Industry Overview: Internet TV (TVoIP)

By Ian Wyatt, Big Idea Investor | Oct 25, 2005 | comment

INDUSTRY OVERVIEW: INTERNET TV (TVoIP)

By Ian Wyatt, Editor-in-Chief, Rising Star Stocks

During the past few weeks, Big Idea Investor has brought you profiles on nanotechnology, biometrics, and RFID, technologies featured in Rising Star Stocks' recently released free special report Four Disruptive Technologies for the Next Decade.  If you have not already done so, you can get your copy of the free 14-page Special Report today.  Just click here to get our report today, and receive our analysis of four emerging technologies, along with actionable investment ideas.  Click here to get your copy today (a $39.95 value)!

If you're new to our series on disruptive technologies, you might be wondering: what is a 'disruptive' technology? A disruptive technology is an innovation that is poised to change many aspects of business and our personal lives as we know them today.  As they become adopted, these technologies also have the potential to richly reward investors who invest in them early on.  Concluding our series on disruptive technologies, this week we profile a technology that could change the way television arrives in your home.

Internet TV is television delivered by Internet Protocol, and is also known TVIP or TVoIP.  We're not talking about fuzzy clips you can download and watch on your computer, or small sized streaming media.  The Internet is being used to deliver high definition television to living rooms all over the world as we speak.

TVIP enables telephone operators to leverage their digital subscriber lines (DSL) and fiber optics communications infrastructure to offer TV services to their subscribers.  This means that the classic problem of bridging the last mile between network nodes and customers' living rooms is being done over your phone lines, or, more accurately, over telecommunications providers' lines.  TVIP is the final element that will allow telephone companies to compete head on with cable companies.  Without TVIP, the telephone companies will be dead in the water, overrun by cable companies with a better overall package of TV, high speed Internet, and phone service. 

The worldwide market is also expected to grow rapidly in the coming years.  Research published by the Multimedia Research Group in February of this year projects that the worldwide market for TVIP will grow from 109 million subscribers in 2004 to 204 million in 2008.             

TVIP will change the way information is delivered to many consumers.  The interactivity of TVIP means that vast amounts of information on individuals' viewing habits will be available for companies and advertisers to monitor.  Advertisers are very excited about this opportunity to further segment viewers, enabling them to more accurately reach their desired audiences.  Between the push of advertisers and the pull of telecommunications providers, this technology will certainly prevail.  While Microsoft has emerged as a leader in providing software applications (bringing Bill Gates one step closer to his long held dream of entering the TV industry), no clear leader has yet stepped forward in the hardware field.

Why It's Disruptive

• Movie rental companies will clash with phone and multimedia giants as rentals can be instantly streamed onto living room TV's
• Allows telecommunications companies to try and unseat cable providers
• Provides customers with an all-in-one package

TVIP is one of four industries that are profiled in Rising Star Stocks' FREE 14-page special report, Four Disruptive Technologies for the Next Decade.  You can get a copy of this Special Report today ' absolutely free of charge.  Just click here to get your copy today!

By Peter D. Henig, Market Columnist, Growth Report

The software giant is playing nice and returning to its roots, is it time to download the stock?

Microsoft, during its heyday, was one amazing stock. Shares went in only one direction ' up ' and the company quite literally had a lock on the software market. It, however, never learned how to play nice with others, and when the tech boom went bust all of that seemed to catch up with it; slowing its growth and flattening its stock.

Now that Microsoft has turned 30, things may have finally changed. The company has recently announced a broad partnership with RealNetworks (Nasdaq: RNWK), the Seattle-based online media company, that settles all antitrust complaints between the two firms. Microsoft has also announced that it and Yahoo (Nasdaq: YHOO) have agreed to make their respective instant messaging technologies work together. And though AOL, the online unit of Time Warner (NYSE: TWX), is considering possible equity stakes from Google (Nasdaq: GOOG), Comcast (Nasdaq: CMCSA) and Yahoo, it's no secret that Microsoft has also held talks with AOL exploring partnership opportunities in search and instant messaging.

