Buy On The Rumor; Sell On The News

Stories abounded in 2006 about the problems new media was causing old media. Apparently, investors didn’t get or care about the message, because last year was a great year for old media stocks (see Hollywood Reporter story). Disney was up 44%...Charter Communications up 148%...DirecTV Group up 76%...Comcast up 65%...News Corp up 35%...Time Warner up 26%. Many companies representing new media saw a loss or modest gains. Yahoo was down 35%...Google up 11%...Sirius Satellite Radio and XM Satellite Radio both down 47%.

However, before you start adjusting your portfolio, I would remind you of the old investing proverb: “Buy on the rumor; sell on the news.”

Old media is well-entrenched and stock performance this year was often affected by a lackluster 2005 and adjustments that were made last year to turn things around. Besides, old media didn’t get to be big media by being stupid or complacent. These industry stalwarts aren’t going to let new media come in and steal the party, without a hell of a fight. A story in Financial Times highlights just how active old media is in protecting its flank from high-tech and Web-based upstarts.

No matter what Wall Street said in 2006, the future still looks challenging in terms of growth for traditional TV, radio and magazines. However, keep in mind all types of companies in the mature or declining phase of the business cycle can often remain incredibly profitable through good fiscal management and defensive strategies that protect their value proposition.

Even if old media companies can remain profitable, their challenge will come as more and more advertisers feel that profit is coming at their expense. In the fight for the future, new media has one substantial advantage: they are focused on the future and don’t have to spend resources protecting their past. That should help new media in the years ahead as they increasingly grow their piece of the media pie in a converging and intricate communications landscape.