The global television industry is in the midst of a digital revolution. Online video has been spreading like wildfire, empowering consumers to watch what they want when they want it, sometimes cutting TV out of the equation altogether.
Networks, with their long legacy of linear programming (that is, airing news, sports, and entertainment at set times), are fighting to stay relevant. Cable and satellite companies, too, have seen their traditional bundles come under attack from a slew of streaming à la carte offerings. Content producers are scrambling to develop hit shows that can help networks and digital aggregators differentiate themselves and capitalize on evolving consumer preferences.
With so many across the industry jockeying for position, the market for media stocks has become extremely volatile. In August 2015, The Walt Disney Company reported lower than expected earnings—the result, in part, of ESPN subscription losses—fanning widespread fears that viewers are opting for less pricey cable bundles or dropping cable altogether. (See Exhibit 1.) Industry giants, such as Twenty-First Century Fox, Time Warner, Liberty Global, Sky, Dish Network, CBS, Viacom and, of course, Disney, all hit near-52-week lows, raising fundamental questions: Which companies will emerge as victors in the digital age? Which business models will prevail? Will current industry leaders retain their winning positions, or will they crash and burn?