and movie theaters closed, the company is up and running again.
Launched in November 2020, Disney+ beat its own sign-up expectations, reaching 10 million subscribers in its first 24 hours. It now has more than 103.6 million subscribers and the service is expected to meet its target of 230-260 million subscribers by the end of 2024. That’s a huge difference from its original subscriber predictions in 2019, when the company expected to have 90 million subscriptions by 2024. It is now second only to Netflix in paid subscriptions.
Disney+ offers popular streaming bundles with ESPN Plus and Hulu, among other top offerings. Pixar, Marvel and Star Wars are other Disney components.
This is definitely a buy-and-hold stock, with brand name recognition and plenty of franchise opportunities.
Do Your Research Before You Invest in the Media Sector
Before you invest in the media sector, make sure you do your research on potential stocks. Doing research on media stocks is generally more fun than other sectors. Business fundamentals always apply, but it’s a good sector for those with a nose for pop culture as media companies are the source from which pop culture emanates. If you have a knack for determining the next “in” thing in the entertainment sphere, media stock research could come naturally.