The Financial Giants
As the streaming wars heat up, the obvious question is what will some of the greatest companies in history do? Perhaps not as obvious, but still important, is why are they are getting involved?
Let us take a look at several of the emerging players in streaming who are not pure entertainment companies:
1) Amazon—The success of the massive on-line retailer made founder Jeff Bezos the wealthiest man in the world recently. Why would a retailer get in to streaming video? Not easy to say from my perspective. Sometimes Amazon Prime Video is positioned as a free service that you receive with your Amazon Prime subscription. That certainly would have some real appeal especially with younger audiences who depend on Amazon for some much of their shopping needs. Also, if you have been following it at all closely, the service is improving quite rapidly. Some videophiles that I know gave it low marks a couple of years ago but now say it has improved. The made for Amazon films and original programming are also getting stronger and more interesting. By positioning Amazon Prime Video as a “perk” for Amazon Prime members, the retail giant has reinforced their reputation for one stop shopping. And, they can afford to get some of the best content out there if they want it. The service is “free” with Amazon Prime membership but a few prefer to get it freestanding for $8.99 per month to see award winning content such as “The Marvelous Mrs. Maisel” or “Fleabag.”
2) Apple—As alluded to in early posts, I was more than a bit surprised when Disney honcho Bob Iger resigned from the Apple board and then Apple announced Apple TV Plus at $4.99 per month. The tech/hardware giant is reportedly spending more money than Disney right now on new programming although admittedly they are starting from zero. They signed big stars, Jennifer Aniston, Reese Witherspoon, and Steve Carrell for “The Morning Show” which received lukewarm critical reviews and Oprah is returning with her book club now and then. Steven Spielberg will be a creative consultant. They have the cash to play the long game if they choose. Right now, the content available is thin. That can change fast if they get out their checkbook.
3) HBO MAX—now owned by debt laden AT&T, HBO is not going away but getting deeper and maybe stronger. They are keeping HBO but adding new series. A sequel to “Gossip Girl” will be featured and “Sesame Street” and “Friends” will be on board as well. HBO got it right for decades. They produced several good, some outstanding series per year. The programming developed a big following (people still talk about The Sopranos and Sex in The City). It will be interesting to see what happens as they branch out. Set for a May launch, HBO MAX will be $14.99 but their will be a free year for some AT&T users. Do not play them short.
4) Alphabet (Google)—the kings and queens of search have owned YouTube for nearly a dozen years. They have not done much with it except for a few tepid tests. You Tube gives them a powerful platform to launch a streaming service (Google Tube + ?). Also, as we write, they have surpassed Apple in net free cash at over $105 billion (Apple has been buying back shares with both hands in recent years). With You Tube in place, they have a global and much loved platform plus record cash to enter the streaming game in a big way.
5) Peacock—set for a Spring, 2020 launch, this NBC Universal service (a division of Comcast) will be advertiser supported. It will have new versions of “Battlestar Galactica”, “Saved by the Bell” and “Punky Brewster”. Remember “Punky Brewster”? I used to watch it with my kids in the 1980’s. What I remember the most is that it was opposite “60 Minutes” at Sunday nights at 7 pm EST. “The Office” is shifting back from Netflix. Pricing has not been announced yet.
Okay, people say to me that Sports will save legacy properties for a number of years. Really? Does the NFL care who pays their rights fees as long as they are huge? As a viewer, would you watch the Super Bowl with commercials on You Tube? I think that I know the answer. Someone listed above with deep pockets can easily jump in to sports. Disney, of course, has experience with ABC and ESPN.
All of these players have the financial wherewithal to play the streaming games for either several years or forever.
