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A MOTLEY FOOL INVESTIGATIVE REPORT —
Dear Fellow Investor,
They say you should always invest in what you know.
And by "they," I mean legendary investors who've made BILLIONS of dollars in the stock market. Like Peter Lynch and Warren Buffett.
What it means for the winner-take-all "holy war" that companies like Google, Apple, Amazon.com, and Netflix are gearing up for this fall.
Some companies are poised to explode -- all 3 of them are up 30% this year already -- and they made a simple comparison that's really changed the way we look at the future of this $2.2 trillion industry.
We are about to take away something you love -- something 99% of us enjoy every day -- something that, in our heart of hearts, many of us have a deeper relationship with than we do with anything else in our lives.
You can still remember when Dad bought your first TV.
To some it was a Zenith. In a wooden cabinet! With a knob for VHF, and a dial for UHF.
In those days, TV delivered its promise of great entertainment. It was even free!
Monday night at 9:30 was Andy Griffith. Thursday night at 8:00 was Gilligan's Island. Sunday night at 9:00 was Bonanza. Bunny and Captain Kangaroo on Saturday mornings. Frank Gifford and Pat Summerall calling football games. Walter Cronkite reading us the evening news.
But somewhere down the line, that promise was broken.
Remember why most of us got cable or satellite TV in the first place?
Because it didn't have commercials!
Now it seems like there's nothing but commercials. Yet many of us still fork over more than two thousand dollars of our hard-earned money to those companies, year after year.
Even though their customer service is so bad that according to the American Consumer Satisfaction Index, three of the top five "Most Hated Companies in America" are cable providers...
Even though they're getting sued left and right for deceptive hidden fees, customer privacy violations, and monopoly practices...
Even though we're paying them good money for hundreds of shows that we'd never watch in a million years... just to get access to a few shows we really do love.
Do you know anyone who actually likes their cable company?
But like any bad habit, they've been a hard one to break.
Until now... Because for everyone who LOVES television but HATES being forced into a raw deal, there's been a lot of good news lately...
New Choices. In the past month, more than 200 billion videos were viewed online. And these videos include real, full-length TV shows. In fact, 83% of viewers aged 18-29 say they watch "some, most, or all of their shows online." And it's not just a youth phenomenon... more Americans are now watching videos online than on TV. 58% now say they no longer need their TV at all.
New Gadgets. The Sony Play station, Microsoft Xbox, and Samsung Smart TV can all pull your favorite TV shows directly from the Internet to your TV screen. So can the Boxee and the Roku, which cost around $100. A new web-based service called Aereo even does it with no "box" at all.
New Laws. On the morning of June 12, 2009 all television broadcast signals became digital instead of analog. That means TV shows are now downloadable "data" that we can watch conveniently on a computer, Smartphone, or iPod. And, as The Wall Street Journal points out, it also means that the cable and satellite companies are keeping another "dirty secret"... they're hoping you won't realize that crystal-clear, high-definition viewing of "most key sporting events and every network TV show" takes nothing more than a new pair of digital rabbit ears!
New Independence. According to Forrester Research, 45% of households will soon own a device that allows them to "time shift" their viewing (like a DVR). By skipping commercials and breaking out of the network programming schedule, viewers can make TV a personal experience instead of a mindless "broadcast." And 94% of us are also enriching that experience by multi-tasking with emails, text messages, cell phones, and social networks while we watch.
All these trends are starting to add up in a big way.
Because the percentage of households with a cable or satellite subscription is now declining for the first time in the history of television.
3 million Americans have already cut the cord, including 425,000 in the past 3 months alone.
And according to Credit Suisse analyst Stefan Anninger, those "cord-cutters" are joined by a new group: the "cord-nevers." A full 83.1% of new households are choosing to live without pay-TV.
No wonder Business Insider agrees that the cable & satellite industry is "starting to collapse"...
Back in 1993, a man named Gordy Thompson worked for the New York Times. His job title was "internet services manager," and I'm sure the big bosses at his company had no idea who he was, or what that really meant.
What did he try (and fail) to warn them?
“When a 14 year-old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem."
See, Thompson was in the habit of hanging out on internet message boards.
And he had noticed that fans of the Miami Herald's popular humor columnist Dave Barry were re-posting Barry's columns online, so people who couldn't read the Herald could enjoy them.
In other words, the greatest competitive threat for newspapers was... the popularity of their own content! People wanted more of it, and they wanted it instantly.
We still read newspapers in 2012. In fact, we read them more than we ever did! But we don't read them in quite the same way -- and that means newspaper publishers and investors have watched helplessly as more than HALF of their money swirled right down the drain.
Without an emergency loan from an eccentric Mexican billionaire (the richest man in the world), even the grand-daddy of them all, The New York Times, would have gone bankrupt.
