TV Business Weathering Digital Storm, Analyst Says

Parallel ecosystem being created by short-form video
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There are few signs that the TV ecosystem is being drained by digital platforms, a Wall Street analyst concludes in a new report on the future of video.

According to Laura Martin of Needham & Co. total U.S. TV revenue will reach $76 billion in 2014, up 20% from 2011 levels. And TV advertising will grow by $2.2 billion in 2014, while digital video ad spending will be up $1.8 billion, though digital’s growth is far bigger on a percentage basis.

The spread of mobile devices is creating a new short-form digital content ecosystem. That system is growing parallel to TV and is additive, Martin says, pointing to the way live streaming added 12% to the World Cup audience for Univision, and added 15% to its revenue. New digital companies will increase U.S. TV subscription revenues by $4 billion and advertising by $2.5 billion in the U.S. during 2014.

Martin lists the things that keep her up at night, starting with the possibility that the earnings multiples on TV stocks could be compressed if dual revenue stream business models are replaced by businesses that plan to survive on either subscriptions or ad dollars alone. She’s also concerned that over the next 10 years, short-form video could become better at monetization and disrupt spending on TV.

“We are most excited about new OTT experiments by TV content creators designed to garner global revenue streams with an annuity stream business model and a direct relationship with consumers,” she writes.

And, of course, she notes that consolidation is an important driver of valuation, both in the online and offline worlds.

Given that view, Martin highlights three stocks with “buy” ratings: Netflix, World Wrestling Entertainment and CBS.

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