More to come. Stay tuned in early 2020!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Tuesday, December 31, 2019
Saturday, December 28, 2019
The Streaming Wars--Part III
Disney +
On November 12, 2019 Disney +, a new streaming service from the Walt Disney Company, launched with a lot of fanfare. On day one, media reports were that they had 10 million subscribers on day one. For a while, they were adding a million new subscribers per day and showing great early strength in far flung places such as Australia. Netflix, long the winner in the streaming wars now had competition from Disney, the king of content, and Amazon and Apple with the deepest pockets in business history. Alphabet (Google) with their popular sleeping media giant, YouTube, was considering entering the fray along with Facebook. Other players are also lining up including AT&T with HBO Max, and Comcast with their new Peacock service starting in spring, 2020. There are others that we will discuss in upcoming posts.
Candidly, I was surprised when Apple announced that they were launching Apple TV+. Bob Iger, the long time CEO of Disney had sat on the Apple board for years. My presumption was that Apple might get involved with some form of co-production with Disney or take a significant equity position in Disney itself (15-20%). Bob Iger wrote in his recent autobiography that he had a great relationship with the late Steve Jobs, and had Jobs lived, Apple might have bought The Walt Disney Company outright. So, Apple’s entry, with a skinny lineup at $4.99 per month, was low cost but did not appear to have significant appeal to prospects. Apple does have over $100 billion in cash as I write so they may buy up properties pretty easily.
The Disney lineup is familiar to all of you. They have a film archive going back to the 1930’s, the Fox film library, ABC TV and 4,000 titles for viewers plus amazing franchises such as Star Wars, Marvel and many others. What fascinates me is the powerful bundle that they can put together of Disney +, ESPN+, and Hulu ( of which now Disney has a controlling interest). The bundles vary but the trifecta of Disney +, ESPN+ and Hulu can be had for several dollars less than what many of us are paying for Netflix. It has lots of appeal and is not simply for families with young kids as many seem to be saying. Netflix, as mentioned in our last post, has been borrowing heavily to produce original programming (much of it high quality) so it is unlikely that they can cut subscription rates in the U.S. and remain viable in the credit markets.
Disney and the other media/financial giants can play “the long game”. In fact, Disney says that they do not expect Disney + to be profitable until 2025. An article in BARRON’S in mid-November said that, for a few years, Disney + will “look like a little Netflix inside Disney.” So, while it will be a drag on earnings, they will bounce back with strength from theme parks, blockbuster films and do not forget merchandise. That is a huge profit center for Disney. The company also has a hedged position if somehow direct to consumer (streaming) fails as they will remain a powerful player in cable. Also, where do they spread their content? Will the Disney Channel survive? Do they put a new show with promise on ABC, Hulu, FX or Disney +? They have a real challenge in optimizing their content for maximum profit. Most companies dream of such a problem!
I asked a group of millennials if they had subscribed to Disney +. About 40% said yes and also that they liked it very much. One fellow in the corner said nothing but was beaming. He approached as I was leaving and said, “I love Disney +. For the rest of my life, I will watch a Star Wars film at least once a week.” That, my friends, is a franchise, with a Warren Buffett deep and wide moat!
So, Disney looks to be a survivor when the smoke clears a few years from now. Will they be the dominant player? Time will tell. More to come in a few days.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
On November 12, 2019 Disney +, a new streaming service from the Walt Disney Company, launched with a lot of fanfare. On day one, media reports were that they had 10 million subscribers on day one. For a while, they were adding a million new subscribers per day and showing great early strength in far flung places such as Australia. Netflix, long the winner in the streaming wars now had competition from Disney, the king of content, and Amazon and Apple with the deepest pockets in business history. Alphabet (Google) with their popular sleeping media giant, YouTube, was considering entering the fray along with Facebook. Other players are also lining up including AT&T with HBO Max, and Comcast with their new Peacock service starting in spring, 2020. There are others that we will discuss in upcoming posts.
