3 Stocks to Profit from the Death of TV
A year late, but the Tokyo Olympics are finally here. The opening ceremony was heavy on fireworks and pageantry, capped off by U.S. tennis star Naomi Osaka lighting the Olympic cauldron to start to official competition.
The ceremony had nearly everything … except viewers.
TV viewership of Tokyo’s opening ceremony was 17 million — 36% less than the 2016 Games hosted by Rio and significantly lower than London’s 2012 opening ceremony, which attracted 41 million viewers.
A predictable viewership decline?
There are a bunch of reasons viewership could be down: time differences, live-audience restrictions, off-year scheduling, pent-up wanderlust from being cooped up for a year, and some Americans’ feeling that the Olympics should have been cancelled because of the pandemic.
But none of those explanations accounts for the fact that live events have seen across-the-board viewership declines.
- Per Nielsen, the NBA’s viewership has declined 25% in the past two years.
- NASCAR’s Daytona 500 viewership is down 35% from last year’s record low.
- The World Series average viewership dipped to 10 million last year, down 30% from 2019.
Even football is hurting. At the college level, last year’s Alabama-Ohio State National Championship was the least-watched game in history, and the NFL’s Super Bowl was the lowest-rated since 2007.
Is TV dying…? It’s complicated
These numbers are remarkable, yet they’re also somewhat predictable if you’ve been following the cable industry. In 2013, more than 100 million households paid for cable service according to eMarketer; by 2023 that figure is expected to drop to 67 million.
That’s a one-third decline in households! What’s more, eMarketer, expects this trend to continue through 2025, when it forecasts that only 60 million households will be paying for cable service.
Even worse for cable companies is the demographic makeup of cord cutters: Last year, the Super Bowl audience under the age of 50 declined 11% … as gaming hours and Netflix subscriptions soared.
Simply put, TV is dying and the youth are leading the way. These digital-native consumers are increasingly rejecting traditional TV cable packages with poor on-demand features in favor of instant access to video content.
TV is dead; long live content
To be sure, the cable model has been lucrative for television content providers. Not only do these programmers receive first-party revenue (subscriptions), but they also get lucrative advertising revenue from brands looking to take advantage of a captive viewership audience.
After seeing how successful Netflix has been in creating its own content, other providers have quickly moved to create their own streaming services to prevent even more disruption and continue to earn subscription revenue.
Now Viacom CBS’ Paramount+, NBC’s Peacock, and Disney’s Hulu have 30 million subscribers or more. Disney+ has more than 100 million subscribers.
Crazy stat: Disney+ has more subscribers than the total number of U.S. cable subscribers!
However, advertising from streaming and connected television is an area ripe for disruption. The methods and technology used to purchase and place advertising on old-school television are radically different than on streaming and digital outlets.
1. The Trade Desk could revolutionize digital marketing
- The Trade Desk (NASDAQ:TTD)
- Price: $0 (as of close Aug 24, 2021)
- Market Cap: 38,590,841,544
The death of traditional (aka linear) television is a huge opportunity for The Trade Desk. The company helps marketing departments buy and place their ads across digital formats. It’s the largest independent digital programmatic advertiser.
The Trade Desk is already benefiting from the rise of digital display and mobile advertising, which are stealing market share from print media. And we’re increasingly seeing the evolution of video advertising as well. Historically, traditional television has relied on human negotiations to price ad placements.
The rise of over-the-top (OTT) and connected TV (CTV) has boosted demand for The Trade Desk’s programmatic ad buying technology.
So here’s your investment play: We’re still in the early stages of CTV advertising. Streaming is estimated to rise to 33% of total TV time this year from 20% last year … but we have already reached a tipping point.
At the start of the year, 78 million U.S. households had a cable subscription, while 84 million households were reachable via connected and streaming TV services.
Marketers have noticed, and this has led to a significant shift away from “regular” television.
Ad buyers are making fewer upfront linear television commitments this year in favor of CTV, desktop, and mobile outlets. Per eMarketer, 2021 has been red hot for advertising-supported video-on-demand companies like Tubi, Pluto, and Hulu … and upfront media deals are expected to double!
As the largest independent digital advertiser, The Trade Desk will continue to benefit from increased digital advertising on websites, but it has also carved out a true niche in the high-growth CTV space. Its enviable customer list includes Disney, NBC Universal, and even data analysis company Nielsen.
