Update: The Coming Streaming Wars

Last week, I put up a post entitled “Disney’s Big Challenge.” It generated lots of direct response to me as I projected that while Disney could compete easily with Netflix on a content basis given their vast properties and film franchises, they were behind in international growth and particularly in Artificial Intelligence (AI). If Disney Plus, their new streaming entry is to succeed this fall they will need to step up their game in AI and do it with some speed. Many readers agreed, and, as usual, a few said that I was out of touch with reality.

Well. In this this post, I will look at things from the point of view that I always prefer to take—the long game.

Soon, there are likely to be four major players in video streaming—Netflix, Apple, Amazon and Disney. Yes, other players will be there such as AT&T with HBO will be engaged, but, for this post, let us limit to the four media, retail or tech giants. Developing new programming is expensive. How much cash does each player have on hand at present? From Yahoo Finance at end of 1st quarter, 2019, we find:


Company Cash (Billions/U.S.)

Apple $86.43

Amazon           41.25

Disney               4.46

Netflix              3.71


A cursory look at the above numbers should tell you one thing: Apple and Amazon can definitely play the long game in streaming. Either one could lose a few billion a year for a long time with their streaming entry and still survive and prosper. Apple could continue to buy back shares and up their dividend by low double digits as they have done in recent years as they are now only paying about 30% of earning back to shareholders in the form of dividend hikes. Netflix, on the other hand, has borrowed a reported $3 billion this year to help finance the production of new made for Netflix series.

We also feel that Netflix is vulnerable to a price war. When Disney announced two weeks ago that Disney Plus would cost $6.99 per month, the press was surprised. By undercutting Netflix, they can “buy” some share. If the service gains significant traction prior to the next recession, people may cancel Netflix (and cable, I might add) and keep Disney Plus when the inevitable downturn hits. And, Amazon can tout that their rapidly improving (in my eyes) video service is free as the cost is embedded in each Amazon Prime subscription.

Another stat that a number crunching wonk such as I likes to look at is Leveraged Free Cash Flow. What the hell does that mouthful mean? A financial dictionary would describe it as the amount of money a company has left after paying off all its financial obligations. Here Apple is at $45.14 billion and Netflix $8.47 billion.  Investors like to look at this as do company management as it illustrates if a firm can make further investments in the company business or pay a bigger dividend.

And, Apple has modest debt while Netflix has very high debt levels. One more well known measure that investors look at would be the price/earnings ratio meaning how much do you pay for each dollar of earnings if you purchases shares in the company? Apple is a low key 15.86 while Netflix is at an eye popping 96.25 largely owed to  their rapid growth and little competition in recent years.

So, what is going to happen? I do not know. If Apple and/or Amazon go full throttle at Netflix they could starve them out in a few years. That is unlikely as they both have many irons in the fire and direct to consumer video is not their top priority at present. Disney is formidable from a content standpoint but will lose money on Disney Plus for a few years and it will take a while to roll it across the world. All three players will chip away at Netflix some for sure. Many of you reading this and the writer love Netflix as a service. Yet, in a free market, if someone appears to have a field to themselves others want to enter and do. The difference here is that two have the deepest pockets in corporate history and one has an unparalleled expertise in the content.

I would like to provide a hypothetical scenario. It is NOT, I repeat, not a forecast. About two years ago, I was among many who thought that Apple might buy Netflix. Then the shares of Netflix exploded upwards. So, Netflix might not be such an attractive target for Apple as it was until recently. What if Apple decided to form an alliance with Disney or even decided to purchase Disney? Bob Iger, the Disney chairman, has sat on the Apple board of directors for several years. In a recent interview with David Faber on CNBC, Iger said that he recuses himself when the topic of Apple’s foray in to video comes up. At the same time, Reed Hastings, CEO of Netflix, is resigning from the Facebook board, just as Facebook is reported to be entering the streaming space as well. Hmmm. Interesting.

Netflix has the lead, both domestically and internationally. And, they have millions of loyal viewers such as you and I. Yet, Frederick the Great allegedly said it right in Prussia nearly 300 years ago—“God is on the side of the big battalions.” Apple and Amazon are the big battalions for sure and Apple/Disney would trump anything imaginable.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com