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3 Digital Media Winners: WPP PLC ORD 10P, Daily Mail and General Trust plc & SKY PLC

The media sector is being transformed by the digital revolution, which makes data transmission, storage and consumption cheap and desirable, whilst the traditional media of print and analogue broadcasting become costly, unwieldy and unappealing. Such revolutionary changes inevitably throw up winners and loser. As industries change, some companies change to capitalise on new markets, whilst others get left behind.

Here are three companies operating in very different spaces, which are all successfully exploiting the revolution in media markets.

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Shares up 25% in a year

WPP (LSE: WPP) (NASDAQ: WPPGY.US) is the world’s largest advertising group, acting as a holding company for marketing, PR and advertising agencies including JWT, Grey and Ogilvy & Mather. Digital is transforming advertising. Online media is taking over from print and traditional broadcast, facilitating the gathering of vast quantities of marketing information and, increasingly, automatic placing of adverts.

WPP has moved aggressively into this field. Last year, 36% of total revenues derived from ‘direct, digital and interactive’ business, whilst the Data Investment Management segment alone contributed a fifth of revenues. WPP’s strategy is to target fast-growing geographic and functional markets: sales are split equally three ways between North America, Europe and emerging markets.

In 2014, WPP achieved a 23% increase in profit before tax, measured on a constant currency basis. Three factors have driven its shares up by 25% over the past year and 140% over the past five. Advertising spend is highly correlated with general economic activity. By acquiring and consolidating specialist agencies, WPP has been able to push up sales and margins. And a failed merger between its number two and three global competitors allowed it to poach disgruntled customers.

16 years of dividend increases

Daily Mail (LSE: DMGT) has completely transformed itself from its print newspaper heritage. Though still best known for its daily paper and website (the world’s most visited online newspaper), that business makes just a quarter of operating profits. Three quarters of profits derive from business-to-business sales, with provision of information and analytics and organising conferences amongst the mix.

DMGT is a paradigm of long-term family management — ordinary punters get non-voting shares. Floated in 1932, the company has paid increasing dividends for at least the last 16 years.

Sky‘s (LSE: SKY) origins were in analogue satellite broadcasting, but digital is now its bread-and-butter. The group has been swift to adopt new technologies to extend its pay-TV business, marrying customer appeal with digital delivery. So Sky Go customers, for example, can watch the same content on multiple mobile devices. Having pushed triple-play pay-TV, broadband and landline services, the company is set to move into mobile telephony, whilst acquisitions of Sky Italia and Sky Deutschland gives it a pan-European platform. But the cost of defending its premium football rights highlights the pre-eminence of content in this business segment.

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Tony Reading owns shares in WPP and Daily Mail and General Trust. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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