The Media Year on Wall St. 2011 - 1-6

2011 was a pretty good year for media stocks. The ContentNext Media Indexended the year up almost 5%, compared to mostly flat for the S&P 500. But the path to eking out mid, single digit gains took investors through highs and lows of +/- 10%. In a very tough year for global markets (many down double digits), media stocks held their own.

Opening — and expansion — for new media competitors

New media firms used 2011 to land grab their way into becoming strong competitors in the media space. Amazon.com (AMZN) made big moves to get into the publishing space (landing Tim Ferriss) in addition to controlling both physical distribution (Amazon.com) and virtual (Kindle). Amazon's huge launch of the next generation Kindle (the Fire- really, a tablet) shows the firm's commitment to owning distribution. At one point, Amazon was up over 30%. It ended the year −4%.

Apple (AAPL) continued its push into the media space, expanding its dominance of consumer media devices with strong iPad tablet sales. The stock performance shows the market's confidence in the device-to-content approach Apple has taken. In spite of losing its iconic leader, Steve Jobs, to his battle with cancer, the stock still rose 25% in 2011.

Google (GOOG) has been quietly bolstering its media offerings to compete against newfound rivals Amazon and Apple. Overall, 2011 was a good year for the search firm. YouTube went on a hiring binge, ramping up its growth, expanding its workforce by 30%. New video uploads and time on the site exploded in 2011. An average 35 hours of video are uploaded to YouTube each minute and two billion videos are watched daily at the website. Those eyeballs (and new advertising revenues), the long-awaited launch of Google Music and now expectations of an upcoming Google tablet plus anticipation of an expanded Google TV initiative drove Google stock up about 11% this past year.

Adoption of new technologies

Some future technologies made a huge step closer to mass adoption this year. If the next frontier for television is Internet Protocol TV (IPTV), it's not being lost on the industry. Amazon has acquired content from CBS (CBS), and Apple (AAPL) is toying with a bid for Hulu. According to Janney Capital Markets, Amazon, Apple, and Google (GOOG) will be the ones to keep an eye on in this space from here on out.

As collaborative, interactive technologies are converging with traditional television, some participants used 2011 as a year of tremendously successful experiments in Social TV. As we showcased in our 2011 Social TV Summit Report, this is the first year in more than a decade that networks like ABC, CBS, Fox TV, Univision, and Telemundo are all showing ratings growth — and it's coming in no small part from Social TV initiatives. Using Facebook, Twitter, Shazam, Get Glue, ClipSync, and several other VC funded social TV resources, most networks are engaging those 76% of college age people who are using a second screen while watching T.V. Social TV is well on its way to attracting $10B in incremental advertising dollars, of which 70% will go to the legacy broadcast and cable networks.

Decline in subscriber growth

In fact, this past year was one of firsts - perhaps the first time satellite TV saw negative subscriber growth. According to MediaBiz, the second quarter of this past year was just dismal for pay TV. Comcast (CMCSA) performed well (up about 9%), while Time Warner Cable (TWC) dropped 4% through the course of 2011. Satellite provider DISH Networks (DISH) had a roller coaster year: at one point, it had risen over 50%, only to drop 30%. In spite of this wild ride, the stock still returned almost 50%.

Netflix (NFLX) also announced major changes to its movie subscription business only to back down later after seeing tremendous customer defections. In a move that looks silly in retrospect, Netflix announced it would be splitting its mail-order DVD rental business out from its streaming offering. While the stock is up 16% over the past month, it's still down over 50% over the past year.

Advertising: good 2011, questions about 2012

2011 saw a further rebound in advertising revenues and many of the stocks that play in this space saw positive results, like Disney (DIS) which was up 5% on the year and boosted its dividend by 50% from strong cash flow. Analysts question the impact a sluggish economy will have on the media business this year and many research firms recently revised their projections downwards. Jack Myers Media Business Report will issue our 2011-2014 forecasts for 62 media and marketing categories in two weeks.

Fresh blood, new profits?

2011 was a year of horse-trading top execs at a few of the leading media firms. Scandal-ridden News Corp (NWS) decided to distance itself from the phone hacking scandal by removing various Murdoch's from powerful posts in the firm. The company seems to be weathering the changes well — the stock is up 14% over the last 12 months.

Though Yahoo's announcement this week that it would hire Scott Thompson as its new CEO didn't technically occur in 2011, a management change has been long in the works. Investors were less impressed with the media firm's new leader (stock down 2+% this week) than they were about news that the firm was attempting to divest certain assets (+7%).

Sony (SNE), Apple (AAPL), Google (GOOG) and IBM (IBM) have all seen changes in their senior corporate ranks this past year.

Newly minted IPOs

Investors saw their investment options increase in 2011 as some of the leading Internet media firms made their way to public markets. Among others, we saw IPOs of Groupon (GRPN), LinkedIn (LNKD), Pandora (P ) and Zynga (Z). Many of the Internet IPOs were initially excitedly received by media investors but were, for the most part, sold off as the year wore on. Regardless, these new media companies are now flush with cash, raising billions to be used for new product development and marketing. New players are also getting into the game: NorWesTech (NWTH) isn't IPO'ing, but it just acquired the Grandparents.com domain name, as it's making a move into the AARP-benefits type model by targeting an aging population online.

Zombies, Vampires still cool

AMC Networks (AMCX) has hit the jackpot with its Walking Dead franchise about zombies. AMC distributed a press release announcing the news this week that the company's runaway hit was just signed on for a third season. Two weeks into The Walking Dead's second season, an episode drew an audience of 6.7 million viewers for an early airing and another 2.1 million viewers for a same-night repeat.

2011 also saw the third installment of the Twilight Saga with Breaking Dawn: Part 1. Its $100 million opening weekend answered any questions about the continuing fascination with teenage vampires. The film has already grossed over $240 million.

Summary

2011 was a great year for the media industry and while the economic future is a bit cloudy, new technologies, distribution platforms, and enlivened competition will make for a very interesting next couple of years.