Home Entertainment Content Overload Will Keep You at Home

How can we leave the living room?

We can see that the Analog to Digital Living Room Long Term Trend is in place as people are upgrading to High Definition Digital Television, [Corning Glassware (GLW) is a play on this.] and installing Home Theater Systems [Dolby (DLB) is a play on this]. Content providers such as Comcast (CMCSA), DirectTV (DTV), and the Dish Network (DISH), also help keep people in their seats.

Now there are even more ways to keep people in their living rooms.

DVRs, or Digital Video Recorders, allow users to record and watch their favorite shows, even in high definition. These devices are very user friendly, and users of products such as Tivo (TIVO) have a cult following. The NDS Group (NNDS) is also another play on this.

Tivo has recently teamed up with Amazon.com (AMZN) to provide a service called Amazon Unbox, that allows movies and shows to be directly downloaded from Amazon to the Tivo DVR.

Netflix (NFLX) and BlockBuster (BBI) offer another alternative to home entertainment. These companies ship DVDs by postal mail and provide another source of home entertainment.

Netflix (NFLX) recently teamed up with Roku. Roku provides a special set-top box that allows subscribers of Netflix to stream a selection of movies directly to their television (which could be a widescreen High Definition Television). [I recently tried out the Roku system, and it is easy to setup and convenient and there are no extra service fees from Netflix. Quality at this time is close to the VHS level, but streaming is very good using broadband.]

Apple (AAPL) has attempted a similar type of Set Top Box with AppleTV but that product has not taken off.

Gaming consoles, from makers such as Nintendo (NTDOY.pk), Microsoft (MSFT), and Sony (SNE) also provide even more reasons for people to stay in their living room.

With all these forms of entertainment in the living room, how will people leave their living room?

No More Analog Over the Air Broadcasts 2009. Get Ready for Digital TV.

According to the www.dtv2009.gov website:

"At midnight on February 17, 2009, all full-power television stations in the United States will stop broadcasting in analog and switch to 100% digital broadcasting. Digital broadcasting promises to provide a clearer picture and more programming options and will free up airwaves for use by emergency responders."

In order to help consumers, the goverment is providing a TV Convert Box Coupon Program:

"Congress created the TV Converter Box Coupon Program for households wishing to keep using their analog TV sets after February 17, 2009. The Program allows U.S. households to obtain up to two coupons, each worth $40, that can be applied toward the cost of eligible converter boxes.

A TV connected to cable, satellite or other pay TV service does not require a TV converter box from this program.

Consumers have a variety of options. Options to explore include:
1. Keep your existing analog TV and purchase a TV converter box. A converter box plugs into your TV and will keep it working after Feb. 17, 2009, or
2. Connect to cable, satellite or other pay service, or
3. Purchase a television with a digital tuner. "

More information can be found in the DTV 2009 Website.

Can We Profit from This?

I'm still looking at more ways to profit from this trend, but we do know there is a solid trend from Analog to Digital TV.

In a previous blog, we mention a few initial stock options:

1. Corning (GLW) -- Used by Optical Networking and Flat Screen and High Definition HDTVs
   
2. Cisco (CSCO) -- Networking and Set-Top Box exposure.
   
3. NDS Group (NNDS) -- End to end digital technology and services to digital pay-television operators and content providers worldwide.
   
4. Harris Group (HRS) -- Has a Digital TV division and provides emergency communication equipment, broadcast communications and wireless networking.
   

We may revisit this topic some more at a later time.

Do you have any ideas you'd like to share?

Article on: "No Profit Bonanza Likely from TV Cutoff"

Harris (HRS): Specialty Communication Equipment Provider to Defense, Government and Private Sector

Harris (HRS) is worth investing in:

1. Harris (HRS) is a Specialized Communication Equipment Provider that caters to Government, Defense, and Civilian Organizations.
   
2. Harris is levered more to government and defense spending than consumer discretionary products.
   
3. Harris operates four main segments:
   1. Government Communication Systems (46.2% of 3rd quarter fiscal 2007 revenue)
   2. RF Communications (28.2%)
   3. Broadcast Communications (12.8%)
   4. Harris Stratex Networks (12.8%)
   
4. Market Cap: 9.16B
   
5. Forward PE: 16.21
   
6. 5 Year Estimated Growth Rate: 27%
   
7. Price Earnings to Growth Ratio: 0.60 (under 1 is very cheap!)
   
8. Current Ratio: 1.16 (anything over 1 is okay)
   
9. 80% domestic, 20% international.
   
10. Upgrading military communications and infrastructure is key driver.
    
11. Analog to Digital TV is a key driver.
    
12. Microwave communications needed for 3G cell technology.
    
13. Broad product line and high government contract win rate (60%, and 80% in recent quarters).
    
14. Since products are very specialized, Harris doesn't really have direct competitors.
    
15. Harris remains subcontractor to companies such as Boeing (BA), and Lockheed Martin (LMT)
    
16. Recently Raised Dividend by 36%
    
17. $600 Million Buyback announced May 2007.
    
18. Company is currently at or near its 52 week high.
    
19. From the companies 10-K:
    

    
    Defense Markets: The U.S. President's budget proposal for the U.S. Government fiscal years 2008 to 2012 focuses on achieving a balanced budget while addressing the nation's most critical needs and the continuing trend by Federal agencies to reduce costs by outsourcing IT and communications related operations. The Administration's priorities include a continued and accelerated commitment to modernizing the military to focus more on the needs of its combat commanders and to develop portfolios of joint capabilities. As a result, the U.S. Government remains committed to funding intelligence, information superiority, special operations and support. Requirements to upgrade and modernize tactical radio communications capabilities and provide more secure, interoperable and reliable communications remain a funding priority. International defense forces continue to drive toward tactical communications upgrades and interoperability with the systems and equipment used by the U.S. Government.
    

    
    

To continue research, I recommend:
1. SeekingAlpha/Zack's Research on Harris (HRS)
2. Aug-27 10-K Summary.
3. Full 10-K June 29, 2007
4. Yahoo Finance Research on Harris (HRS)
5. Harris Corporation Website