The media sector faced a major setback as most stocks plummeted recently. Notably, the media companies are currently dealing with a crisis that has trickled down from the pay-TV sector, the distributor of the media content.
Over the last couple of years, the internal dynamics of the U.S. pay-TV industry have witnessed a gradual shift from cable and satellite TV operators to low-cost over-the-top service providers. The strong presence of online video streaming providers like Netflix (NFLX – Analyst Report) and Hulu is posing a significant threat to the existing pay-TV business model.
Meanwhile, cord-cutting has become a serious concern for major pay-TV operators. However, the cord-cutting impact is now extending beyond cable companies, taking its toll on major media companies as well.
The Contagion Effect
Notably, a large chunk of media companies' revenues come from affiliate fees paid by pay-TV providers to carry their channels and is calculated on a per-subscriber basis. With majority of the pay-TV operators gradually losing their subscribers, a contagion effect can be seen on media companies' revenue growth from affiliate fees, which is going considerably downhill. Also, with their subscriber base already dwindling, the media companies are now no longer in a position to charge higher programming costs from the pay-TV operators.
Naturally, media stocks are witnessing difficult times, with the S&P 500 media index going down by 2.8%, recording its biggest two-day fall since Nov 2008. It seems sluggish revenue growth from affiliate fees and an increasing number of viewers opting out of cable or satellite TV service has set the sell-off in motion.
As a ripple effect, most of the media bellwethers have witnessed significant declines over the past two trading sessions. Notably, shares of The Walt Disney Company (DIS – Analyst Report) fell about 11%; Viacom, Inc. (VIAB – Analyst Report) lost almost 21%, Time Warner Inc. (TWX – Analyst Report) went down by nearly 10%, Discovery Communications, Inc. (DISCA – Analyst Report) fell over 9% while Twenty-First Century Fox, Inc. FOXA slumped 13%, over the past two days.
Internet TV to the Rescue
Internet TV is gradually gaining market traction in the U.S., with the legacy pay-TV industry in the country facing stern competition from online video streaming service providers. Internet TV has emerged as a strong alternative to counter this competitive threat providing viewers the flexibility to enjoy their favorite shows on mobile gadgets at breakthrough prices.
In Feb 2015, DISH Network Corp. (DISH – Analyst Report) commercially launched its Internet TV service – Sling TV – across the U.S. In the same league, the U.S. division of Sony Corp. (SNE – Snapshot Report) has launched its PlayStation Vue Internet TV service. Comcast Corp. (CMCSA – Analyst Report) is also set to foray into the over-the-top video delivery market with the launch of its Internet TV service – Stream. Verizon Communications Inc.'s (VZ – Analyst Report) Internet TV offering is slated to launch later this year.
