Streaming

The rise of streaming services over the past 10 years has radically changed how we consume television and movies. Lest we forget, there was once a time not so long ago when we had to make sure we were in front of our television set at a designated time in order to enjoy an episode of our favorite program. If you were the poor soul who missed the show, you would have to go around with your fingers in your ears as everyone around you discussed it until you had a chance to watch it when it re-aired later in the week.

With the steady increase in internet access and speed over the past 10+ years, we gained the remarkable ability to instantly stream a vast library of television and movies at any time from anywhere and from a variety of devices. Pioneering companies like Netflix recognized the transformative potential of streaming content early on; so early on, in fact, that they were widely mocked by the established entertainment industry not long before they utterly change it.

In one particularly ironic moment from the early 2000s, a former Netflix executive recalled how Blockbuster executives turned down their offer to sell the fledgling startup by laughing them out of the office.

Netflix is undisputedly the biggest name in the streaming game, but their competition is starting to get serious, leading to a showdown that some are calling the “streaming wars.” Heavy hitters in the form of traditional cable companies and content creators have finally caught on that the future of entertainment is streaming, and they have been working furiously to catch up with more established streaming platforms like Netflix, Hulu, and YouTube.

After years of work and months of hype, these heavy hitters are finally ready to debut what they’ve been working on. Apple launched its streaming service, Apple+, on November 1, 2019, Disney launched Disney+ on November 12, 2019, and HBO Max (Warner Media Entertainment) and Peacock (NBCUniversal) are slated for launch in early 2020.

These launches coincide with news from the Motion Picture Association of America that the number of streaming subscribers worldwide (613 million) has surpassed the number of cable subscribers (556 million) for the first time. The new streaming giants are going to slug it out in the coming years, competing for subscribers with archive depth and quality, as well as the allure of original content. Netflix has demonstrated time and again that a winning streaming formula is one in which viewers come to binge-watch old favorites, like The Office, and stay to nibble on attractive new offerings, like The Crown.

Streaming services have already fundamentally changed how we enjoy television and movies, and continued innovation is going to present savvy investors with incredible opportunities as the industry enters a period of extraordinary growth and upheaval.

For those interested in the investment potential of this rapidly-growing sector, there are a few important points to understand.

What Is Streaming?

According to PCMag, a streaming service is defined as: “An online provider of entertainment (music, movies, etc.) that delivers the content via an Internet connection to the subscriber’s computer, TV or mobile device.”

The service that companies like Netflix provide is referred to as Subscription Video on Demand, or SVOD. These companies generate revenue from monthly subscription fees instead of from advertising or pay-per-view transactions. Other companies (such as Hulu) use a tiered pricing structure in which lower monthly fees are offered in exchange for advertising in the form of commercials.

Streaming service companies depend on reliable, high-speed internet performance in order to deliver quality products to their customers — a fact so integral to Netflix’s bottom-line that the company now measures and publishes the internet speeds of internet service providers responsible for streaming Netflix content.

Why Invest in Streaming?

According to a May 2019 eMarketer report, the top U.S. streaming services companies generated about $19.9 billion in subscription revenues in 2018, while subscription revenues in 2017 totaled about $14.9 billion.

For its part, Netflix earned three consecutive 30% year-over-year revenue increases between 2016 and 2018, and looks to be on track for a fourth. The company’s share price hovered around $50 in January 2015, and by November 2019, had soared to about $315 per share.

It is much too soon to tell how things are going to shake out in the streaming wars to come, though some analysts believe that Netflix may be in real trouble as other serious competitors step in to take a bite out of the streaming market. Others point to the fact that Netflix spent $12 billion creating original content in 2019, has 158 million subscribers, and has, by far, the largest content archive of any streaming service.

According to a September 2019 Digital TV Research study, the number of subscriptions to streaming services companies is projected to increase by 91% – or 462 million subscriptions – between 2018 and 2024. It is important to note that much of this growth is expected to occur internationally (i.e., outside of the U.S.), and international growth has been a cornerstone of Netflix’s success thus far (62% of Netflix’s subscribers live outside the U.S.).

Other streaming services have a lot of work ahead of them in order to match Netflix’s international success, which includes overcoming complex regulatory and content requirements.

During the seven-year period between 2018 and 2024, Netflix’s revenue is projected to more than double from $15 billion in 2018 to $35 billion in 2024, while revenue from Disney+ is projected to hit $7.4 billion by 2024.

While it is too soon to say how the streaming wars are going to turn out in the long-run, it does seem likely that streaming services as a sector will remain a dynamic, high-growth space in which well-placed investments are likely to do well.

How to Invest in Streaming

However, as the full landscape of streaming entertainment is still shaking out, investing directly in these companies can be risky. Rather, there are a number of funds and ETFs that give investors access to this asset class with more diversification. A search on Magnifi suggests that there are a number of other ways to profit from streaming as a whole.

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The information and data are as of the December 27, 2019 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.