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The Streaming Wars: A New Hope For New Platforms

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The streaming wars are in full force, with Netflix's (NFLX - Free Report) place on the throne being threatened by advancing competitors. Chief among them is Disney (DIS - Free Report) , whose new Disney+ platform has already accumulated more than 100 million paid subscribers in just over a year of operation, far exceeding expectations and nearly half of Netflix's 207 million subs.

Streaming services are on fire, with global lockdowns forcing the world to turn to digital entertainment. Society has been consuming streaming content like gravy on Thanksgiving amid this unprecedented health crisis, burning through one platform and moving on to the next.

Disney+ is that next hot streaming platform with its century-long catalog of globally recognized titles driving its subscription growth.

Netflix Lasted Quarterly Report

Netflix has plummeted over 8% since its Q1 last Wednesday (4/21). Netflix saw a massive EPS beat but could not meet the subscription growth estimates that the markets were looking for.

The company only added 3.98 million net additional subscribers, which was substantially below analysts' 6.4 million estimates, as well as Netflix's own guidance. The company attributed this subscription growth deceleration to the company's slowdown in content releases due to COVID, and not the rapidly saturating space. In fact, management explicitly said that they have a 10+ years head start on its competition and still maintains pricing power in the space.

This share price slide is not surprising to me as this stock has fallen out of favor with many investors as of late, with the stock trading sideways since July and new streaming market entrants continue to disrupt the space.

93rd Academy Awards Hit Record Low Ratings

The best picture winner of this year's apparently unanticipated Oscar event was Nomadland, a movie about an elderly woman who lost everything in the Great Recession and begins a melancholy life as a Nomad. In fact, I found many of this year's best picture nominee's to be wistful, from Nomadland to Sound of Metal to Mank (with the latter two being produced by Amazon Video and Netflix, respectively). It would seem that Melancholy was the well-deserved theme of this year's Academy Awards.

Oscar's viewership hit a record low last night, with 58% fewer viewers in this iconic annual movie award ceremony than last year. This isn't an enormous surprise with theaters closed down and slim pickings as far as production goes. Movies seemed to be taking a back seat to the seemingly endless lineup of series content on streaming platforms that are all fighting for the attention of this space's booming demand.

I believe that we will see a lot of pull-forward revenue from both theaters and movie production companies, which is why stocks like Disney (DIS - Free Report) have been buoyant over the past year (that and its new leading streaming service Disney+).

Interestingly enough, AMC Entertainment (AMC - Free Report) shares were up over 13% today as traders and investors get excited about the pent-up movie demand that the reopening is getting ready to unleash.

The Disney Story

Disney's core streaming app has overtaken Netflix as the fastest-growing streaming platform on the market. Disney+ was able to generate 60 million subscribers in its first year of operations, and its growth is accelerating every quarter with further international penetration.

Netflix's subscription growth has been decelerating in recent quarters as the market further saturates. It appears that Netflix might be hitting a growth ceiling as its potential international customers consider their options.

Disney+ is less than half the price of a Netflix subscription, and its rotating catalog of internationally renowned titles is much more attractive to foreign consumers who are deciding between the two platforms.

Disney is a much different investment than Netflix. This global enterprise is a media conglomerate that derived a good portion of its pre-COVID profitability from its Parks and Studio Entertainment segments, which have seen extensive pandemic-related declines.

Disney+ is undoubtedly going to be an integral part of this multi-sector media giant's future. Its accelerating subscription growth is an excellent sign of its impending digital dominance, which includes ESPN+ and Hulu.

Netflix Concerns

Despite NFLX's surge in early COVID, the stock has traded sideways since July. Vaccine hopes have negatively affected this 'pandemic stock' as investors rotate out of 2020's digital winners and into cyclical underperformers.

Netflix may be in trouble, with the pandemic halting original content production and media giants swooping into reclaiming their rights to exclusive content from the streaming king.

Netflix's subscription growth is decelerating fast, with its March quarter earnings illustrating its 2nd slowest quarterly subscription expansion since Q2 2016.

Other media conglomerates are entering this quickly saturating space like Comcast's (CMCSA - Free Report) NBCUniversal powered Peacock and AT&T's (T - Free Report) expanded HBO offering, which will now include all WarnerMedia's long history of content, with its new platform HBO Max. The latest streaming offering comes from ViacomCBS , Paramount+, which targets to reach 65-75 million global subscribers by 2024.

As more and more media giants enter the space, more content will be pulled from Netflix's thinning library. Netflix's savvy management has been hedging against this unfortunate development, spending billions on original content for almost a decade, but this may not be enough. Netflix knew it had to catch up to its impending competitors' deep content libraries, and it will continue to rely on original productions to maintain subscribers.

The global pandemic was both a blessing and a curse for Netflix. The enterprise was forced to shut down all production in North America until it is deemed safe to launch again (very uncertain timeline). Netflix's pipeline of new content is drying up, and many subscribers have watched everything (worth watching) on the platform.

Disney, NBCUniversal, ViacomCBS, and WarnerMedia have decades of original video content at their disposal and do not need to rely on new productions nearly as much as Netflix. These three media giants could sit on their enormous libraries for years and still keep viewers entertained. This is a concerning thought for someone holding NFLX at 46 times forward earnings.

Final Thoughts

The world of streaming will only become increasingly ingrained into our lives as cable television fades into obsolescence. There is room for many of these services to grow together as consumers build out their streaming platform library to get back the content they lost when they cut the cord. 

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