It’s August 2019, and we are on the eve of a streaming TV gold rush that will forever change the global entertainment landscape.
To be sure, the linear to internet TV shift has been playing out for the past decade. But, from essentially 2010 to 2019, there have really only been three viable streaming TV services — Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) Prime Video, and Hulu — all of which cost a very cheap ~$10 per month.
As such, contrary to what the headlines will lead you to believe, cord-cutters have been the exception. Most households in the U.S. have a Netflix subscription. Most households also still pay for cable TV. In other words, the consumption shift from linear to internet TV in the 2010’s has been defined largely by consumers bundling pay TV packages and streaming services together — not by wholesale cord-cutting.
That’s about to change in 2020. A plethora of new streaming TV services are going to launch in late 2019 and 2020. Most of these streaming TV services project to be really good. Pretty much all of them will feature exclusive content.
The introduction of these new services will truly kick-start the cord-cutting trend. By 2025, I don’t think many households in the U.S. will be paying for cable TV. Instead, I think most households will bundle together several streaming packages at a cost that’s similar to what they paid for cable, but with a lot more content and enhanced convenience. Deloitte agrees, saying that as early by the end of 2020, 20% of adults in developed economies will be paying for 10 digital media subscription services.
What’s the investment implication here? Buy streaming TV stocks. The streaming TV gold rush that will play out in the 2020’s will create a rising tide that will lift most boats in this segment.
Streaming Service(s): Netflix
Industry pioneer and leader Netflix is widely seen as a big loser with the oncoming onslaught of competitive streaming TV services from the rest of the media industry.
But, this fear seems overstated to me. Netflix will be just fine. As mentioned earlier, the norm by 2025 will be multiple streaming TV subscriptions per household. Probably somewhere around four to five. An over-the-top complete TV package like YouTube TV or AT&T TV will likely be one of them, since consumers still have huge demand for live TV. That leaves three to four open spots. So, when all is said and done, all Netflix needs to be is a top three to four streaming service.
Netflix will inevitably be that. The core value prop of Netflix is the original content. Original content streaming hours as a percent of total streaming hours on Netflix has risen from 14% in January 2017, to 24% in October 2017 to 37% in October 2018. Bears will say that the bulk of viewing hours are still allocated for licensed content. I’d argue that the trend implies that by the time Netflix loses its licensed content (2020/21), the percent of viewing hours dedicated to original content will be north of 50%.
Thus, contrary to what the bears will have you believe, the original content strategy is working here. Netflix subscribers are watching more and more Netflix originals, and they are liking them, too (a hefty portion of Netflix originals score really well on IMDb). This strategy will continue to work for the foreseeable future. Netflix has huge data and resource advantages. They have more viewership data than anyone else in this space, and they also spend more money on content than anyone else.
Net net, Netflix will be just fine in the wake of intensified streaming TV competition. The platform will continue to add subs at a record rate during the streaming TV gold rush of the early 2020’s, and NFLX stock will march higher.
Streaming Service(s): Disney+ (launching November 2019), ESPN+ and Hulu
Perhaps the one company that investors and consumers are most excited about with regards to its streaming TV market entry is global media giant Disney (NYSE:DIS).
Streaming TV isn’t brand new for Disney. The company launched EPSN+, a streaming extension of ESPN, in 2018. The company has also long held a stake in streaming platform Hulu, and now owns the entire service. But, those two services pale in comparison to the forthcoming launch of Disney’s branded streaming service and true competitor to Netflix — Disney+.
Disney+ will do really well. As stated in the Netflix segment, all Disney+ has to be is a top three to four streaming service to be successful at scale. That means all Disney+ needs is to have a top three to four content library in the streaming TV world. The platform will inevitably have that, given that Disney owns a treasure chest of content dating back several decades and that the company consistently dominates the box office every single year.
Further, Disney is offering a package that bundles Disney+, ESPN+ and Hulu together. That package should do very well, because it checks off every entertainment type — great movies with Disney+, live sports with ESPN+ and great shows with Hulu.
Net net, Disney’s streaming TV push over the next several years will yield hugely positive results, led by Disney+ turning into one of the biggest streaming TV services in the world. As this happens, DIS stock will naturally rally as cord-cutting headwinds become old news and as profits start marching higher with a consistently robust pace.