Candidly, I was surprised when Apple announced that they were launching Apple TV+. Bob Iger, the long time CEO of Disney had sat on the Apple board for years. My presumption was that Apple might get involved with some form of co-production with Disney or take a significant equity position in Disney itself (15-20%). Bob Iger wrote in his recent autobiography that he had a great relationship with the late Steve Jobs, and had Jobs lived, Apple might have bought The Walt Disney Company outright. So, Apple’s entry, with a skinny lineup at $4.99 per month, was low cost but did not appear to have significant appeal to prospects. Apple does have over $100 billion in cash as I write so they may buy up properties pretty easily.
The Disney lineup is familiar to all of you. They have a film archive going back to the 1930’s, the Fox film library, ABC TV and 4,000 titles for viewers plus amazing franchises such as Star Wars, Marvel and many others. What fascinates me is the powerful bundle that they can put together of Disney +, ESPN+, and Hulu ( of which now Disney has a controlling interest). The bundles vary but the trifecta of Disney +, ESPN+ and Hulu can be had for several dollars less than what many of us are paying for Netflix. It has lots of appeal and is not simply for families with young kids as many seem to be saying. Netflix, as mentioned in our last post, has been borrowing heavily to produce original programming (much of it high quality) so it is unlikely that they can cut subscription rates in the U.S. and remain viable in the credit markets.
Disney and the other media/financial giants can play “the long game”. In fact, Disney says that they do not expect Disney + to be profitable until 2025. An article in BARRON’S in mid-November said that, for a few years, Disney + will “look like a little Netflix inside Disney.” So, while it will be a drag on earnings, they will bounce back with strength from theme parks, blockbuster films and do not forget merchandise. That is a huge profit center for Disney. The company also has a hedged position if somehow direct to consumer (streaming) fails as they will remain a powerful player in cable. Also, where do they spread their content? Will the Disney Channel survive? Do they put a new show with promise on ABC, Hulu, FX or Disney +? They have a real challenge in optimizing their content for maximum profit. Most companies dream of such a problem!
I asked a group of millennials if they had subscribed to Disney +. About 40% said yes and also that they liked it very much. One fellow in the corner said nothing but was beaming. He approached as I was leaving and said, “I love Disney +. For the rest of my life, I will watch a Star Wars film at least once a week.” That, my friends, is a franchise, with a Warren Buffett deep and wide moat!
So, Disney looks to be a survivor when the smoke clears a few years from now. Will they be the dominant player? Time will tell. More to come in a few days.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Friday, December 20, 2019
The Streaming Wars--Part II
The topic for this post is Netflix. It is always a bit difficult for those of us who analyze media to write or talk about Netflix. The reason to me is that so many people really like or even love the service. Those of us who are considered old or stodgy or both do not get much traction when we discuss the debt that Netflix has piled up or the huge money they spend each year to develop new programming (reported to be $12 billion + in 2019). People push back with the truly magnificent stock market performance of recent years and the burgeoning global subscription base which sits somewhere north of 160 million as we write. And, Netflix shares trade at a lusty 100 times earnings.
Candidly, as is true of many of you reading this post, I really like Netflix as a consumer. Many of their made for Netflix series have significant appeal fto me and I have been an avid user of the service for several years. Things are changing a bit and a dogged look at the facts surrounding the company raise some medium and long term issues.
Over the last five years or so, Netflix has done, as best as I can count, a total of eight debt issuances. That would be fine if growth and earnings were very large and competition was muted. Yet, the situation is changing and fast. Disney launched their new Disney + service last month (November). They reportedly signed up 10 million subscribers on day one. Many other days one million more climbed aboard with particular strength in Australia. They also have upwards of 4,000 hours of content and are offering package deals with ESPN, a property which has great appeal to many males. The Disney franchises such as Star Wars and Marvel have great fan bases plus their film library goes back to the 1930’s. Their balance sheet is strong (though not as strong as Apple’s which we will discuss in a future post) and they now control HULU which many considered a meaningful threat to Netflix recently along with Amazon Prime Video.
