Competition in streaming space is heating up as 4 new streaming services are getting ready to shake up the markets. Cable is dying, and every media company and its subsidiary are rushing into the streaming market, hoping to get a piece of the pie.
New streaming services will include AT&T’s (T - Free Report) HBO Max, which will consist of the vast WarnerMedia library and be available in the spring. Comcast (CMCSA - Free Report) is releasing its streaming service Peacock in the spring of 2020 as well and will include NBCUniversal’s immense archive of content.
Apple TV+ (AAPL - Free Report) and Disney+ (DIS - Free Report) are being released next month to kick off the battle for streaming market share.
Fight for Exclusive Rights
Over the past few weeks, these media conglomerates have been fighting for exclusive rights to classic TV shows that could make or break their subscription services. Netflix (NFLX - Free Report) got Seinfeld, Hulu got ER, Disney was able to secure The Simpsons, Amazon Prime (AMZN - Free Report) got Sex and the City, HBO Max got Friends, and Peacock acquired exclusive rights to the Office.
The race to obtain exclusive rights to these timeless classics cost the industry more than $2 billion, according to a recent WSJ article. This fight could make or break the necessity of each of these streaming services for consumers’ portfolio of subscriptions.
It has been widely debated how much the American household is willing to pay for subscription services, with amounts ranging from $25 to $50 per month. The average cost of cable alone is close to $100 per month, and as more and more consumers cut the cord, their willingness to pay to stream their favorite shows will increase.
These streaming services can grow with each other, as long as they possess the exclusive content that consumers require. The intense competition will still marginal impede subscription growth for established streaming services domestically and abroad.
The reigning streaming king, Netflix, has investors worried as the saturating streaming market is likely going to bottleneck its growth. NFLX has lost almost 20% of its value in the past 2 months following a disappointing earnings release that illustrated a faster than expected deceleration in subscription growth. The declaration is cause for concern as these new services will likely further hinder Netflix’s growth.
2 streaming services are being released globally next month and will undercut the cost of Netflix’s basic package. Apple and Disney are both widely known international brands that global consumers are familiar with. The low subscription cost combined with international brand awareness will give Apple TV+ and Disney+ an immediate global traction.
International growth is driving a substantial portion of Netflix’s topline growth, and the entrance of Disney and Apple’s streaming service will further decelerate Netflix’s global expansion.
I believe that Netflix shares still have too much growth priced into it and that its 60x forward P/E is at a premium I am not willing to pay. Disney, on the other hand, is trading at a very reasonable forward P/E of 22x and I anticipate this multiple to grow as Disney+ gains traction.
Cable is at the end of its market cycle as streaming services enter the growth phase. Media firms are pivoting to remain competitive in the evolving digital economy. The new entrances into the streaming space are going to shake it up for current players like Netflix, Hulu, and Amazon Prime.
Apple TV+ and Disney+ will be releasing their subscription services next month, and their impact will be seen in Q4 earnings results. Look for more color on Comcast’s Peacock and AT&T’s HBO Max as their anticipated spring release approaches.
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