HBO owned by AT&T (T:NYSE) is cutting the cord HBO Nordic & Max, Netflix (NFLX:NASDAQ) the standard in streaming is still just getting started – and Disney Plus (DIS:NYSE) is growing the streaming cake for all – all will win.
The future of streaming wars: with or without pandemics
As I am writing this, the year 2021 has begun and the vaccinations have started, but the streaming viewing is not going away with Covid-19 and its variations. Keep buying the dips on Netflix (NFLX), Disney (DIS) and especially HBO Max (Nordic) AT & T (T) – the stock is dirt cheap – it is not your “baby boomers’” dividend play of 7% – it is a growth stock with serious upside with P/E 19 below the market multiple of 25. The catalog of Time/Warner is as good as Disney if not better. Streaming is here to stay and with the rollout of 5G services will be even better.
The trailblazer Netflix Inc., (NFLX: NASDAQ)
The only real “pure play” of streaming – Netflix has always been very misunderstood by the Wall Street analyst community. In the USA almost all households have had a cable box at home with high quality programming even in the early nineties – that was the real competition – not other streaming services. Founders Marc Randolph and Reed Hastings founded Netflix on August 29, 1997, in Scotts Valley, California. The name is a combination of words. The “Net” is derived from the word Internet and “Flix” is a shortened version of the word flicks – a synonym for movie. Put them together and you get why Netflix is called: – Netflix.
Not an overnight sensation
Going public in 2002, Netflix grew slowly; hitting 4.2 million members by 2005. Worth less than $2 a share in the beginning, the stock didn’t begin to truly take off until around 2009, when it had made its way to around $8 a share. Of course, the rest is stock market history, as the shares have climbed astronomically, but not straight up. There have been many ups and downs along the way and worries – especially the Wall Street analyst community – that Netflix will not be able produce it’s own content or afford to buy quality content from outside studios.
How we got here? The game changer year of 2007
The real game changer and the big tipping point was most definitely the introduction of streaming in 2007. Creating a place where members could watch content instantly online changed the game. The reverberations from this move are still being felt today, as more programming is geared around the ability to watch programs as you want to, rather than catching them at a specific time when they air. This is what consumers want today in 2021 and going forward – the movie/series industry is not going back to the “baby boomer” years. They (from 0+ to 53 olds) want to choose when they watch their favorite series and movies. Also they want to choose how many episodes they watch in a row, also known as “binge” watching.
International expansion outside the USA
The move to international services with Netflix began in 2009-2011, partnering with electronics companies to get Netflix on smart TVs and gaming consoles – a brilliant move. This process continued over the next few years, and the company decided to start serving international markets: Canada 2010, Latin America 2011 (first country Brazil) then to Europe in 2012. First the UK and Ireland and later that year Nordic countries (excellent internet networks by Nokia & Eriksson) became an instant success. I started following and buying the stock when the service became available in Europe and I have been long ever since.
House of Cards – the series, not the stock
After this success overseas, even some Wall Street analysts started to take notice and changed their tone on Netflix. Even CNBC’s “Mad Money” host Jim Cramer included the company in the FANG acronym in 2013. Netflix introduced its own original programming. Remember “House of Cards” and “Orange is the New Black.” By 2016, Netflix was accessible worldwide, and the company has continued to create more original content, while pressing to grow its membership to almost 200 million by the end of 2020.
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One of the key successes of the company was the strategy of no commercials – ever. If the introduction of streaming was the tipping point, the genius of it all was how Netflix essentially used other content creators to beat them at their own game, but with no commercials. By licensing their content to Netflix, networks essentially gave the company the tools it needed to steal their viewership. While it might have seemed like a good idea in the short term, one could argue that it was an act of absolute self-sabotage by the networks over the long run.
