Companies in the media sector offer ample opportunity for great long-term investment gain, but successful investing in media stocks takes more than picking the next hit TV show | 21 Media Companies in the media sector offer ample opportunity for great longterm investment gains but successful investing in media stocks takes more than picking the next hit TV show predicting the next blockbuster movie or finding a new best-selling book. Of the two dozen media companies that we follow all but one have some economic moat associated with their business and five have wide economic moats. The key is identifying those companies that will continue to grow consistently and churn out lots of cash for years to come. Many companies in this sector benefit from competitive advantages such as economies of scale and monopolies which make it easier to sustain excess profits for long periods of time. Overall the media sector has been rewarding over the past decade. According to Morningstar s historical performance data the annualized total return of the media sector was just above 16 percent between 1993 and 2002 whereas the S P 300 returned a little more than 9 percent per year during the same period. The strong showing in the media sector can be traced to a number of factors but we d argue that the two most important factors are Jonathan Schrader andT. K. MacKay with Pat Dorsey. 186 MEDIA appealing economics and significant competitive advantages. Differentiated and focused products give media firms competitive advantages within unique geographic areas newspapers and radio stations or niche categories technical books . Dominating one of these areas normally translates into strong and sustainable free cash flow for these firms. Media is a broad term so it helps to divide the sector into three different groups publishing broadcast and cable television and entertainment production. After we review the general economics of the media sector we ll dig into the specific characteristics of each of these three areas. How Media Companies Make Money Media companies generate cash by producing or delivering a message to the public. The message or content can take several
