This Huge Long-Term Trend Is Only in its Early Stages

There’s hundreds of billions of dollars at stake… but there’s no telling who will win.

Comcast, Time Warner Cable, and their peers are the “gatekeepers” that control access to the 97 million American households that pay for some form of TV service. Last year alone, cable companies made $70 billion on video services.

Now a few of our “Big Cheap Tech” favorites are closer to grabbing a bigger portion of that prize.

Last year, I told Growth Stock Wire readers how troubles at Netflix created an opening for other companies looking to penetrate the growing market for TV over the Internet. Apple and Google were the two leading candidates to benefit from Netflix’s downfall. Other companies in the mix included Microsoft and Sony.

You can add another name to the list of tech giants hungering for a piece of this lucrative business. A few weeks ago, semiconductor giant Intel became the latest company to enter what I call the “War for Your Television.”

In short, Intel is developing its own Internet TV service. The company has been talking to media companies – the “content providers” who own the rights to TV shows. About 95% of all TV programming comes from a group of seven companies – Disney (ABC), News Corp. (FOX), NBC (owned by Comcast and General Electric), CBS, Time Warner, Viacom, and Discovery Communications.

Intel hasn’t provided any details on its plans. Like Apple and Google, it’s in the early stages of negotiations with the big content providers, trying to figure out how much they would charge for the content that ends up in your living room.

My guess is that Intel thinks it has a leg up on the competition because it’s a chipmaker. Unlike the other tech names in the battle, Intel doesn’t care about becoming a new “gatekeeper”… It wants to get its chips into more devices in your home, like set-top boxes.

Apple already has its own Apple TV “box” that customers can control using their iPhone or iPad. Apple doesn’t break out sales figures for Apple TV. But Wall Street analysts estimate the company sold about 6 million units in 2011.

Google’s plan for the future centers on Google TV. It’s a system that includes an interface with access to YouTube, Netflix, and a limited amount of movies and TV shows. Consumers can use their Android-based phones as the remote control.

So far, Google TV has been a flop. Logitech, the manufacturer of the Google TV set-top box, lost over $100 million before giving up on the project. Google doesn’t break out numbers for how many people are using Google TV. But you can bet the number is still a drop in the bucket (certainly less than a million).

Microsoft offers something similar with its Xbox 360 console. Although the Xbox got its start as a console for video games, users now spend more time using it for entertainment than for gaming. Microsoft has the “early lead” among the tech giants because there are already 66 million Xbox 360 units out there.

In short, while there’s no obvious winner yet… Intel is entering a crowded field.

For investors, the important issue is that this is a huge long-term trend that’s only in its early stages.

Right now, though, investors should view the “War for Your Television” as a bonus for these tech names. Wall Street has zero expectation that these companies will make significant profits on their TV-related efforts.

Legendary hedge-fund manager David Einhorn made Apple his biggest position during the second half of last year. During a February presentation at the Columbia Investment Management Conference, he said, “At this valuation, you’re not paying for [Apple's] TV business at all.” He noted that, excluding the company’s huge cash hoard, shares trade at less than 10 times earnings. “You don’t have to be right about the TV to make money on the stock.”

I believe the same can be said about Google, Microsoft, and Intel…

Company	Market Cap  ($ billions)	Cash & Equivalents ($ billions)	Price/Earnings minus Cash
Apple (AAPL)	$568	$97.6	11.5
Microsoft (MSFT)	$270	$50.7	9.7
Google (GOOG)	$211	$43.3	12.2
Intel (INTC)	$141	$14.8	9.9

These are “World Dominating” businesses that are circling the lucrative entertainment industry. If they don’t succeed in breaking into the TV market, they’ll continue raking in profits from their core businesses.

But if any of them succeed in winning the “war,” investors can expect a much higher long-term growth rate than anyone is currently expecting… or paying for.

Good investing,

– Larsen KusickSource: Growth Stock Wire

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