Travel Planning Industry
Big Box Retail Industry
Probably so. Because it's the same thing that happened to the book industry with Amazon.com and now e-books on demand. It's the same thing that happened to the financial industry when we started trading our own stocks online instead of using traditional stockbrokers. And to the record companies that once ruled the music industry with an iron fist.
Did people stop traveling? No... they stopped paying travel agents. Did people stop talking on the phone? No... in fact, they started carrying their phones in their pockets wherever they went! Did people stop buying stuff? No... but enough of them stopped buying it at big box department stores that the industry is now collapsing almost overnight.
And you better believe there was a Gordy Thompson every time, sounding the alarm.
Telling the corporate bosses, and the Wall Street know-it-alls, to read the writing on the wall.
People want what they want, when they want it, where they want it, and how they want it!
... And if we don't figure out a way to give it to them, they'll get it somewhere else.
But those guys never listen... even though we ALL agree that the Internet is still in the process of transforming our daily lives.
Even after we've seen it make forward thinking investors mega-rich, and bring once mighty industries to their knees, TIME AND TIME AGAIN.
Robert Johnson said about the shaky state of the cable industry last month at a conference in Sun Valley, Idaho.
"In the next two or three years, something's got to give. At some point, the consumer is going to say enough is enough."
He’s one of the most powerful men in the pay-TV business, warning his fellow fat cats that their bloated, inefficient industry may collapse by 2014...
TV isn't just the next great transformation of the Internet Age... it's the BIGGEST one of all.
The "powers that be" may refuse to believe it, but it's already happening right in front of our eyes.
See, the real revolutions are the ones that happen so quietly, and so completely, that you never even notice them until they're already over...
And then you have trouble remembering that they happened at all... because the new way of doing things just seems better, and more natural.
Meanwhile, Wall Street insiders stuck to the same dirty game. Losing trillions of our money on "derivative swaps" and "flash crashes." Almost causing a second Great Depression. And scaring ordinary investors away from the stock market, by making them lose faith in the proven power of capitalism to create life-changing wealth.
When it comes to investing, having a great idea is just the first step. Even when you're certain about a history-making change, like the death of cable, you still need the guidance to know what companies to invest in... and how.
We've identified 3 stocks that are already benefiting from all these new trends in TV. And over the coming years, we're convinced that these stocks will skyrocket.
Just like Amazon.com and Priceline.com did, or quite possibly even MORE.
Even though some shows are free to watch online, there was no way that the ones I like to watch were available.
There are 20 most popular shows on TV. The green ones are all available to watch online, the red ones aren't:
Can I watch it online?
1. Sunday Night Football
11. Criminal Minds
2. American Idol
12. 60 Minutes
13. Modern Family
4. Dancing with the Stars
5. NCIS: Los Angeles
6. The Big Bang Theory
7. The Voice
8. Two and a Half Men
18. Blue Bloods
9. The Mentalist
10. Person of Interest
20. Hawaii Five-O
The first item on that list is the most important one.
Because for years now, live sports programming has been the one insurmountable obstacle standing in the way of mass cord-cutting.
But Sunday Night Football is just the beginning.
Turns out every Major League Baseball game, every NHL hockey game, every NBA basketball game, and every "March Madness" tournament game is available online for free or for a low subscription price. So is a lot of ESPN's content.
Even the NFL is inching toward direct distribution. In addition to the Sunday night games, you can watch every other game online with a "tape delay"... And even if complete live football coverage online takes another year or two, I can still watch my local teams on a free high-definition local broadcast signal.
Thinking like a football fan helped realize that, no matter what our favorite shows are, as soon as you have a better (and cheaper) way to watch them, cable or satellite TV doesn't make much sense.
And that's why this will be...
The last cable bill I ever pay:
Which means it's also the last time I'll ever get lost in their endless maze of phone menus and buck-passing telemarketers.
The last time I'll ever wait for them to come to my house "sometime between 8:00 and 6:00" to make an installation or repair.
And the last time I'll ever have to pay for hundreds of shows that I'd never watch in a million years... just to get access to a few shows that I really do love.
Think about it. Millions of Americans dropped newspapers, long-distance telephone service, bookstores, traditional stockbrokers, record companies, travel agents, and department stores, even though they were actually quite happy with those businesses.
It's just that something better came along.
And here we are still clinging to this outmoded television delivery technology that we're all really unhappy with, and that we've put up with for far too long.
But taking action as a consumer isn't enough. It's also time for us to take action as investors.
Here's the truth, though. Even though I've worked at The Motley Fool for more than 15 years, I still feel pretty gun-shy about investing in a huge, multi-trillion dollar market like the entertainment industry.
There are so many stocks to choose from, so it's hard to know which companies have a sustainable competitive advantage. Or when the best time is to pull the trigger.
Even if we quit cable, won't we still be paying those same #$!&(&*$ for our internet service?
