Media giant Disney’s (NYSE:DIS) highly anticipated new streaming service, Disney+, launched on Nov. 12 to huge fanfare. In the first few minutes after Disney+ launched, the streaming service became the No. 1 trending topic on Twitter. A few hours later, Disney said that early consumer demand for Disney+ had exceeded even their high expectations.
The big takeaway? There is a ton of demand out there for streaming content, and media companies today are just scratching the surface of all that demand.
Consider that about 96% of U.S. households still subscribe to pay-TV services. That is, despite all the cord-cutting hype over the past few years, only 4% of American households have actually cut the cord and said goodbye to pay-TV. Instead, because streaming services in their current state are good but limited (no sports, only a few services, a lack of big-name movies, etc.), the norm for U.S. households today is to subscribe to both pay-TV and a few streaming services.
This will change over the next decade. Traditional media giants have finally caught on to the idea that, thanks to its convenience and pricing advantages, streaming is the future of TV.
Consequently, they are increasingly taking resources away from the linear TV channel, allocating them towards the internet TV channel, and are planning to launch a slew of streaming services over the next few years.
The result? Come 2025, the streaming TV space won’t be limited anymore. It will have as much content as the linear TV world, if not more content. This transition from limited to unlimited content over the next five years will get consumers to actually cut the cord, and will spark a streaming TV gold rush wherein the U.S. household norm goes from pay-TV and a few streaming services, to just a few streaming services.
What does all this mean for investors? The 2010s weren’t the decade of streaming stocks. The 2020s will be. So don’t think it’s too late to buy streaming stocks. The streaming TV gold rush is actually just beginning.
Streaming TV Stocks to Buy: Disney (DIS)
Disney stock is set to win big next decade because the company’s suite of streaming offerings — Disney+, ESPN+ and Hulu — project to grow by leaps and bounds in the 2020s.
Disney has struggled with severe cord-cutting headwinds over the past several years. Those cord-cutting headwinds will persist. They will actually get worse. But, that’s largely irrelevant now, because Disney has pivoted into the streaming channel, and the company hopes that growth of Disney+, ESPN+ and Hulu will offset linear video subscriber churn.
That’s exactly what will happen.
Simply consider that Disney dominates the box office every year with its annual slate of big ticket productions, implying that Disney is already king in the game of “making content that consumers will pay for.” Now, all Disney is doing is packaging all that content into one streaming service, at a very attractive $7 per month price point. You can bet that this service will have huge demand.
Further, ask anyone why they still have cable, and most consumers will tell you that one of the biggest pulls of cable is live sports. But, Disney has a unique opportunity with ESPN+ to make live sports a streaming TV thing. If they do — and they successfully integrate robust live sports offerings into ESPN+ — then that service could have huge uptake over the next several years, too.
Ultimately, both Disney+ and ESPN+ are in the early stages of huge, multi-year growth narratives, and those growth narratives will ultimately propel DIS stock higher next decade.
The pioneer and king of the streaming TV world, Netflix (NASDAQ:NFLX) won’t be dented by increased competition in the streaming space. Instead, because of Netflix’s content and size advantages, increased competition could actually help — not hurt — NFLX stock over the next decade.
Netflix’s advantages in streaming are two-fold. First, there’s the data advantage. Netflix has an unparalleled data-set, which includes several years of hundreds of millions of consumers’ viewing habits. Broadly, then, Netflix knows who wants to watch what — and why — better than anyone else. They have been, still are and will continue to leverage this data advantage to create more, better and more relevant content than anyone else.
Second, there’s the size advantage. Netflix is also unmatched in terms of number of consumers paying for its platform, so the company can justify spending more on content since the returns are more tangible and immediate than they would be at another streamer. Because of this, Netflix projects to have a bigger content budget than anyone else for a lot longer, and this bigger budget will enable them to make more and better content, too.
At the end of the day, then, Netflix’s data and size advantages will allow them to make more and better content than anyone else in this space. The streaming wars are all about content. So long as Netflix has better and more content, they won’t be at risk to competitive factors.
Rather, increased competition could provide a tailwind for Netflix, since it will spark a mass exodus out of the linear channel and into the streaming channel. This exodus will provide a rising tide that will lift all boats in streaming — NFLX included.
Because of its unparalleled ability to invest in content development and acquisition, as well as its huge install base of iPhone, iPad and Mac users, Apple (NASDAQ:AAPL) reasonably projects to come out as a winner in the streaming wars.
Apple comes into the streaming wars with two huge advantages — its balance sheet, and its ecosystem of iOS users. On the balance sheet front, Apple has $260 billion in cash and marketable securities on the balance sheet. That’s more than the entire market cap of Netflix — twice over. Further, they have a net cash balance of $98 billion, and they want to get that down to zero over time. As such, Apple has the resources, and the appetite, to create a treasure trove of original content which consumers will pay up for.
On the ecosystem front, Apple already has a huge global install base of iPhone, iPad and Mac users. Thus, Apple has a huge distribution advantage. All they have to do is promote Apple TV+ to this ecosystem with a few push notifications, and hope some consumers in the ecosystem will bite. Some will, and if the content is good (as it should be, given Apple’s budget), then word-of-mouth will do the rest.
Big picture — Apple has a unique opportunity to turn Apple TV+ into a huge streaming service over the next several years, and if they do, AAPL stock will continue to trend higher.
Traditional media giant AT&T (NYSE:T) will leverage its huge internet and linear TV service customer base and its wide portfolio of original content to experience tremendous success in the streaming channel over the next decade.
Much like Apple, AT&T comes into the streaming wars with two big advantages — they provide the internet services that streaming services run on, and through the years, they’ve amassed a very impressive portfolio of exclusive content.
With respect to the first point, AT&T provides internet services. Without these internet services, streaming services don’t work. AT&T can leverage this to promote its own streaming services, like HBO Max, by running promotions like “buy our internet service, get HBO Max free.” Indeed, they are already doing this, and the more they do it, the more they should turn existing internet subs into streaming service subs.
On the second point, through various acquisitions, AT&T has increasingly turned into a media titan over the past few years, with a portfolio of content that includes HBO, Warner Bros, TBS, TNT, Adult Swim and the DC Universe. That’s content that consumers have expressed a willingness to pay for, either through movie ticket purchases or pay-TV subscriptions. As such, they should be willing to pay for it in a streaming service.
At the end of the day, then, AT&T should be able to leverage streaming success to offset cord-cutting headwinds over the next few years. As they do, AT&T stock should work.
While everyone else on this list is in the game of creating streaming services that consumers will want to pay up for, Roku (NASDAQ:ROKU) is in the business of providing distribution for these new streaming services. And, as the distribution leader in the streaming TV world, Roku has guaranteed itself big growth during the streaming TV gold rush of the 2020s.
The streaming TV market of the 2010s was pretty simple. You had a few streaming services (Netflix, Hulu, YouTube and Amazon Video, namely) and a ton of consumers subscribing to those streaming services. In that rather simple world, Roku was a very necessary distribution platform that connected those few streaming services to those many subscribers, in a clean, friction-less, unbiased and streamlined manner.
In the 2020s, though, the streaming TV market will get a lot more complex. With the introduction of several new streaming services, you will have a ton of subscribers and a ton of streaming services. In this more complex world, the need for and value of a distribution platform like Roku to connect all the disjointed supply to all the disjointed demand will only grow.
Consequently, as the streaming TV gold rush introduces complexity into the market, more consumers will use Roku to access their favorite streaming services. As they do, Roku’s revenues, profits, and stock price will all move higher.
As of this writing, Luke Lango was long DIS, NFLX, T and ROKU.