Joe Rogan has the hottest podcast in entertainment media. Last week, we learned it would be hosted exclusively on Spotify's platform. Its share price jumped immediately. Today, the Foxtel Binge streaming service launched here in Australia. The tectonic plates of the media industry are shifting again, and not everyone is going to make it through.
There are 3 major ASX entertainment media shares that generate and distribute news: News Corp (ASX: NWS), Nine Entertainment Co Holdings Ltd (ASX: NEC), and Seven West Media Ltd (ASX: SWM). Whichever is the first mover will be the better investment.
Replacement revenue
When REA Group Limited (ASX: REA) and SEEK Limited (ASX: SEK) started to eat into classified revenues, it was News Corp that acted first. Today, News Corp owns 62% of REA Group, which is one of the better value companies on the ASX, in my opinion.
Fairfax also launched and spun off Domain Holdings Australia Ltd (ASX: DHG), which is also a real estate classifieds service. Nine Entertainment holds 52.9% of Domain through its acquisition of Fairfax. Domain is a far more lacklustre version of REA, however. Today it is 1/11th of the size by market capitalisation. There is a lot of market share it can capture, but it just doesn't seem interested at the moment.
None of the major ASX entertainment media shares have a significant stake in car classifieds online company Carsales.Com Ltd (ASX: CAR). Given recent history, this would appear to be a mistake.
Seven West Media is in the early stages of a range of online and technology investments. None, however, can challenge the revenue replacement streams of Nine or News Corp.
Entertainment media diversity
All entertainment media companies own newspapers, television channels and radio stations. However, News Corp stands out as the 65% owner of Foxtel, and the 100% owner of 24-hour news channel Sky News. This provides it with exposure through Foxtel to the new Binge streaming service, should it prove successful.
In the realm of radio, Nine Entertainment has both 3AW in Melbourne and the revenue juggernaut of 2GB in Sydney. It has recently lost revenue generator Alan Jones as a presenter, but he will be replaced by the affable and popular Ben Fordham.
Seven West has launched an innovative product in its new morning podcast The West Live with Jenna Clarke. This has had a monster reception in the West and has sidestepped local radio. They regularly have the Premier, state ministers, federal ministers, local mayors, as well as local entrepreneurs and billionaires. I listen to it daily and already many of my colleagues and friends have discovered it by themselves.
Management
Of all of the 3 ASX entertainment media shares, the financial history of News Corp Australia is the most compelling. Seven West Media and Nine Entertainment are the least compelling – across all major valuation metrics they have gone backwards for 10 years. News Corp, on the other hand, has been able to grow cashflow at a compound annual growth rate of 13.4% for the past 7 years.
Foolish takeaway
I am a big believer in the future of the news business in all of its forms. In my view, Spotify's Rogan deal, The West Live podcast, and the move to streaming shows there is the potential for one of the incumbent ASX entertainment media shares to make very big strides into the future. It depends which one moves first.
