Investing

Return to Article

JBL: Revolution Calling

John Layfield

In the beginning of the 20th century, there was the automobile boom. In the middle, there was the television boom. At the end, there was the Internet boom. This century starts out with another boom: the new age of media content.

During every boom a lot of money is made and a lot is lost. This boom will be no different; that's what makes it so exciting.

Up until the Internet boom we received content either through TV, radio or newspaper. Now, throw all of that out the window, because we are entering a new era in which the Internet is a huge, although not exclusive, part of content delivery.

The heady predictions about the Internet in the 1990s are now coming true. Internet phone calls, online bill paying, downloadable music and movies, exclusive Web video content, online banking, the transformation of cell phones into our personal computers and high-speed Internet access on those cell phones are now the norm.

In 2000 just 5 million Americans had high speed access. By 2005, the number had grown to 73 million, according to the Pew Internet and American Life Project. Just think, how few people even had cell phones 10 years ago.

While the Net is still an unbelievable growth story, the thing that is truly shocking to me is how the ways in which content is distributed are changing almost daily.

Apple (AAPL Quote) changed how we listen to music. They may not have been the first, but they were the ones that changed the landscape of how music is delivered to consumers. The iTunes music store has sold more than 1 billion songs. Apple will do the same for video content, and I believe its stock is a buy here.

Traditional terrestrial music radio stations are dead; some just have not realized it yet. There are too many ways to listen to music, from iPods to satellite radio. The only thing that is not dead in radio is original content, which cannot be replicated. Anything that can be replicated (e.g. music) is dead.

High definition (HD) radio will technologically leapfrog satellite radio. XM Satellite Radio (XMSR Quote) and Sirius Satellite Radio (SIRI Quote) still have a pulse, but they are on life support. They may find a niche, but it will not be the widespread market that many once believed.

On April 24 Clear Channel (CCU Quote) announced that its HD radio service, Format Lab, will be expanded from 28 to almost 50 cities. Clear Channel has 196 stations in 48 markets that are now capable of receiving digital radio and is working with Motorola (MOT Quote) to deliver programming content to cell phones. HD radio will be able to tailor content for local audiences.

There will be many companies that offer HD radio with many channels and local programming. This will be the first nail in the coffin for satellite radio.

On the Go

The cell phones is becoming an indispensable tool in modern life, just as the PC did in the 1990s. Cell phones that play music, videos, video games, and, of course, provide high-speed Internet access, will soon be the norm.

Sling Media's Slingbox already allows consumers to hook up their phones to their TIVO (TIVO Quote) and watch whatever signal is on their television via their cell phone wherever they are. Talk about amazing. By allowing only one stream at a time, the technology avoids copyright infringement.

Advertising agencies are going to have to morph quickly and often to keep their customer's ad dollars well spent. However, the content distributors that also sell ads will potentially make money from ads and subscriptions. This is what the television networks have in mind when they allow their shows to be downloaded almost immediately after they are broadcast. It's also what CBS (CBS Quote) is aiming for with its newly launched free broadband channel called "innertube". In fairness, this is what XM and Sirius have in mind as well.

News Corp.'s (NWS Quote) recent $1 billion-dollar buying spree of Internet companies signals its belief in the Web as a distribution method for content. Its MySpace.com unit has gone from 32 million users to 65 million and could soon overtake Yahoo! (YHOO Quote) in having the Web's biggest audience. Mr. Murdoch has claimed the future of Fox is Internet and radio.

Within the content-media company space, I believe News Corp. is one of the more compelling stocks to own. (Full disclosure: I am a regular guest on Fox News.)

When the railroad boom first came along, the only safe play was the railroad track. In the same fashion, I believe the mobile phone content enablers are a great play.

I profiled VeriSign (VRSN Quote) on April 8 because of its acquisition of m-Qube, a content enabler. Motricity is a pure play that will go public later this year. MSpot is a privately held company that works closely with Sprint (S Quote) that brings audio and video to phones.

In the next few years, the way we view content will be forever changed. Those who find the best ways to distribute that content will become very rich. As an investor, this is one of the most exciting times to watch and invest in the new media age.

Feeling at Home

This week I bought some homebuilders. I am not a contrarian; I just believe they are priced at virtually liquidation levels. I bought Hovnanian (HOV Quote), Standard Pacific (SPF Quote), and some more shares of Toll Brothers (TOL Quote).

It's the oldest adage on Wall Street: Buy low and sell high. However, to buy low, you have to have the courage to go against the grain.

Remember, being poor is bad, staying that way is stupid.