What Is Content Really Worth?

Since the tech bubble implosion in 2000, new rules were put in place that dramatically changed the way investment research was done. And it's hard to find the good stuff outside of a paywall now. But Briton Ryle has some insight... You are receiving this email because you subscribed to Wealth Daily. [Click here]( to manage your e-mail preferences. [Wealth Daily logo] What Is Content Really Worth? [Briton Ryle Photo] By [Briton Ryle]( Written Jul. 15, 2019 In 1996, Bill Gates wrote an essay titled "Content is King." It's a remarkably prescient piece that starts with this little chestnut: Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting. In it, Gates predicts that much of the content on the internet will one day run on a subscription model. Yes, he includes software as a form of content. Today, that vision is in full effect. (Though it's ironic that Gates' protégé, Steve Ballmer, wasn't the one to bring Microsoft into the subscription era. That task fell to the most underrated CEO out there today: Satya Nadella.) I've been in the subscription content business since about the time this essay made the rounds. And I've watched the amount of useful free content on the internet dwindle steadily. In just the last six months or so, one of the last bastions of free economic/investment content put up the paywall: Bloomberg. So I've got a rooting interest in the trend of investment research. In the wake of the tech bubble implosion in 2000, new rules were put in place that dramatically changed the way investment research was done. There's just not as much of the good stuff anymore... Sure, you can find plenty on the large-cap stocks. But the best research on Wall Street is reserved for high net worth clients. By the time you hear that Goldman Sachs has added a stock to its conviction list, those clients have already loaded up. You're just not gonna hear about an emerging superstar stock like Twilio (NYSE: TWLO) — which Wealth Advisory subscribers bought at $31.71 and which is now over $140 — from the Goldmans of the world. Your Single Advantage Over Warren Buffett Could Make You a Million By Winter’s End He’s the biggest, richest investor in history, with enough money to run a small country. But there’s one thing he can’t do that you can... And he’s admitted it publicly. [He absolutely cannot buy a very specific class of stock](, due solely to the very thing that makes him a legend: his wealth. And it’s this exact class of stock that makes millionaires faster than any other, bar none. Warren Buffett can’t take advantage of it. Not for himself or for his clients. But you can. In fact, you can be invested in just minutes, without leaving your chair. [Click here and find out how.]( Content Wars The thing about Wall Street analysts is that they don't put "what ifs" into their earnings models for stocks. You can see why this would be so. Their bosses don't want to be held accountable for assumptions that don't pan out. That's reasonable if you're a giant wuss and your high net worth clients only need to make 8% a year to stay in the 1%... For instance, think back to the corporate tax cuts. Consensus was that a tax cut would be pretty bullish. Buybacks would increase, corporate investment would increase. You know how many analysts raised their earnings estimates for the S&P 500 or hiked their price targets for individual stocks? Exactly zero. Because they can't plug an imaginary number into a model. But once those earnings started coming in, it was a race to raise earnings estimates and price targets. Thanks for the head's up, ya jerks. Here's another one. After first quarter earnings this year, Disney said it would give details about the coming Disney+ streaming service on April 12. Analysts said, "Okay, see you then." I said, "Hey Wealth Advisory subscribers, buy Disney before that day." We're From Wall Street, and We're Here to Screw You It's not rocket science. It's about rational thinking and honesty. We all know how much content Disney has. We all know Disney is a major owner of Hulu (Seinfeld, SNL, etc.) and also Fox (so it had stuff like The Simpsons). We've seen the success of the Marvel and Star Wars movies. But Wall Street is still gonna tell you, "Oh, I don't know, Disney+ might not be amazing"?? You know how to tell if a Wall Street analyst is lying? Check out this Disney chart. You can see the "stealth buying" ahead of Disney's announcement plain as day... again, while Wall Street was telling you, "Oh, I don't know, Disney+ might not be amazing." (?!?) [DIS breakout] Bank 1,000% on the Death of Comcast America’s most hated cable company is standing on its last leg. And it’s not because of terrible customer service or mediocre products. It’s because of a technological shift that’s scheduled to start in late-2018. It's a shift that could earn you 1,000% gains as three companies bring down big cable. [Click here for their ticker symbols.]( Now, I'm gonna tell you something else Wall Street won't: Content is being grossly overvalued right now. I'm not going to call it a bubble (because I don't like that word), but I will tell you that there will be some very big losers in the near future. In addition to Disney+, AT&T is going to launch an HBO streaming service that will include a bunch of Time Warner content. Discovery/BBC is coming. Original content from Apple TV is coming. Throw in existing Amazon Prime and Netflix, and it's a bit of a mess. Content Company Market Caps AT&T (T) $245 billion Netflix (NFLX) $165 billion Amazon (AMZN) $990 billion Apple (AAPL) $935 billion Disney (DIS) $260 billion That is over $2 trillion in market cap. Obviously it's not all based on content. In Disney's case, its movie division did $10 billion in revenue in 2018, and ESPN did $24.5 billion (total revenue was ~$60 billion). One of these companies is not like the others: Netflix. It doesn't own much. And Disney and AT&T are pulling their content from Netflix. Right now, Netflix is the big fish in terms of subscription revenue. Over the last 12 months, the big fish Netflix did $16 billion in revenue. That's it. Granted, streaming content is an emerging business. Still, even if we multiply Netflix revenue by 10, it doesn't support the valuations we see above. Not even close. Netflix is the obvious big loser. The small profit it reports is the result of accounting hocus-pocus — the company spends nearly all its revenue on (what else?) content and has negative cash flow. Wall Street isn't going to tell you that. They're gonna let you think everything is hunky dory there until THE BIG ONE hits. But I guarantee you Wall Street and their high net worth clients are getting positioned now, just like they did with Disney. Until next time, [brit''s sig] Briton Ryle [[follow basic]@BritonRyle on Twitter]( A 21-year veteran of the newsletter business, Briton Ryle is the editor of [The Wealth Advisory]( income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the [Real Income Trader]( advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the [Wealth Daily]( e-letter. To learn more about Briton, [click here.]( Enjoy reading this article? 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