What was Google up to in Kansas City?
And why was the local cable provider, Time Warner, so paranoid about it that they were trying to pay city employees to snoop on it?
Well, it's called Google Fiber. And it could be just as revolutionary as Google's search engine was when it debuted...
Making our internet connections 100 times faster (fast enough to watch TV and record 8 other "streaming" shows in high-definition all at once, with no herky jerky download delays). And all for the same price most of us pay our cable companies for internet right now.
In other words, it will completely break down the wall between television and the Internet. And put the cable companies out to pasture.
CNN Money is calling Google Fiber an "audacious bet."
Basically, Google wants you to use the Internet faster. That way you'll visit their sites even more, and they'll make even more money, just like they did when they started selling their "Android" smart phones.
With $41.7 billion in cash on its balance sheet, Google can afford to wait for that payback. And they have one more advantage that can't be overcome by a purple flyer campaign either...
It's buried deep underground. Where all of the other companies that tried to build a fiber-optic information superhighway over the years (including the cable companies) left a lot of unused wiring. It's called "dark fiber," and Google is quietly buying it for pennies on the dollar.
Meanwhile, they're plotting their next move -- even placing help-wanted ads for national sales representatives on their company website.
Which is leading some technology watchers to conclude that the Google Fiber experiment in Kansas City "is not a test" but rather "a takeover plan."
Why Google Fiber and Apple TV are just the beginning...
As you can imagine, Google could be your big winning investment in "Television 2.0."
Research has now convinced us otherwise. You see, Google Fiber isn't the biggest immediate threat to the cable companies. Because it might take a few years to complete its nationwide roll-out.
What would really make you sweat if you were the CEO of Comcast, Time Warner, or DirecTV, is a tiny detail buried on page 555 of Steve Jobs, the best-selling official biography of the Apple CEO written by Walter Isaacson.
This is the key quotation, from Steve Jobs himself:
"I'd like to create an integrated television set that is completely easy to use.
It will have the simplest user interface you could imagine. I finally cracked it."
See, even on his death bed, Jobs was toying with his biographer, not wanting to reveal too many details about Apple's plans for TV.
But those details are starting to trickle out now, as Apple leads up to a major announcement on Wednesday, September 12th.
Apple quietly filing a new patent that allows a television to seamlessly skip commercials. Could be for use in their $99 "set top box," which already sells more units than their computer division. Or maybe they have something even bigger in mind...
A new survey from the market research experts at Quixel, showing that 80% of current television owners would be interested in buying an Apple device that merges the power and versatility of a computer with the convenience of a TV. Even though these Apple's TV could cost upwards of $1,500.
An executive who once held a top position at Apple bragging to Bloomberg News that TV is "Apple's game to lose."
A Wall Street Journal exposé revealing that Apple recently held high-level meetings with the top cable and satellite companies.
So while some say Apple's announcement on Wednesday will be about the new iPhone 5, or about a smaller version of the iPod...the truth is, Apple needs a bigger splash than that to justify the sky-high stock price that comes with being the most valuable company in the history of the world.
That's why Barron's calls the announcement "an event well worth watching."
Why Computer World thinks that Apple is preparing a "sneak attack" on the TV market. And why The Atlantic says "Apple wants to be in your living room. And it doesn't want to settle for being the screen in your lap while you watch TV. Apple wants to be the TV."
You may need to act NOW if you want to position yourself for maximum profit in the "holy war" for control of television that will be waged in 2013 and 2014.
But remember, it's a war with a lot more than two sides. And the winner will take most investors by surprise.
Let's survey the scene...
There's the cable and satellite companies clawing to hold onto their trillion dollar revenue stream.
Meanwhile, there's Google attacking through its fiber optic wires underneath the street.
Now Apple opening a new battlefield in the living room.
Not to mention other industry heavyweights that already offer popular "Television 2.0" services with a far greater toe-hold than Google Fiber or Apple TV.
Like Amazon, which has more than 10 million video on-demand subscribers in its Prime service.
Or Netflix, which has more than 27 million subscribers watching movies and TV shows through its interface.
The brilliant strategy is, it doesn't matter which corporate giant gains a decisive advantage in this war...or when.
Because as long as you know how to invest in these 3 stocks, you're in good position for any outcome.
But the right opportunity might come along once in a decade.
And even when it does, you have to know how to take advantage.
Because truly timing the market -- picking a stock on exactly the right day, the right week, or even the right month -- is impossible.
Nobody in the "circus" admits this, but it's true.
Good investments are made for the long term. I don't mean 100 years. 5 is plenty. 10 is even better.
You see, it doesn't take much to be "long term" when we're talking about Wall Street. The trading computers that Goldman Sachs and the other big banks use to move most of the world's money around change their mind every nanosecond, all because some other trading computer changed its mind.
