Despite recent share price declines as a result of the Nasdaq shakeout, the media sector remains at the top end of performance tables. Following a very strong 1999, which saw the European media sector rise by 82 per cent, this year has also got off to a flying start with a gain of 26 per cent to date. While the market has concluded that media will prove to be an Internet winner, there is no universal conclusion as to whether content is king or the balance of power lies with distribution. Consequently, a central focus for Sharetrack investors may become the unification of old-media content with the global audience offered by the web, similar to the recent AOL/ Time Warner merger.
Although this deal was hallmarked as a defining transaction, the alliance route is only one path open to media companies. Indeed many players intend to invest heavily in developing innovative organic distribution platforms. A good example is Reuters, which recently announced an investment of £500 million sterling to facilitate the migration of its business and news services to web technology.
A key factor in the sector's favour is that unlike other constituents of the TMT (technology, media and telecoms) world, performance is being driven by leading established media companies with proven track records in terms of profitability. Strong fundamentals including key content and trusted brands coupled with mass and defined customer relationships underpin core operations such as newspaper publishing and broadcasting. This in turn provides the cash flow to fund investment in new technologies. For example, BSkyB aims to have five million subscribers by the end of 2000 as a result of the free distribution of digital set top boxes.
Whilst more traditional metrics still play their part in the analysis of the sector, a greater emphasis on the sum of the parts valuation is emerging. Essentially, this recognises the contrasting value between higher growth activities and more traditional businesses within many media companies. This is evident within Independent News & Media for example, which intends to spin off iTouch, (which provides content and software for mobile phone operators) from its more traditional business of newspaper printing.
Although the printing press may be waning, the impending race to Internet land has yet to take full flight. In the interim, Sharetrack investors could do worse than maintaining their current momentum in the media revolution.
Laura De Voy and Shane Lynch are employees of Goodbody Stockbrokers.