Streaming Service(s): Apple TV+ (launching November 2019)
Another company which both investors and consumers are excited about with regards to its streaming TV market entry in late 2019 is Apple(NASDAQ:AAPL).
The big story at Apple is pretty simple. Over a decade ago, the genius known as Steve Jobs came up with the iPhone. That small gadget changed the world. Ever since, Apple has sold a ton of iPhones to a ton of consumers everywhere and Apple’s revenues, profits and market cap have exploded higher.
But, the hardware growth narrative has largely run its course. That is, pretty much everyone who wants a smartphone, already has a smartphone. Thus, Apple is looking for alternative revenue streams to sustain growth in the absence of robust hardware growth.
The biggest of these alternative revenue streams? Software. Specifically, because Apple has sold so many iPhones over the past decade-plus, the company has a huge opportunity to monetize the world’s largest hardware install base through various subscription software services like a streaming music service, a curated news service, a cloud storage service so on and so forth.
The most promising of these services? A streaming TV service dubbed Apple TV+, which is set to launch in November 2019.
The big question marks for Apple TV+ revolve around content. Apple hasn’t ever produced TV shows or movies before. But, the company has a ton of cash it can spend to attract top talent, and top talent usually makes strong content that consumers are willing to pay for.
Thus, given Apple’s huge resources, Apple TV+ does project as a top three to four streaming TV service at scale, meaning that Apple TV+ could be set to add tens of millions of subs over the next few years. If so, that software revenue growth bump will provide a lift to AAPL stock.
Streaming Service(s): AT&T TV, DirectTV Now and HBO Max (Spring 2020)
The dark horse in the streaming TV gold rush is telecom and media giant AT&T (NYSE:T). But, because AT&T’s streaming TV potential is presently so understated, I actually think AT&T stock could be one of the biggest winners in the streaming TV gold rush of the early 2020’s.
The idea here is simple. AT&T — much like Disney — has struggled with cord-cutting for the past several years. Those headwinds have kept a lid on AT&T stock. Also much like Disney, AT&T is attempting to remedy those headwinds with a forthcoming big push into the streaming TV arena. AT&T is set to launch both AT&T TV (an over-the-top TV package that is basically cable, but cheaper and in the streaming format) and HBO Max (an HBO-focused streaming service with additional WarnerMedia content) soon.
Unlike Disney stock, though, AT&T stock has not benefited from a major uptick over the past few quarters in anticipation of this streaming TV push. This disconnect is an opportunity.
Both AT&T TV and HBO Max will be huge. As more streaming services rush to the forefront, consumers will increasingly look to cut the cord. But, they will still want to watch live TV. AT&T TV will allow them to do that, at a fraction of the cost of cable. Thus, AT&T TV will become the de-facto live TV replacement in the streaming world.
At the same time, HBO Max is equipped with enough content firepower from HBO and WarnerMedia to compete pound-for-pound with industry heavyweights Netflix, Amazon and Disney.
In total, then, AT&T’s streaming TV push over the next few years could be tremendously successfully. Tremendous success on the streaming TV front isn’t priced into dirt-cheap AT&T stock today. As such, the potential upside in AT&T stock from the streaming TV gold rush is quite compelling.
Streaming Service(s): All of them.
When it comes to the streaming TV gold rush, perhaps the best way to play the trend is to buy shares of streaming device maker and service aggregator Roku (NASDAQ:ROKU).
Plain and simple — Roku is becoming the cable box of the streaming TV world. That is, the streaming TV world in 2025 will look a lot like the linear TV world of 2015. There will be a whole bunch of streaming services (which are basically just different “channels”). There will also be a ton of consumers trying to access those streaming services. Thus, there will be an increasing need for someone to step in and act like a cable box — connecting all that demand to all the supply in seamless manner.
Roku does that. They also do it better than anyone else for several reasons. First, they are content neutral, so every service can be accessed without friction and bias. Second, they have the most intuitive UI, which consumers broadly understand and love. Third, they dominate the smart TV market, with one out of every three smart TVs in the U.S. last quarter being a Roku TV. Fourth, their separate set-boxes are dirt cheap.
Given these factors, Roku is not just the cable box of the streaming TV world today. But, they project to remain the cable box of the streaming TV world for a lot longer, too. As such, this platform will grow with the entire streaming TV industry for the next several years. All that growth will inevitably push ROKU stock higher in the long run.
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