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Is it time to buy TV stocks?

Although we may be a few years behind some other countries throughout the world, standard broadcast television sets are quickly falling out of favour with Australian viewers. So are DVD’s and other physical media. What’s new?

Online media streamed straight to your screens is what’s new. Welcome to the new normal. Mobiles, iPad’s, tablets and smart TV’s can stream videos over the internet without the hassle of lengthy ad breaks and rigid programming schedules.

Already we’re seeing ratings drop on major television networks such as Ten Network (ASX: TEN) and largely flat advertising growth across the market. Southern Cross Media (ASX: SXL) said in their annual report to shareholders: “The Australian media landscape is moving faster than ever before. Not only do consumers have more media options, but the way they engage with them is constantly changing.”

The rise of the internet and growing ubiquity of mobile technology, makes it more convenient to watch a movie from your palm, than waiting for prime time to start. Even Seven West Media (ASX: SWM) – Australia’s premier free-to-air network – appears to be up against it.

In the home of television, the United States, the market has already begun a significant shift from traditional cable and broadcasting television, across to online entertainment. However it’s not just everyday programming that is falling out of favour. According to Business Insider’s Sports page, major sporting events aren’t what they used to be, the younger generation aren’t watching the TV anymore.

Netflix (NASDAQ: NFLX) and Hulu, are two companies which stream online media straight to millions of networked devices throughout the world. It seems TV’s demise is their gain. Netflix, which was founded in 1997 has over 40 million subscribers alone. That means, if trends are anything to go by, in the next 1 to 2 years Netflix is likely to have more subscribers than the entire cable TV network in the US.

Here in Australia, we have our own version. Called Quickflix (ASX: QFX) but it remains unknown to many. In the September quarter alone, it streamed 20% more movies online to subscribers, than it did in the previous quarter. Perhaps it’s a sign of things to come.

As we watch the slow but disruptive change transform our market, there is likely to be a couple of winners. For example, research has shown that whilst some TV providers may struggle, other companies might tap into some of the residual demand.

Bundling internet, television, mobile and streamed movies will shift the media landscape in favour of telecommunications companies like Telstra (ASX: TLS). Although Telstra’s Foxtel business alone may struggle to compete with free video providers like YouTube, bundling the service with its other offerings will give it continued demand for years to come. However to make it more convenient for customers, companies will start to push data share plans, whereby data limits can be shared by multiple devices inside or outside the home.

Foolish Takeaway

Free information on the internet and your choice of programming will result in a different media landscape in 10 years’ time. It would be wise for Foolish investors to understand the trend before getting attracted to reasonable dividends and healthy earnings ratios currently offered by ASX-listed media stocks.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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