theStreetFika: Scones, Sips, Strategy & Stocks

Oh, great, another streaming service. That might have been your reaction to the news that AT&T and Discovery are planning to merge their media assets together, to better take on the streaming giants of Netflix, Disney & Amazon. For the companies involved, this deal makes a lot of sense on paper. Both AT&T and Discovery, the former of which has a sprawling telecoms business, have seen relatively lackluster corporate performance in the last 5 years — which has been reflected in their share prices. This deal hopes to take the underperforming media assets from AT&T, which includes HBO, CNN and the Warner Bros. studio (responsible for Harry Potter and many other titles) and combine it with Discovery's relaxing cooking, home renovation and nature content. Although it may take a while to happen, presumably the plan is to merge the assets under one big streaming brand. That brand would have an ~80 million strong streaming subscriber base, with 15 million coming from Discove...

In a little over a year, Disney+ has accrued nearly half of the number of subscribers Netflix has accumulated over the past decade. Netflix is currently sitting at a lofty 204 million — but is growing much more slowly. Disney's performance has been so phenomenal that Netflix co-CEO Reed Hastings has named Disney his top competitor. He told Bloomberg last September, “If you’d asked us a year ago, ‘What are the odds that Disney+ is going to get to 60 million subscribers in the first year?’ I’d be like 0. I mean how can that happen? It’s been super impressive execution.” For the record, Disney+ is not second. That honor goes to Amazon Prime Video which has 150 million subscribers. However, it's hard to compare it to Disney+ because Prime is a bundle of different services. After Disney, there is Hulu which has just under 40 million, and then there's a smattering around 10-30M (HBO Max, CBS, Discovery, ESPN and Peacock). Best of the rest While Disney+ has been stealing the headl...

Disney+ has hit 100 million paid subscribers, just 16 months since its launch. That puts Disney roughly halfway to catching up to Netflix's subscriber base, which is currently sitting at a lofty 204 million — but is growing much more slowly. The pandemic has almost certainly accelerated the trajectory of Disney's growth, as we all ran out of things to watch pretty quickly, but even considering COVID the Disney+ performance has been remarkable. Disney originally expected to have between 60 and 90 million subscribers by 2024, the company now expects more like 230 million subscribers by 2024. Disney is adjusting well for the unexpected popularity of Disney+. It now firmly believes that its direct-to-consumer business is its top priority and it is going from an entertainment company with a streaming service to a streaming service that sells Mickey Mouse hats. So much so that it has restructured its media and entertainment divisions to focus on its streaming platform, and it announc...

In the last article on Netflix , I discussed why Netflix's promise to premiere a movie every week is not an overly ambitious strategy for the streaming giant. It's a brilliant move that isn't risky because Netflix can keep spending at this high rate for a long time. Yesterday's earnings call confirmed this. During the call, Netflix announced that it does not intend to raise any more capital, through debt or equity, as it plans to be cash-neutral this year and cash-flow positive beyond 2021. Looks like all those price increases are flowing through to the bottom line. Of course, saying you don't need any more capital is a really great way of getting people to offer you more capital at even more attractive rates (if you ever did want it).

Netflix has announced its 2021 strategy, saying it plans to release a new movie every week. Some will be Netflix originals, some acquisitions. That’s a lot of movie premieres, and with basic subscriptions starting at $9 a month, some are wondering whether it’s an overly ambitious strategy for the streaming giant. Why is Netflix doing it? The competition in streaming has heated up intensely in the last month, when “Wonder Woman 1984” debuted online, paving the way for every other Warner Media film to premier on HBO MAX this year. This also came on the eve of the big success of The Mandalorian on Disney+.  Bottom line, with people around the world still stuck at home and other platforms getting blockbuster deals, Netflix can't afford not to up the ante. So it countered with a weapon - or rather fifty two - and promised to premier a movie every week. Is this streaming stretched too far? I think it’s a brilliant move. Netflix has the cash and the ability. It's already a big movie s...

Earlier this week, activist hedge fund Third Point wrote to Disney's CEO Bob Chapek to ask him to stop paying dividends permanently and invest the money (~$3 billion) in obtaining original content or marketing for Disney+. Disney already suspended its dividend payout in June and is expected to halt its next one as well. I'm with Third Point that Disney needs to halt paying dividends immediately for the foreseeable future - at least until the pandemic is behind us. Canceling dividends last minute each time is not a good strategy because the money can't be spent on anything if it's set to cover dividends.  However, I don't agree with Third Point's recommendation to hike up the price of Disney+. While Disney+ competes with Netflix for consumer attention, the goals of the two services are very different.  For Netflix, streaming is its entire business, the sole driver of its revenue and profits.  For Disney, Disney+ is not about earning subscription revenue; rather, ...