Monday, February 26, 2018

MegaTrend : Cutting the Cord

MegaTrend : Cutting the Cord One of the key mega-trend in consumer consumption behaviour is cord-cutting. The next generation of consumers are technically capable enough to go through the boring details to setup their mobile phone, computer, and various online TV accounts so that they don't need to pay $100/mth to watch just a few channels and hundreds of other channels we may not even know exists. Frankly the folks in older generation is not stupid either. They did not want to pay for the bundled excess channels. However, they did not have internet but were stuck with cable in their era. They also did not have the knowledge to go through the complicated details of setting up their mobile and computer.

If there is anything that is slowing down such trend is that there are not enough news and sports on non-cable channels. Netflix is all about TV Shows and movies only. There is no real authoritative media producing news contents on YouTube, Facebook or other internet TV channels. Whatever companies that has the capability to move the supplies of the news and sports contents to the more efficient internet based channels will be a major winner.

Cut-the-cord is a known trend. As an investor, the more pressing question is where are the investment opportunities today.  I believe the answers are right in front of us: invest in companies that has the following characteristics:

  • Internet and Mobile Technical Savvy - so they can replace cable
  • Established growing trend in subscribership and viewerships
  • Global Financial Strength : to buy or produce more contents
  • Global cultural impact : English as a base. On top Chinese and European contents.
Netflex ($NFLX) is already well established in this space. While many investors are worrying about its high stock price (valuation), the key reason to invest would be its progress in acquiring international subscribers. However, considering the way investors are piling up to Netflex's stock, I say the investors are aware that good contents require high cost. In fact the cost of contents is an investment moat by itself. Smaller players are just not financially strong enough to compete against Netflix's trends.

Another company would be Google or YouTube to be more precious. Despite that YouTube has only 350,000 subscribers vs 2 million subscribers in DirectTV Now ($T) or Sling TV, Google has the benefit of the Google Search for traffic generation as well as the financial backing of the parent company Alphabet. Not only this, YouTube's model is more than Netflix, it is a "free channel" where anyone can upload contents. It is independent producer and artists friendly! With the amount of market intelligent YouTube can gather, I believe Google will be ahead of its competitors in spoting new media consumption trends and be able to acquire potential talented artists and producers onto its platform. I don't have the statistics but I believe YouTube is the largest global Internet video platform. The only other "force" I can imagine is the videos platform in China, where government and commercial organisations work together to create a political moat to grow their own internal platform.

The number of cord-cutters in US and in the world is expect to grow for sure. This is a simple logical deduction as it's not so fancy prediction but an advancement of technologies. Considering the whole industry of internet video or OTT TV is only at an infancy stage, we have a multiple years mega-trends to invest into.

Investors should place a close attention in this industry and use your own judgement on valuation of specific companies for investing. Disclaimer: I am long GOOG.