Netflix stock in 2020
There have been highs and lows on the way; the all time high is $575.35 reached July 13th, 2020. The 52 week range is high $575.35 reached July 13th, 2020 and 52 week low $290.25 March 17th, 2020. Since July 2020 highs Netflix has been trading sideways between $460-560 three times trying to break into new highs. Is this a triple top or are we just making a new plateau for the stock to grow from? The next year will be a key year for Netflix. The growth face in the USA is behind and the base will stay loyal if the programming remains fresh. The new hits this fall have been the Queen’s Gambit (over 62 million views in a month) and the follow up on the Crown series (over 21 million). Growth will come from increased international expansion and raising subscription prices, which it can afford easily.
Pricing going forward – there is room to raise the prices with quality
For example most streaming services are priced between $6-16 per month in Nordic countries and Europe. The top price in Nordic countries is currently Viaplay Total (owned by Swedish Nordic Entertainment Group (NENT)): its service package costs €35 per month – (it used to be €39,95 until December 2020), it is combination of live sports (NFL, NBA, NHL, the UK Premiership (soccer), European soccer and other sports) plus the newest movies and TV series. I think that is the top level that you can charge per household for streaming services in Europe.
Currently Netflix is charging €7.95 for one screen, viewing double screens for €11.95 and a family package with four screen is €15.99; compare it to other competition like AT&T which owns HBO Nordic Max (€10.95), which has been in the Nordic countries since October 2012 with especially world-class series. It entered the Nordic region with a “double barrel” approach – cable boxes and Internet direct service. Of course it was not a shame that at the same time they had the best TV series ever – The Game of Thrones – on its second season. HBO was a main stay hit with Nordic audiences and still is. The rest of Europe does not have HBO’s Internet service, especially the continental Europe. At a rough estimate, as of the third quarter of 2020, HBO and HBO Max had a combined 38 million subscribers in the United States, and 57 million globally. Source: statista.com
Latecomers Apple and Amazon
Amazon Prime (AMZN:NASDAQ) became available in December 2016 in the Nordic region at €5.95 per month and the same pricing with Apple+ €5.95 per month in December 2019, plus if you buy an Apple phone you get one year free. Amazon Prime is a decent offering since it has its own original production and quite a large selection of programming. Apple started with a bang, but the programs have dried out – the reason might be Covid-19, but I have cancelled my service after I watched the quality programs. Both of these firms use the streaming service as an add on to other services and they really do not have streaming as their main business. Prime has over 150+ million subscribers worldwide. Apple TV+ has 40 million subs. Source: statista.com
The 2020-2021 Streaming cake is growing and fast
The global video streaming market size was valued at USD 42.60 billion in 2019 and is projected to grow at a compound annual growth rate (CAGR) of 20.4% from 2020 to 2027. Source: Video Streaming Market Size, Share & Growth Report, 2020 www.grandviewresearch.com
What happened in 2020: COVID-19
Currently, Netflix is facing the advent of something that had not really been a problem in the past: competition or is it? Key names in the entertainment industry like Disney (DIS) – Disney+ has been a huge success with close to 100 million subs in a year since its launch in November, 2019. Luckily for Walt Disney (DIS) it has basically saved the stock with new highs of $179.45. This might be game changer number II for the movie and TV series industry. Disney owns studios and content and it will easily get past Netflix over the years, but there is room for quality service providers. I have used all these services in multiple countries – and the order of service of in terms of quality of streaming goes as follows: 1. Netflix you can change devices on the go and the service works excellently – always! 2. HBO Nordic/Max quite good with a great network 3. Disney+, Prime and other services still technically average.
The real loser of streaming
The real loser is the cable industry “cutting the cord” and old TV companies: ABC, NBC, CBS and FOX. It seems that Netflix still has a great future in front of it, since it has almost 200 million subscribers worldwide and all the great directors, producers and actors want to use this distribution channel. COVID-19 just increases the popularity of the streaming cake and its size. Netflix does not broadcast any sports, which is hurting the competition greatly. The movie theatres’ closure is sad, but it also helps the streaming world.
The opinions expressed in this article are those of the author and not necessarily by The Armchair Trader.
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