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Why, suddenly, all the love? Fear and greed -- the two things that drive most any public company. Though absolutely monolithic in size and richer than rich with $38 billion in the bank, Microsoft has in certain ways lost its edge. Google presents a real threat in terms of paid search and its unique ability to move into other services (e-mail for example) and gain traction in a hurry. Apple (Nasdaq: AAPL) has dominated the digital music market with its iTunes/iPod winning combination. And Linux has offered a real and expanding alternative to the Windows OS. With other software companies pushing online alternatives to Microsoft Office ' Microsoft's business software suite of tools ' threats to its business and growth are coming from all sides.

The other issue is its stock price. Shares of Mr. Softee (as it is affectionately known on Wall Street) have remained firmly stuck in the mud. Over the past five years, Microsoft's stock price has largely gone nowhere, trading in narrowing and declining ranges from $35 to $25, with the software company struggling to get over $30 at any point since 2003. Delays in product launches, as well as corporate infighting and restructuring, have made it appear that Microsoft was no longer the large company that could act and innovate like a small one; suddenly it, too, was a big dumb American company.


Losing the attitude

With its new partnerships, and other cash settlements with longtime rivals Sun (Nasdaq: SUNW) and IBM (NYSE: IBM), not to mention several product launches soon to be released, Microsoft could be tacking in new, more well adjusted, directions.

Microsoft still generates large amounts of cash ' roughly $17 billion in EBITDA annually ' and still spends prodigiously on research and development, the engine of innovation. It's year-over-year revenue growth still nears 10 percent, and earnings growth for its last quarter was 37 percent over the previous year. It continues to pursue an aggressive stock buyback program and increases on its dividends, and has no debt on its balance sheet. Standard&Poor's, which lists Microsoft as a Strong Buy and has a price target of $33, estimates revenue growth for fiscal year 2006 should expand to 11 percent and sees further significant growth in worldwide PC shipments.

If there's any holdup to investor interest at this point it has to be the company's lingering reputation of not playing nicely with others while not responding aggressively to current threats to its business. Yet, I'd suggest that investors look at Microsoft differently.

As inflation remains a real threat to any bull market going forward, companies with cash in the bank and strong defensible technology positions in the marketplace will be the most insulated from further downside risk. Microsoft has already shown that though its stock has yet to move higher, it also has set a pretty firm floor in place at $25 per share; and that was before it decided to make peace and settle some of its longstanding lawsuits and grievances. If the market heads lower, money will still need to find a home and it will do so within the largest, richest and most revenue-secure companies on the planet. Microsoft should be on the top of that list.

It remains a question mark whether investors could actually take the stock higher anytime soon, particularly given they've avoided doing so for the last five years even in the face of strong revenue and income growth. Yet, if the problem was that Microsoft's shares were far overvalued to begin with, it would appear that most of that overvaluation has been worked off. For a defensive play, it might be time for investors to give Microsoft a second look and jump back in; it certainly has shown it now possesses the humility to be given a second chance.

Pete Henig is the market columnist at Growth Report, an independent investment newsletter focused on investments in small cap, profitable, high growth companies.

Enjoy this article by Growth Report market columnist Peter Henig?  Click here to get Peter's weekly column in the Growth Report newsletter advisory.  You can try Growth Report today, without cost, risk, or obligation for 30 days.  Just click here now ' It's Free, with zero cost, risk or obligation.



GREENSPAN SUCCESSOR NAMED

The celebrated 18 year career of Federal Reserve Chairman Alan Greenspan will be coming to a close soon.

President Bush this week named Ben Bernanke as Greenspan's successor.  The selection of Bernanke, who currently chairs the president's Council of Economic Advisers, was met with nearly unanimous praise.  Wall Street especially seemed enthused, as the Dow Jones industrial average gained nearly 170 points, its best performance in six months. While those gains disappeared after some profit-taking, it's still evident where the Street stands on Bernanke.

Lest anyone be concerned about the departure of Greenspan, Bernanke is expected to continue on with many of Mr. Greenspan's policies.  Here at Big Idea Investor we are glad to see a man of Bernanke's qualifications appointed to such a crucially important position.  After all, how many times have we seen the markets move directly in response to a statement by Mr. Greenspan?  Looks like we're going to have to retrain our ears to perk up to the name Bernanke now'

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