One of the major trends that investors are going to be watching throughout 2020 and beyond is which company comes out on top of the increasingly competitive streaming wars. The industry, historically dominated by Netflix, has seen an influx of major competitors with the goal of capturing the market share of streaming subscribers. By next year, consumers will have seen the introduction of new streaming platforms from media giants like Disney, Apple, Comcast and AT&T. Deciding on which service you subscribe to for your binge-watching needs is going to be hard enough, but knowing which is best from an investment standpoint is another story.
Some interesting statistics from a recent Wall Street Journal Poll: 30% of Netflix subscribers are likely to cancel to make way for new streaming services, 20% of cable subscribers are considering cutting the cord within the next year, and Americans are willing to spend $44 per month to stream their entertainment, while they currently only spend $30 per month on average. These statistics show that there is going to be a significant shake up in the streaming industry over the next few years, but the question is which platforms are going to prosper?
Although there are many factors that are going to drive the success of each company going forward, the experts at Fogel Capital Management believe the most vital are content, price, and how both affect earnings. This is where Disney and Netflix not only differentiate themselves from the rest of the market, but where one stands out over the other.
Netflix, being the industry leader and innovator for years, certainly has an advantage with its established subscriber and content base. However, that will be tested going forward as existing subscribers weigh the benefits of other streaming platforms, and the trend for exclusive original content continues. Netflix spends the most out of anyone on content creation, but this has led to a growing loss of free cash flow. As a result, they are now estimated to have an outflow of $3 billion in cash for 2019. Additionally, its stock trades at an extremely high multiple of 90x price to earnings, compared to an industry average of about 13x.
Conversely, Disney will have the upper hand when it comes to the quality and cost of its content. They already have such a massive content backlog that they won’t have to spend nearly as much as other competitors. Furthermore, others such as Apple and Amazon have to build up their content base and hope for successful shows or movies to help their subscriber growth. Disney+ is also priced at $6.99 per month1, half the cost of Netflix2 and among the lowest of the competitor group. The combination of these two factors is going to benefit Disney+ in both the short term and the long term.
If you’re going to invest in the streaming industry, it will require a long-term outlook. In the short term, the streaming industry as a whole will be shaken up as the increase in competition forces companies to keep prices low as well as spend heavily on content. Over time, some of the new market entrants won’t be able to keep up with content creation, price, and subscriber growth of the others. Fogel Capital Management has owned Disney for years, and we believe their superior content base, ultracompetitive price point, and diverse revenue stream puts them in the best position entering the streaming war.
As always, reach out to us if you would like to hear more about our outlook on the different trends and events taking place in the market or to schedule a free portfolio consultation.
Disclaimer: “The information in this article constitutes the opinion of Fogel Capital Management, Inc. and is intended to be educational in nature. This material should not be regarded as investment advice or a recommendation to purchase any specific security.”