Three broadcast stocks poised for growth in the digital age

The Zacks Broadcast Radio and Television industry has been suffering from increased cord-cutting despite a spurt in demand for streaming content. However, industry participants like TEGNA TGNA, fuboTV FUBO and AMC Networks AMCX are benefiting from a massive spike in digital content consumption. Diversified content offerings, which are original, regional, short and suitable for small screens (smartphones and tablets); improved Internet speed and penetration and technological advancement benefit industry participants. As monetization and revenues, in terms of ad spending, continue to be subdued, profit protection and cash management, with greater technology integration, have gained significance and are expected to help these companies drive the top line in the near term.

Industry Description
The Zacks Broadcast Radio and Television industry comprises companies offering entertainment, sports, news, non-fiction and musical content over television, radio and digital media platforms. These companies generate revenues from selling television and radio programs, advertising slots and subscriptions. These industry players are increasing their spending on research and development and sales and marketing to stay afloat in an era of technological advancements, with increased demand for VR and Internet Radio. The industry is likely to be focused on sustenance at current levels, along with a renewed emphasis on flexibility, which would accelerate the move to a variable cost model and reduce fixed costs.

Shift in Consumer Preference a Key Catalyst: To adapt to the changes in the industry, companies are coming up with varied content for over-the-top (OTT) services in addition to linear TV. The availability of streaming services on a wide range of platforms is helping these services reach a global audience. It is helping them expand their international user base, attracting advertisers to their platforms and boosting ad revenues. The use of services to help advertisers measure their ROI and enhance their use cases is expected to benefit industry participants. Major leagues and events such as the NFL, NHL, Olympics, European Games, EPL and elections also attract significant ad revenues.

Increased Digital Viewing Aids Content Demand: Many industry participants, either launching their OTT services or acquiring the same, are banking on user insights to deliver the right content. Increased digital viewing makes consumer data readily available to companies, allowing them to apply AI and machine-learning techniques to create/procure targeted content. The move not only boosts user engagement but also allows industry participants to raise the prices of their services at an appropriate time without the fear of losing subscribers.

Uncertain Macro-Economic Scenario Hurts Production and Ad Demand: Advertising is a significant revenue source for the Broadcast Radio and Television industry. Industry participants are bearing the brunt of persistently high inflation, rising interest rates, raised capital costs, a soaring U.S. dollar and an anticipated recession, which encouraged advertisers to trim ad budgets and are expected to impact their top-line growth in the near term. Moreover, industry players face stiff competition for ad dollars from tech and social media companies. This has been a significant impediment to industry participants’ growth.

Low-Priced Skinny Bundles Affect Revenues: Increased cord-cutting has forced industry participants to offer “skinny bundles.” These services, available through the Internet, often contain fewer channels than a traditional subscription and, therefore, are cheaper. The move is in line with changing consumer viewing dynamics, as growth in Internet penetration and advancements in mobile, video and wireless technologies have boosted small-screen viewing. The alternative services are expected to keep users glued to their platforms, increasing the need to produce additional content. However, the low-priced skinny bundles are likely to dampen the top line for industry players.

Zacks Industry Rank Indicates Bright Prospects
The Zacks Broadcast Radio and Television industry is housed within the broader Zacks Consumer Discretionary sector. It currently carries a Zacks Industry Rank #86, which places it in the top 34% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.

Before we present some stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Beats Sector and S&P 500
The Zacks Broadcast Radio and Television industry outperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Index in the past year.

The industry has gained 16.2% over this period compared with the S&P 500’s return of 16.1% and the broader sector’s rise of 7.2%. Finance Yahoo