Streamers Captivate Audiences in Lockdown

As the global fight against COVID-19 intensifies, governments in Canada and many other parts of the world have extended lockdowns and cancelled most outdoor and indoor festivities. Starved of entertainment options, homebound consumers are once again turning to streaming services to beat boredom, especially families that are trying to get through another summer of staycation.

This could mean a rich bounty of subscriber and revenue growth for leading streaming video service providers. Fresh from the recently concluded film awards season, including the Oscars and the Golden Globes, leading digital entertainment producers are serving up a rich menu of award nominees and winners, driving a significant spike in streaming demand.

The following streamers are expanding their services to new geographies while spending big bucks to generate global and regional content as they compete for billions of potential subscribers overseas. These SVOD leaders encapsulate an enticing script for investors looking for the streaming play.

Digital entertainment powerhouse Netflix (NFLX) offers its streaming video services globally, except China.

Netflix’s original content has been garnering both commercial success and critical acclaim over the years. The company scored big at the 93rd Academy Awards, bagging a total of seven trophies — more than any other studio — out of the 36 nominations it came in with.

The service’s first-quarter subscriber growth may have been weaker than expected, but it added another four million subscribers globally. The company attributes the slowdown to lighter content slate due to Covid-19-related production delays.

Still, the SVOD provider clocked a whopping US$1.71 billion in quarterly profit, compared with US$542.2 million the year before. Netflix's subscriber base stood at an industry-leading 204 million at the end of December 2020.

“Netflix has morphed into a pioneer in subscription video on demand and the largest online video provider in the U.S. and likely the world,” says Morningstar equity analyst Neil Macker, who pegs the stock’s worth at US$250.

Having conquered the U.S. market, where it’s the largest provider, Netflix has been rapidly expanding overseas. The service now has more subscribers outside of the U.S. “Netflix will expand further into local-language programming to offset the weakness of its skinny offering in many countries,” says Macker.

The streaming major uses its scale to amass consumer data that racks every user interaction. “The large number of subscribers using different devices across multiple countries generates a large, growing robust data set that current competitors can't match and new entrants can't easily replicate,” Macker asserts.

Ecommerce giant Amazon (AMZN), with US$386 billion in sales, is the world’s largest-grossing online retailer. Its Retail segment accounted for 83% of its 2020 revenue. The segment also includes Amazon Prime Video, Amazon’s streaming service for its subscribers.

The tech major’s streaming video service is proving to be a force to be reckoned with, evidenced by Amazon Studios’ two Oscar wins and 12 total Oscar nominations this year. This was in addition to the 10 Golden Globe nominations and three Globes, making it the studio’s most successful award season yet.

In its recent earnings release, company CEO Jeff Bezos said as many as 175 million of Prime’s roughly 200 million members had streamed shows and movies in the past year. “Streaming hours are up more than 70% year over year,” said Bezos in the earnings report.

In another big move, Amazon’s Prime Video became the first streaming service to secure an exclusive national broadcast package from the NFL, providing millions of U.S. Prime members exclusive access to high-profile live football. The Prime Video deal starts in 2023 and is the NFL’s first exclusive national broadcast package with a digital streaming service, Amazon claims in a press release. 

Prime memberships generate high cash flow and offers “differentiated user experience [that is] critical to attracting and retaining customers,” says Morningstar equity analyst, Dan Romanoff, who puts the stock’s fair value at US$4,200.

Entertainment behemoth Walt Disney (DIS) owns such universally liked characters as Mickey Mouse and Luke Skywalker. The company also makes films under Pixar, Marvel, and Lucasfilm films studios and owns popular TV channels and TV production studios. Disney recently added direct-to-consumer and international segment. The new segment includes two OTT offerings - ESPN+ and the Disney SVOD service.

Disney’s haul of five Oscars, including two for Disney+, was second most wins at this year’s Academy Awards, after Netflix. Further, Disney+ added 8.7 million subscribers in the most recent quarter. The streaming service racked up more than 100 million subscribers after just 16 months of operation, stamping its position as the most successful streaming player after Netflix.

The demand of its streaming service kept pushing the stock price, defying weakness in other divisions impacted by COVID-19 restrictions, which prompted the House of Mouse to prioritize focus and investment towards streaming content.

“Disney is successfully transforming its business to deal with the ongoing evolution of the media industry,” says a Morningstar equity report, underscoring that Disney+, Hotstar, Hulu, and ESPN+ will be “the drivers of long-term growth as the firm transitions to a streaming future.”

The wide-moat firm’s streaming offerings will benefit both from the new content being created at its film and television studios as well as its deep content libraries. “We expect that Disney+ will continue to leverage this content to create a large, valuable subscriber base,” argues Macker, who pegs the stock’s fair value at US$154.