Streaming content providers up their game as cord-cutting accelerates

In response, the established players are rushing to markets further afield to unlock the next phase of their growth story. Among the new geographies, India has fast emerged as the largest battleground for streaming play. A burgeoning middle class, growing disposable income and affordable data are triggering an explosion of video consumption. Further, an enviable economic growth and the world's largest film industry make India the place to be for internet-based video content providers.

The subscription and revenue growth for the following digital content players may appear to have tapped out at home, but things are just warming up internationally. A whole new twist could well be just around the corner in their growth story where untapped markets, original programming and new revenue models are playing leading roles.

One of the world's highest-grossing online retailers,  Amazon.com (AMZN) amassed US$178 billion in net sales last year. Online product and digital media content sales accounted for 61% of net revenue in 2017. Amazon, the second U.S. company to reach US$1 trillion in market value, after  Apple (AAPL), offers movies and TV shows through its Amazon Prime Video service.

The company has 100 million paid Prime subscribers with video streaming services driving member adoption and retention. Around 26 million people stream videos on Amazon Prime in the U.S. alone, according to Reuters. A recent Citigroup forecast claims Amazon Prime subscribers will more than double to 275 million in a decade.

"Amazon will continue to develop into a formidable player in digital media, given its vast content offerings," says Morningstar sector strategist R.J. Hottovy, who recently raised the stock's fair value from US$1,900 to US$2,200, prompted by "more optimistic medium-term margin assumptions stemming from emergent sources of growth such as advertising [and] subscription services."

Amazon is intensifying its video content efforts as it takes on its peers in markets like India, which has emerged as a major over-the-top streaming market thanks to cheaper data plans, affordable smartphones and faster internet connections. The company is aggressively developing original programming, across genres, featuring Indian actors and languages to draw local audiences and corner a larger share of the rapidly growing video streaming pie. In fact, India has already become the fastest growing market for Amazon's Prime Video service, according to a Reuters article.

Hottovy projects the wide-moat firm's average annual revenue to grow at 23% for the next five years, due to "greater engagement among Amazon Prime members, increased third-party sales from its suppliers, digital content sales and international expansion," among other things.

The global market leader in over-the-top (OTT) streaming,  Netflix (NFLX) is available in almost every country worldwide, except China. The company pioneered streaming content and currently boasts more than 100 million subscribers globally.

The firm uses its data set that tracks every customer interaction and leverages it to remain the largest provider in the U.S. and enjoy success in its newer markets. "The average Netflix user worldwide now watches more than 90 minutes of video per day as overall Netflix streaming has increased 350% since the beginning of 2012," says a Morningstar report.

International expansion and colossal data set created by significantly larger subscriber base than peers will continue to fuel long-term growth. "Already the largest provider in the U.S., Netflix has expanded rapidly into markets abroad as the service now has more subscribers outside of the U.S. than inside," says Morningstar equity analyst Neil Macker, who recently raised the stock's fair value from US$90 to US$120, prompted by "faster margin improvement in the U.S. and international segments, faster growth of international net subscriber additions, and slightly faster growth in the average monthly revenue per paying member in the U.S."

Like Amazon, Netflix is making a major content thrust in India with locally produced original programming such as the blockbuster TV show Sacred Games. Localizing content could prove to be a winning strategy in India where digital subscription income is forecasted by Ernst & Young to reach from US$60 million in 2017 to US$309 million by 2020. CEO Reed Hastings goes so far as to say Netflix's next 100 million subscribers will come from India, according to Reuters.

Netflix recently revealed it plans to spend a staggering US$17 billion on acquiring and producing streaming content, of which US$7-US$8 billion in 2018.

Google's parent company,  Alphabet (GOOG) generates the bulk of its revenue from the online search market. However, the company has been making an aggressive push into the burgeoning over-the-top streaming market through video giant YouTube. Competing with Netflix and Amazon Prime Video, YouTube has been pouring cash into creating scripted series and original programming, across multiple genres, for international markets including Germany, Japan and India.

The company is trying to capitalize on the cord-cutting trend with the launch earlier this year of YouTube Premium, a paid ad-free streaming service. "We foresee YouTube gradually contributing more to the firm's top and bottom lines," says a Morningstar equity report.

YouTube also benefits from a network effect that creates value for users, content creators and advertisers. "With more viewers on the site today, more content creators will look to YouTube for content distribution," says Morningstar equity analyst Ali Mogharabi, noting that "YouTube's video platform has more viewers than other online video properties, making it attractive for advertisers."

The wide-moat company is trying to bulk up its content library and grow YouTube viewership to drive growth in Google online video ad revenue, a market that Mogharabi projects could grow at a strong double-digit rate. "Adoption of mobile devices has been increasing, as has usage time on these devices," he says. "The online advertising market has taken notice and is following its target audience onto the mobile platform."

YouTube remains a dominant player in India where it's been teaming up with local talents to produce original programming looking to expand user base and take on rivals.

Mogharabi puts the stock's fair value at US$1,300 and forecasts YouTube will contribute about US$16 billion and US$18 billion to Google advertising revenue in 2018 and 2019, respectively.