Viacom founder Sumner Redstone once said that “content is king”. The time was the 1990s. Whether to own content assets or distribution assets was the question of the day. Technology, Media and Telecom (“TMT”) companies were positioning themselves for the “information superhighway”.
Today, content assets enjoy premium valuations. Look no further than Netflix (although the book of Netflix has yet to be written. Let’s see how the world views the company when Disney begins to pull content from Netflix in 2019), which is up 62% YTD, while Charter, Comcast and AT&T are down 22%, 22% and 16% respectively over the same period as consumers opt for OTT streaming services over cable bundles.
“Cord-Cutting” and “Cord-Nevers” are hardly new phenomenons. Cracks in the cable bundle began to appear years ago. Companies and analysts have modeled cable subscriber declines for multiple quarters. What is surprising is that companies and analysts are surprised by the rate of decline. Within the Technology sector history has taught us that the rate of decline is always greater than one initially estimates. When things “go south” they tend to go south quickly.
Perhaps it is human nature that companies tend to not position themselves for change fast enough. Change is difficult to accept. Thus, companies underestimate the rate of change. They are slow to on-board new DNA and new ways of thinking that may help them build muscle within the “new discipline”. As a result, disruption tends to come from new market entrants rather than from incumbents. Incumbents become observers rather than change agents. It is only logical that capital would flow toward the disruptors and away from those disrupted.