Because what does matter...what really builds life-changing wealth for ordinary investors like us...is understanding the long-term, big-picture historical trends that impact our lives.
Like the way the Internet is disrupting traditional industries like cable television and changing them forever.
And strangely enough, that means making great investments is easy.
"If You've Got Content, You're in a Great Position"
That's how Robert Johnson described the future of television.
Remember, he's the entertainment industry CEO who raised eyebrows last month by sounding the alarm about cable TV's impending demise.
"Do you like eating Cheerios?"
It was an odd question. Of course I like eating Cheerios! So does my family. So does everyone.
Now ask yourself this, they said...Do the Cheerios in the 12-ounce box taste better than the ones in the 15-ounce box or the 18-ounce box?
Would you drive further to buy Cheerios at your favorite grocery store? Would you pay more?
I love Cheerios. (Better than Raisin Bran or Froot Loops.) I eat Cheerios. (Every morning!) But I don't really care that much about who I buy them from or what kind of package they come in; I just care about convenience and price.
That's when it hit me.
They were saying that TV was basically the same.
What we really love are TV shows. Right?
My daughter likes Glee. My son likes Family Guy. My wife likes Top Chef. And I like football.
It doesn't really matter what screen we watch them on, or what time of day...or what network, cable company, satellite dish, website, app, or gadget delivers them to us.
Our shows are our shows!
A recent Forbes magazine article agrees. It starts with an alarming headline: "The Death of Television"!
But it goes on to explain that rather than dying, TV is about to be reborn.
And in the world of TV 2.0, we're in control.
The article states that:
And that means they'll start making their money by doing what we want, instead of what those middlemen want.
In fact, if you've been reading the news lately, you know that the content providers have already made their first move.
Like the AMC channel (home of Breaking Bad and Mad Men) staring down the Dish satellite network.
Fox playing chicken with Cablevision and almost blacking out a 2010 World Series game.
Viacom (which makes The Daily Show, Jersey Shore, and Spongebob Squarepants) strong-arming DirecTV.
The Starz movie network pulling out of Netflix.
And the Madison Square Garden channel taking its New York Knicks games away from Time Warner cable during the height of "Linsanity" this spring.
That's why a new Wall Street Journal report wonders if the big distributors are "in denial."
(It also goes on to reveal one more juicy detail...turns out that the children of Charlie Ergen, the founder of Dish Network, are cord-cutters too. Talk about bad publicity!)
Why you need these 3 stocks NOW
We've seen that on-demand direct distribution to the customer changes everything.
Just like it did for online airplane and hotel bookings with Priceline.com, and online purchases of books (and just about anything else) on Amazon.com....
Which gives content providers the upper hand -- regardless of whether they're going through traditional carriers like Cablevision or Time Warner, or new challengers like Google, Apple, and Netflix.
Here's even better news -- for YOU.
These three winners are about to go on the kind of epic run we only see once every 10 years or so.
And it's hard to disagree. Because as you've seen in this report so far, the next revolution in television has only just begun.
Once more people find out about Google Fiber and the new Apple TV set over the coming days and weeks...the war for the living room will be what everyone's talking about.
And that means even the Wall Street skeptics will finally come around...
Which gives you a short buying window.
I wish I could tell you the name and ticker symbol of these 3 uniquely positioned stocks. And if it were up to me I'd probably just spill the beans.
But my friends in the Motley Fool customer service department tell me I can't, out of respect to the members who are already paying for our Stock Advisor service.
That seems fair. But since you've stuck around with me this far, I want to do two things for you.
First, I want to give you some further information about these 3 companies. For some of you, it might be more than enough to guess their identity...
Company A is an $89 billion powerhouse that owns more than 100 global television networks, plus 7 movie studios, 4 video game companies, and hundreds of websites. Not to mention a chain of language schools in China that will soon have 150,000 students. And a little-known research laboratory that's developing the next generation of TV technology. (Like a new system that lets you use any object in your house -- including your couch, your coffee table, even a glass of water -- as a remote control).
Company B rose from the ashes of a declining newspaper empire. Now it's cultivating a niche TV audience that's especially attractive to advertisers. Allowing this company to generate more than $2 billion in revenue from just 1.7 million viewers...At $1,290 "revenue per viewer," that makes its programming 76% more profitable than the average television network.
According to Investor's Business Daily, even though the entertainment industry is extremely lucrative, it actually has "a puny number of high quality stocks." And those are two of them.
Company C didn't make IBD's list...because it isn't really an entertainment company. In fact, even though it operates some of the most popular channels on TV (reaching more than 1.5 billion viewers in 180 countries), its business model is completely different. Its most important customers are actually elementary and high schools. And now it's entering another $25 billion education market with a breakthrough product that's half of the price of the traditional choice. So you can see why this company has been able to grow its quarterly earnings per share by a fantastic 22.5% in the past year.
I hope that information was helpful.
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