Some financial analysts agree that Netflix is burning cash (some borrowed) and will not really turn cash flow positive until 2022. That does not sound bad but keep in mind that studios are pulling content from Netflix. So, they will be borrowing money to produce their own series and films (much of it first rate) for the next few years for sure. Others see caution on Netflix to be alarmist. To many, streaming has a clear runway ahead as Korea, China and India are underdeveloped and can help Netflix which likely will be getting hurt in Western nations. Maybe so, but keep in mind that in India many of the new subs that Netflix is picking up are only paying $3 per month for mobile service only. Revenue growth is the key not necessarily subscriber count going forward.
What might happen? Netflix is still the global leader in streaming. They are not going to dry up and blow away soon. Yet, they will face formidable competition with VERY deep pockets. The best case might be if they sold 15-20% of the company to Apple/Amazon or Alphabet(Google)/Facebook. One of those financial behemoths could backstop them financially and they could do what they do best. Remember, their database of customer preferences is unparalleled ( see Media Realism—“Disney’s Big Challenge, April 29, 2019).
Netflix has been a resourceful player for a few decades. Now, they face the fiercest competition imaginable. Who will win? No forecast yet except to say that the consumer, particularly American, will be in the best spot possible. As the price war continues of Netflix vs. HBO vs. Amazon vs. Apple vs. Disney plus others, the millions of American couch potatoes will get extraordinary value for their subscriptions for whatever mix of streaming services that they choose.
Next up—Disney +
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Candidly, as is true of many of you reading this post, I really like Netflix as a consumer. Many of their made for Netflix series have significant appeal fto me and I have been an avid user of the service for several years. Things are changing a bit and a dogged look at the facts surrounding the company raise some medium and long term issues.
Over the last five years or so, Netflix has done, as best as I can count, a total of eight debt issuances. That would be fine if growth and earnings were very large and competition was muted. Yet, the situation is changing and fast. Disney launched their new Disney + service last month (November). They reportedly signed up 10 million subscribers on day one. Many other days one million more climbed aboard with particular strength in Australia. They also have upwards of 4,000 hours of content and are offering package deals with ESPN, a property which has great appeal to many males. The Disney franchises such as Star Wars and Marvel have great fan bases plus their film library goes back to the 1930’s. Their balance sheet is strong (though not as strong as Apple’s which we will discuss in a future post) and they now control HULU which many considered a meaningful threat to Netflix recently along with Amazon Prime Video.
Some financial analysts agree that Netflix is burning cash (some borrowed) and will not really turn cash flow positive until 2022. That does not sound bad but keep in mind that studios are pulling content from Netflix. So, they will be borrowing money to produce their own series and films (much of it first rate) for the next few years for sure. Others see caution on Netflix to be alarmist. To many, streaming has a clear runway ahead as Korea, China and India are underdeveloped and can help Netflix which likely will be getting hurt in Western nations. Maybe so, but keep in mind that in India many of the new subs that Netflix is picking up are only paying $3 per month for mobile service only. Revenue growth is the key not necessarily subscriber count going forward.
What might happen? Netflix is still the global leader in streaming. They are not going to dry up and blow away soon. Yet, they will face formidable competition with VERY deep pockets. The best case might be if they sold 15-20% of the company to Apple/Amazon or Alphabet(Google)/Facebook. One of those financial behemoths could backstop them financially and they could do what they do best. Remember, their database of customer preferences is unparalleled ( see Media Realism—“Disney’s Big Challenge, April 29, 2019).
Netflix has been a resourceful player for a few decades. Now, they face the fiercest competition imaginable. Who will win? No forecast yet except to say that the consumer, particularly American, will be in the best spot possible. As the price war continues of Netflix vs. HBO vs. Amazon vs. Apple vs. Disney plus others, the millions of American couch potatoes will get extraordinary value for their subscriptions for whatever mix of streaming services that they choose.
Next up—Disney +
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
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