ViacomCBS (NASDAQ:VIAC) stock has a problem summed up in the new name of its streaming service, Paramount.
As happened after the movie company lost its antitrust case in 1948, Paramount has lost its distribution channels. Broadcast TV is dead. Cable is dying. Movie theaters are still mostly empty.
The only way forward is through, into the wide world of streaming. Thus, Paramount+, a new streaming service costing $6 per month with ads, $10 without. It throws everything the company owns into one streaming basket.
Investors are betting it will be a big hit. The stock more than doubled just since the start of the year. In the last year, since just before the pandemic hit, the stock is up more than 300%. Now it’s just over $80 with a market cap of $50 billion on 2020 revenue of $25.2 billion.
The global streaming market is growing fast but is also very crowded.
The biggest player by far is Netflix (NASDAQ:NFLX). It now has over 200 million households paying up to $13 to $18 per month for its service. It has over one-third of the streaming market. Second is Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) YouTube service, with 20%, although most of it is free, supported by ads. Then comes Hulu, controlled by Walt Disney (NYSE:DIS), then Amazon (NASDAQ:AMZN). Grandview Research says this will be a $184 billion market in 2027, up from $49 billion last year.
Netflix, YouTube, Amazon, and Disney make up a big four, with more than 100 million customers each. Everyone else, including Paramount, is trying to catch up. Last month Comcast’s (NASDAQ:CMCSA) Peacock said it had 33 million subscribers. AT&T’s (NYSE:T) HBO Max claimed 37 million. At its launch, Paramount+ had 18 million.
To keep numbers looking good there are a host of free, ad supported streamers available. Fox (NASDAQ:FOX) owns Tubi. ViacomCBS now owns Pluto. Amazon has IMDB. Peacock offers a free, ad-supported version. These can make a streamer look big, but digital ads get just pennies on the dollar compared with TV. You’re going into the market against Google and Facebook (NASDAQ:FB).
More important, streaming isn’t like broadcasting, or even like cable. Those services show one program at a time. In streaming, your entire library is visible all the time. The market’s limit isn’t money, but time. I have Amazon Prime for the free shipping, but I don’t have nearly enough time to watch all the shows it’s created, let alone all the old shows it has rights on. Then there are a host of free, ad-based services, including Amazon’s IMDB.
Disney has gone all-in with its Disney+ Bundle and is now at over 100 million subscribers. This combines its Disney+ streaming service, Hulu, and its ESPN+ sports package for about the price of Netflix. It’s predicting it will have 230 million subscribers in five years, but the truth is no one knows.
I haven’t even mentioned Apple (NASDAQ:AAPL) TV.
The Bottom Line
Investors are now pricing ViacomCBS based on success. But success is open to question.
Like Disney, ViacomCBS must measure the losses from cable and broadcasting against its streaming revenue. It also must establish billing and technology relationships with customers.
AT&T and Comcast have an advantage in existing relationships. They can slowly ratchet up the price of internet service as cable subscribers disappear. ViacomCBS can’t do that either.
It’s a consumer’s market right now. But for services to be profitable their prices must rise, as Netflix’ price has risen. With so many services out there, and with viewer time limited, that’s going to be hard for everyone.
ViacomCBS today is a minnow. Even its $50 billion market cap is a pittance compared to those of rivals it has just begun to fight.
At the time of publication, Dana Blankenhorn directly owned shares in AAPL, AMZN, FB and T.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.