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Investing in the new media: A perfect Internet and TV play

Posted January 7, 2008

‘For longer-term investors, there is no denying the potential upside of this deal. It could create an empire that dominates for decades. ’ – Andrew Snyder

By Andrew Snyder

Baltimore (TFN) — Wouldn’t it be nice to own a stake in a company that does well when all others are running in fear? It would relish the news of wild fires, tornadoes, droughts, floods, and even Category-5 hurricanes. The worse the natural environment, the higher its profits.

Even better, wouldn’t it be great to own a piece of a company that boasts the sixteenth most popular Web site in the world, with more than 34 million unique viewers? Or a company with double-digit sales growth on revenues exceeding $1.75 billion?

Companies with this much unique profit potential are rare. It is even more extraordinary when such gems are put on the auction block. But that is exactly what Landmark Communications is doing with its media-powerhouse, the Weather Channel.

Nearly every person in the nation wants what the Weather Channel is offering. We all need to know the day’s weather forecast and we yearn to witness the weather-related events happening all across the globe. With the company’s undeniable talent for glamorizing even the smallest natural phenomenon, we often find ourselves tuned into the station for hours, long after viewing the regional report we tuned in for. A broadcast model like the Weather Channel’s formula is the envy of television producers across the globe.

Even better, when viewers are not plopped on their couches watching the weather unfold, chances are they are at least glancing at the outlets latest updates on its Web site, weather.com. In today’s digitally enhanced world, the Weather Channel has ensured it holds an omnipresent role in our lives. That makes it a potential goldmine for the right buyer.

Reality TV at is best

The Weather Channel is a unique offering amongst its media brethren. It does not have to depend on an expensive team of writers to develop the next season’s must-see shows. Instead, it relies on Mother Nature to unravel the programming. With devastating hurricanes, wild fires, and an occasional tsunami making headlines, it is obvious Ma Nature is talented at more than producing stunning natural scenery. More viewers than ever are tuning in.

With the media industry on a consolidation spree over the last year, few industry analysts were surprised when Landmark asked JPMorgan for its help in unloading the channel’s assets. The big question is who will purchase the currently private company. All eyes are on Rupert Murdoch and his News Corp. (NWS:NYSE).

This kind of acquisition would be right up the media mogul’s alley. For the last several years, Murdoch has been working to amass a well-rounded empire with a core concentration of Internet-related outlets. The Weather Channel and weather.com would be a perfect fit.

Of course, there are other titans with their eye on the station. Disney (DIS:NYSE) with its key media components ABC and ESPN would welcome an outlet like the Weather Channel and the Web viewership that comes with it.

One thing is certain, the weather titan is going to bring a premium. Many analysts will say the buyer paid too much, no matter what it goes for. And in part, they will be right.

But how do you measure the value of a monopoly. Whoever makes the final acquisition will earn themselves a media crown and quite possibly the final piece to a media empire puzzle. If Murdoch makes the acquisition, there is no doubt his empire will be on its way to becoming the ultimate media mogul.

How you are going to make money

So what do you need to do to secure your piece of the riches this sale will generate? With the outlet expected to generate more than $3.5 billion from its sale, there is little doubt the purchaser (which will likely be a publicly traded company) will see an immediate and significant negative hit to its share price.

Acquisitions like these are perfect catalysts for short sales, making long-term put options a great opportunity to make some profits. For News Corp., options that expire this April would be a sound investment.

For longer-term investors, there is no denying the potential upside of this deal. It could create an empire that dominates for decades. That is why I think you would do very well looking at a long-term position in whatever company that ends up making the acquisition, no matter what price it pays. Buy during the initial dip created by the news and increase your profit potential.

In today’s media-centric world, the company with the largest and most well-rounded offering will dominate. The Weather Channel is the perfect tool to lock in a dominant position. Keep a very close eye on this sale. It will pay off huge for smart investors.

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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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