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Media Stocks: What to Watch in 2017

The $100 billion U.S. TV industry is in a state of disruption. New online streaming options are giving consumers more choice, and traditional cable providers are bleeding customers. The media titans of old are being forced to adapt or suffer irrelevance. A wave of industry consolidation has ensued, as a slew of massive, multibillion-dollar mergers have reshaped the competitive landscape in recent years -- with more likely to come in the years ahead.

In this dynamic and intensely competitive arena, what are the major storylines that investors should watch in 2017? Read on to find out.

Will cord-cutting accelerate?

Fed up with high prices, poor customer service, and overstuffed programming packages that don't meet their needs or wants, millions of cable subscribers are choosing to "cut the cord" and cancel their subscriptions in favor of lower-cost online streaming options.

In fact, as much as 25% of U.S. homes don't subscribe to a cable or satellite service, according to a report by market research company GfK. About 17% of those homes rely only on broadcast signals for their TV needs -- up from 15% in 2015 -- while 6% use only internet streaming options such as Netflix (NASDAQ: NFLX), compared to 4% a year ago.

The numbers become even more frightening for cable executives among younger viewers, where nearly 40% of households headed by 18- to 34-year-olds rely on broadcast-only or internet-only alternatives.

Image source: Getty Images.

"The fact that a statistically significant increase in broadcast-only reception occurred over just one year may be further proof that the cord-cutting/cord-never phenomenon is accelerating," said GfK Senior Vice President David Tice.

If Tice is correct and the cord-cutting phenomenon is gaining steam, it will have wide-ranging ramifications for the media industry -- not just the cable and satellite providers themselves, but also "networks, content providers, and advertisers," according to Tice. As such, this is a trend that bears watching in 2017 and beyond.

Is more industry consolidation ahead?

In response to the threat posed by cord-cutting, several media titans have moved to merge with rivals to fortify their scale advantages and negotiating power with content suppliers.

In July 2015, AT&T (NYSE: T) acquired satellite TV provider DirecTV for approximately $67 billion, including debt, and in the process became the largest pay TV provider in the United States. In May 2016, Charter Communications (NASDAQ: CHTR) completed a $79 billion merger with Time Warner Cable and its $10 billion acquisition of Bright House Networks to become the second-largest cable operator in the U.S., behind Comcast (NASDAQ: CMCSA), and third-largest overall pay TV provider behind AT&T and Comcast.

More recently, AT&T agreed to buy Time Warner (NYSE: TWX) -- which split from Time Warner Cable back in 2009 -- in a massive $85 billion deal. If approved by regulators, the merger could create a powerful new media titan. The combined entity would control Time Warner's prized collection of entertainment properties -- including HBO, TNT, CNN, and Warner Bros. -- along with AT&T's massive wireless, satellite, and online distribution systems. Such a company would no doubt have a tremendous impact on the future of the media industry as a whole, and whether AT&T and Time Warner can successfully navigate the regulatory approval process will be a key story to watch in 2017.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.