The holding company Nomura made a push into equity research last spring by hiring a number of significant analysts in various fields, including Michael Nathanson to lead the media and telecom team.
Nathanson just released a bullish report on the media sector that said, "people are watching a lot more TV than ever before. Consumers are spending more on media products than they ever have—they are not buying cars, they are not buying new shoes, they are buying media products."
"This sector is probably better than people think. And if you look at the valuations, things have gotten very cheap, there is a lot of negativity around the group—but fundamentally the drivers are in place," he said.
The three key drivers are:
- "Advertising as it relates to GDP is almost at a 70 year low. We are now at a place, in terms of the bottom of the ad cycle. Even though this is a good year, we have a long way to go to get better. So I think advertising is going to really start improving off of the bottom."
- "Consumer spending is a big driver. People are spending more and more money on cable television and ISP's [internet service providers] and they are basically taking money out of other discretionary items in their budgets to support media."
- "The affiliate fees that cable operators and satellite companies pay are coming in stronger and stronger. That's a big part of the industry's growth and it's taking an increasing share of company revenues. It's driving more and more profitability."
Nathanson added, "These companies are in a better position than they have been in a long time."
So, with more and more options for consumers to get their media from the Internet, will they start unplugging their cable?
"The companies that control the content understand what happened to music, what happened to newspapers and they are not going to give away there content for free to a Netflix, to an Apple TV. They are charging money for that content that is higher than the current price of content," Nathanson concluded.
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