Streamers stealing awards and market share

New powerhouse players in the entertainment industry are seeking Hollywood nods - and it's paying off

Vikram Barhat 15 January, 2020 | 9:35AM

Golden Globe Awards

This is the year when streaming wars are going to get into high gear. As the newer streaming services line up to join the fray later this year, the existing players, some barely months old, have started to assert their dominance in entertainment’s newest battleground. This year’s Golden Globe Awards, which marks the beginning of the annual film awards season, was a testament to their growing power and popularity.

This year, for the first time, streaming services appeared to be outshining each other for top honours, and not just trying to upstage legacy entertainment behemoths. Streaming giant Netflix snagged the maximum number of Golden Globe nominations. Amazon Prime, Hulu and Disney also managed to score multiple nominations. The showdown between the old and new Hollywood got even more intense for the upcoming Academy Awards nominations with Disney getting 23 nods across categories, but Netflix leading the race with 24 noms.

This portends a rise in prominence of streaming service providers. With more well-funded players about to enter the arena, streaming is set to become a high-stakes game, fuelled further by consumers increasingly ditching linear cable TV subscriptions for more pocketbook-friendly streaming plans. These trends create strong growth tailwinds for select SVOD (subscription video on demand) providers and present a compelling investment opportunity for long-term investors looking to get in on the streaming play.

Netflix Inc 
  Ticker: NFLX
  Current yield:  
  Forward P/E: 62.89
  Price: US$329.05
  Fair value: US$135
  Value: 144% premium
  Moat: Narrow
  Moat trend: Stable
  Star rating: 1
Data as of Jan 10, 2020

The biggest pure-play streaming name, Netflix (NFLX) introduced the concept of ad-free binge-viewing that triggered cord-cutting among consumers. The video-streaming giant had 158 million paid subscribers worldwide by the end of last quarter. With a whopping 34 Golden Globes nominations haul and 24 Oscar nomination nods, Netflix joined the league of big filmmakers both in terms of content production and critical acclaim.

Netflix’s Q3 earnings report claimed it planned to splurge a whopping US$15 billion on content in 2019, by far the most in the industry. Thanks to a rapidly growing subscriber base, Netflix collects and mines its large consumer data to tracks every viewer's interaction. It then leverages it “to better purchase content as well as finance and produce original material such as Stranger Things," says Morningstar equity analyst Neil Macker, who pegs the stock’s worth at US$135.

With greater content generation, not only does Netflix strengthen its relationship with existing subscribers, but it also attracts new customers via word of mouth and media buzz from award nominations. Macker forecasts Netflix’s annual revenue to grow 11% domestically and 18% internationally between 2019 and 2023.

According to the 2018 Sandvine Global Internet Phenomena Report, Netflix accounted for 26% of all global video streaming traffic, beating out YouTube at 21% and Amazon at 6%. The average Netflix user worldwide now watches more than 90 minutes of video each day.

Amazon.com Inc
  Ticker: AMZN
  Current yield: -
  Forward P/E: 59.17
  Price: US$1,883.16
  Fair value: US$2,300
  Value: 18% discount
  Moat: Wide
  Moat trend: Stable
  Star rating: 4
Data as of Jan 10, 2020

Among the world’s highest-grossing online retailers, Amazon (AMZN) amassed a staggering US$233 billion in net sales in 2018. The tech behemoth generated 53% of its 2018 revenue from online product and digital media content sales. The company’s market cap is flirting with the US$1 trillion mark, even breaching it last year, promising to rejoin the elite group of companies with the highest market valuation.

Amazon, which makes and acquires film and TV content through its subscription-based Amazon Prime Video, took home two Golden Globes for the comedy series Fleabag, having dropped an estimated US$7 billion on content in 2019.

“Amazon has made several investments in sustaining its moatworthy business models, including its global fulfillment infrastructure, a vast portfolio of audio and video content, and Amazon Web Services capacity,” says a Morningstar equity report.

Prompted by Amazon’s third-quarter earnings report, and a belief in “the emergent avenues of growth such as advertising, subscription services, international retail, [among others],” Morningstar equity analyst Zain Akbari appraised the stock to be worth US$2,300.

Wide-moat Amazon’s revenue is projected by Morningstar to clock 16% growth for the five years ending 2023, underpinned by “contribution from physical retail formats, greater engagement among Amazon Prime members, and increased third-party sales from its suppliers, digital content sales, international expansion,” and others, asserts Akbari.

The Walt Disney Co
  Ticker: DIS
  Current yield: 1.22%
  Forward P/E: 27.10
  Price: US$144.62
  Fair value: US$141
  Value: Fairly valued
  Moat: Wide
  Moat trend: Stable
  Star rating: 3
Data as of Jan 10, 2020

Legacy entertainment powerhouse, Walt Disney (DIS) owns universally loved Mickey Mouse and Buzz Lightyear characters and makes films under Pixar, Marvel, and Lucasfilm films studios. Disney’s other assets include ESPN, ABC, and Disney Channel, television production studios, theme parks and resorts.

The company recently rolled out its own streaming service Disney+ to a roaring start, bagging more than 10 million subscribers on its first day of launch. With a rich and robust library of entertainment content, Disney’s streaming service carries heft that rivals will struggle to match.

The House of Mouse had yet another bumper year as it accounted for nearly 40% of the 2019 U.S. box office. Six of Disney-produced movies each made more than US$1 billion, while the entertainment giant grossed more than US$10 billion overall globally. It has a solid slate of blockbusters for 2020, including Jungle Cruise, Mulan, and Black Widow. Disney also owns hit films Free Guy, West Side Story and The King’s Man, as part of its acquisition of 20th Century Fox last year.

“The addition of the entertainment assets from 20st Century Fox should help the firm continue to generate excess returns on capital, ” says Macker, who pegs the wide-moat stock’s fair value at US$141, adding that the company’s  “stable of animated franchises will continue to grow as more popular movies get released by the animated studio and Pixar.”

Apple Inc
  Ticker: AAPL
  Current yield: 0.99%
  Forward P/E: 23.42
  Price: US$310.33
  Fair value: US$220
  Value: 40% premium
  Moat: Narrow
  Moat trend: Stable
  Star rating 2
Data as of Jan 10, 2020

Silicon Valley giant Apple (AAPL) is bulking up its subscription-based services to offset cooling hardware sales, particularly the iPhone. As part of that growth strategy, Apple recently launched Apple TV+, its streaming venture for which it has roped in several Hollywood heavyweights including Steven Spielberg, J. J. Abrams, Octavia Spencer and Jennifer Aniston. The iPhone maker’s other subscription-based offerings include Apple Arcade, a video game service, and Apple News Plus, a news service.

The tech major has reportedly spent US$6 billion on new TV shows and films to push out original content on its streaming service. The bet appears to be paying off as Apple bagged its first Golden Globe nomination for The Morning Show.

“The firm’s additional products and services (Apple Watch, iCloud, Apple TV+, AirPods, Apple Pay) act as both supplemental revenue opportunities and, more importantly, critical enhancements to the iOS ecosystem that supports Apple’s crown jewel: the iPhone,” says a Morningstar equity report.

These products and services will make it more challenging for its roughly 1.4 billion active Apple device users to leave the iOS ecosystem. Despite having doubled in value over the past year, shares of Apple have been on a tear this year due to stronger than expected iPhone sales in China, prompting Morningstar sector strategist Abhinav Davuluri to raise the stock’s fair value from US$200 to US$220.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Amazon.com Inc1,853.25 USD1.36
Apple Inc317.69 USD2.83
Netflix Inc348.52 USD1.64
The Walt Disney Co138.37 USD1.82

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.