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Betting on the New Media Growth Engine

Business Week column highlights a key investment trend -- New Media are luring eyeballs and ads, and the market is betting big on Google and Yahoo!

More than 220 years ago, when the British surrendered to the colonials at Yorktown, Va., legend says Lord Cornwallis marched out to a tune called The World Turned Upside Down. Today, a media investor knows just how the defeated commander must have felt.

Media's collisions and revolutions are upending our notions about which companies and technologies matter in the $1.3 trillion industry. Downloads are transforming the music business, and pay-per-view is looming for movies and cable TV, while advertising is sprinting to the Internet.

The media pie is growing faster than the economy, about 7 percent a year, according to PricewaterhouseCoopers' most recent forecast. But what we spend the money on, and who gets it, is changing enormously. And that means the media world will see plenty of winners and losers.

The big losers are likely to be cable companies and others that distribute programs over expensive pipes. Pricing in that business is becoming cutthroat as phone companies such as Verizon Communications (VZ ) and SBC (SBC ) Communications follow satellite-TV outfits such as DirecTV into competing with cable.

Legg Mason Value Trust manager William H. Miller III says he acted on this trend in 2004 by selling shares of Comcast and using the money to add to his Yahoo holdings. "Value is migrating to new media," Miller says. "We think content is getting more valuable and distribution is getting less valuable."

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