Like all stocks, The Trade Desk has risks. The biggest one is its expensive valuations, as it currently trades at 45 times sales. Competition is also fierce, with Big Tech juggernauts Alphabet, Apple, Amazon, and Facebook offering competing services in their own “walled garden” ecosystems (meaning they restrict the data and experience of third parties).
However, digital advertising will not be a winner-take-all situation … and The Trade Desk is one of the best ways to take advantage of the up-and-coming trend of CTV marketing.
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2. Disney’s acquisition strategy makes it a winner
- Walt Disney (NYSE:DIS)
- Price: $0 (as of close Aug 24, 2021)
- Market Cap: 324,302,583,409
Advertising is absolutley open to disruption as cable TV dies out, but don’t ignore content providers! Whether via traditional cable, live streaming, social media or connected TV, great content will always win eyeballs. When it comes to premium content, it doesn’t get any bigger than The Walt Disney Company.
Disney’s evolution from cable-dependent to one of the biggest streaming providers wasn’t easy. In fact, no company was more tethered to the mega-bundle than the House of Mouse. A decade ago, Disney’s cash machine was driven by media television properties, including ABC broadcast’s properties and the ESPN family of networks.
In fiscal 2011, nearly 70% of the company’s operating income came from the little screen. In 2019 (pre-pandemic), that figure fell to 50%.
The seeds of Disney’s reinvention started 15 years ago, when CEO Bob Iger acquired Pixar and followed that up by buying legendary brands like Marvel, Star Wars studio Lucasfilm, and finally Fox’s television and film assets (including a controlling stake in streaming provider Hulu).
These transactions decreased Disney’s dependence on linear television in favor of the theater industry and streaming services. Now Disney+ alone is estimated to gross $4 billion in revenue by 2022, and along with other Disney streaming services (Hulu and ESPN+), Disney is on track to catch Netflix as the largest streaming provider.
Admittedly, Disney is still exposed to cord cutting. (Last year as the pandemic decimated its film and park revenue, Disney’s media networks business provided steady returns.) ESPN is an acute area of concern for Disney management now as expensive rights deals from the NFL, NBA, NCAA, and NBA have shrunk margins.
So yes, the company’s media networks department will present headwinds to growth, but Disney is quickly moving to monetize its content via streaming. Cord cutting has been the biggest risk Disney has faced in decades, and the company has embraced it head-on thanks to Iger’s brilliant acquisition strategy. Disney is well situated to benefit from the rise of streaming.
3. Magnite is becoming a pure-play CTV ad tech company
- Magnite, Inc (NASDAQ:MGNI)
- Price: $0 (as of close Aug 24, 2021)
- Market Cap: 3,698,646,022
One more investing idea: The death of TV is eventually going to disrupt the legacy television marketing ecosystem.
The new, connected TV marketing ecosystem is in its infancy but is poised for significant growth. Here’s why … streaming exploded in popularity because consumers were fed up with expensive cable bills. At this point, however, streaming hasn’t totally lived up to the promise of cheaper access to content. The direct-to-consumer streaming model certainly offers viewers more choice but comes at the expense of higher costs for users looking to reassemble the traditional cable bundle.
While there are a few high-profile holdouts, most notably Disney+ and Netflix, streaming services are going to continue to monetize content by a hybrid approach of subscription fees and/or via advertising video on demand (AVOD).
Keeping subscription costs low to win market share is quickly becoming important, which is why AVOD is becoming industry standard. According to Digital TV Research, US AVOD revenue is expected to triple between 2020 and 2026!
That’s Magnite’s opportunity: The company was formed as a merger-of-equals between programmatic digital advertiser The Rubicon Project and CTV specialist Telaria to help websites and video providers manage and monetize their advertising inventory.
Magnite doubled down on connected TV by acquiring competitor SpotX in a $1.17 billion cash-and-stock offer earlier this year.
The acquisition created the largest independent CTV and video advertising platform with a client roster that includes FOX, AMC Networks, A+E Networks, Discovery, fuboTV, LG, Roku, Samsung, Sling TV and Vizio.
Shares of Magnite are down more than 50% from 52-week highs; some investors are concerned about the company’s penchant for acquisitions (two large-scale acquisitions in as many years). Still, the stock is up about 450% in the last year.
Despite these exciting gains, Magnite is still just a $4 billion company. The stock price will continue to be volatile, but for long-term investors, Magnite could be one of the biggest winners from the death of television.