Just like landlines and payphones made way for cell phones and data connections, so too will traditional media make way for more streaming options. But how can investors benefit from these streaming wars?
The streaming wars – who are the major players, and what’s at stake
For those unfamiliar with the terms, streamers bypass cable companies and in some cases, movie theatres to go directly to customers. Often they are backed by traditional studios such as Warner Bros. Discovery (NASDAQ: WBD) and Disney (NYSE: DIS).
Finally, we should take a moment to mention Netflix (NASDAQ: NFLX). Netflix arguably started the modern streaming business and has pushed the market forward.
All of the companies mentioned above (there are plenty of others not mentioned) are vying for an increasing slice of the US$500 billion streaming industry, hence the reference to streaming wars.
Unlike traditional cable, streamers have ample user data to recommend better content. It also means they can serve more personalized ads. And it’s those revenue-generating ads that streamers have been quietly adding to their programming (while bumping subscription rates) recently.
So then, which streamer is best for your portfolio in 2024?
Lots of change still at Warner Bros. Discovery
Warner Bros has plenty of long-term potential following the spin-off and subsequent merger with Discovery. The messy, fragmented world of Discovery+ and HBOMax is now served under a single app known as Max.
Warner Bros has no shortage of content, and it does offer both ad-supported as well as ad-free tiers for subscribers.
The stock, however, is another story. As of the time of writing, Warner Bros trades down a whopping 23% year to date. In the most recent quarter, the company saw revenue drop 7% to US$10,284 million.
The transitional changes over the past years should set the company up for growth over a longer period. For longer-term investors, that means the stock is hugely discounted right now.
Disney is just…magical?
Disney’s streaming business continues to grow at a strong pace. Revenue from its direct-to-consumer business (which includes Hulu) amounted to a whopping US$5.4 billion in the last quarter. And with over 100 million subscribers and lots of change coming, that number is expected to grow.
Some of that change includes the expected merging of Hulu and Disney Plus into a single app, the highly-anticipated ESPN venture, and the ongoing push of consumers into ad-based tiers.
This is a near opposite philosophy over its peers who want subscribers to pay a premium for the ad-free experience. The logic of this move, according to the company, is to entice users towards the ad-tier, where Disney generates revenue from rolling those ads.
Netflix – and content is king
One of the long-standing criticisms of Netflix has been its profitability. Fortunately, that is no longer an issue. In the most recent quarter, Netflix earned US$937.8 million, a massive increase over the US$55.3 million last year.
In that same period, Netflix generated US$8.8 billion in revenue, representing a 12% bump over the prior year.
Turning to subscribers, Netflix once again is king, with a whopping 260 million. That includes an additional 1.2 million paid subscribers in the U.S. market alone. In total, the platform has 23 million monthly subscribers across its ad tier.
Netflix also offers plenty of growth. In addition to licensing WWE content, Netflix has also licensed content from other studios, further driving up its content library.
The streaming wars
There’s no shortage of options for subscribers to choose from. Despite some expected consolidation, the landscape isn’t going to change much either. Additionally, subscribers can expect higher fees and more ads to become the norm.
For investors, this leaves us with a handful of gems today offering unique investment options among the larger crowd. Disney, with its multitude of other verticals, insane growth, and varied revenue streams is a prime example of this.
Netflix is another great choice, with its massive userbase, a treasure trove of content, and expansion into gaming and live sports through the WWE, and is arguably the winner of this round of streaming wars.
In my opinion, Netflix is the clear winner, and Disney is not far behind. Both would do well in a long-term well-diversified portfolio.
