Brett Harriss
Brett Harriss, director of equity research at Gamco Investors, which oversees $37 billion in assets, Rye, New York. He is comanager of the Gabelli Global Content & Connectivity Fund (GABTX). Gabelli.com
It’s hard enough for consumers to sort through the sudden profusion of streaming-TV services, ranging from newcomers Disney+ and Apple TV+ to industry veterans Netflix and Hulu. But it may be just as difficult for investors to choose which media giants will be the biggest winners in the streaming wars. Here’s what media analyst Brett Harriss says stock investors (and prospective customers) should keep an eye on as the combatants spend tens of billions of dollars to gear up with an array of programming to hook subscribers…
The Walt Disney Company (DIS). As consumers drift away from cable- and satellite-TV services, Disney aims to rival streaming king Netflix—and it has a good shot at succeeding. Not only does it offer the new Disney+ service—which had 10 million subscribers on its very first day of operation in November and which will launch in the UK and Europe in March—but Disney also gained full control of Hulu in 2019 and has offered ESPN+ since 2018. Disney, which can afford to undercut Netflix in price as it scales up, says Hulu and Disney+ won’t be profitable until 2024. Stock snapshot: After a 33% run-up in 2019,* it is moderately overvalued. Subscriber target: 90 million worldwide for Disney+…50 million for Hulu, up from 28.5 million…12 million for ESPN+, up from 3.5 million.
Apple (AAPL) launched Apple TV+, an entirely new service, in November as another way to immerse consumers in the Apple universe and make them more likely to buy other Apple products and services. Apple started out slowly with a dozen series and movies including The Morning Show featuring Jennifer Aniston and Reese Witherspoon. That said, Apple is sitting on a $200 billion cash hoard and can always boost its clout and subscriber numbers through a major purchase of a studio or media company. Stock snapshot: Moderately overvalued after an 87% jump in 2019. Subscriber target: 25 million to 30 million.
Comcast (CMCSA). As the largest cable-TV operator and owner of NBCUniversal Media, Comcast will launch its ad-supported Peacock streaming service in April as a free bonus for its 28 million Internet customers and 22 million cable subscribers. Peacock eventually will be made available to Comcast’s European pay-TV unit Sky, which has 24 million subscribers. Stock snapshot: After increasing 35% in 2019, it is fairly valued. Subscriber target: 80 million.
AT&T (T), which bought Time Warner for $85 billion in 2018, will launch HBO Max in May. The telecommunications giant will offer programming well beyond just what has been developed for HBO. A sign of AT&T’s commitment to this service is that it is spending $200 million per year for rights to the programs Friends and The Big Bang Theory and $2 billion on original programming. Although AT&T is offering impressive content, its high monthly fee of $14.99 is a big negative. Stock snapshot: Even if the streaming service doesn’t grow quickly or provide major synergies with other divisions, AT&T’s wireless phone business generates enormous cash flow. The stock is fairly valued after a 44% increase in 2019, but many investors will want to own it for steady dividend income (recent yield: 5.4%). Subscriber target: 50 million to 100 million.
ViacomCBS (VIACA). CBS merged with Viacom in 2019 to bulk up its five-year-old streaming service, CBS All Access. Even so, it doesn’t have the size or content to seriously challenge Netflix and Disney. Stock snapshot: Up 2% in 2019, it is significantly undervalued, the cheapest stock among the streaming players. Subscriber target: 25 million, up from current 8 million.
Amazon.com (AMZN). Amazon Prime Video, which began streaming in 2011, is just one of a number of perks—including free shipping and discounts at Whole Foods—given to Amazon Prime subscribers to enhance Amazon’s e-commerce business. Amazon aspires to be king of many products and services but not streaming. It doesn’t need to beat Netflix or Disney. Stock snapshot: Amazon underperformed the S&P 500 index in 2019, gaining 23%, but still is significantly overvalued. Subscribers: Although Amazon does not break out Prime Video numbers, an estimated 40 million of the more than 100 million current Prime members stream videos on Amazon.
Netflix (NFLX), which introduced streaming in 2007, dominates the field with 158 million subscribers worldwide. But with lower-cost rivals eating away at its subscriber base, Netflix had to ramp up spending last year— $15 billion on original content and $100 million annually just for the rights to Seinfeld starting in 2021. US subscriber growth declined last year for the first time in a decade and will grow more slowly than in the past. Stock snapshot: Despite trailing behind the S&P 500 in 2019, with a gain of 21%, and after returning an annualized 45% over 10 years, it’s still very overvalued. It has not had positive cash flow since 2011 because it plows free cash flow back into content and has $14 billion in debt. Further increasing rates to cover these costs could cause subscriber growth to slow even more and cause the stock price to plunge. Subscriber target: 236 million.
Here’s what’s available from the streaming services…
Disney+. Programming: 500 films and 7,500 TV episodes including the new Star Wars series The Mandalorian and other content from Disney, Pixar, Marvel, Lucasfilm, 21st Century Fox and National Geographic. Monthly rate: $6.99. Also, Disney offers a package of Disney+, ESPN+ and basic Hulu for $12.99 per month.
Apple TV+. Programming: A dozen original series and films including The Morning Show starring Jennifer Aniston and Oprah’s Book Club. Also, 25,000 TV show episodes and 65,000 films, typically for $2.99 to $6.99 per rental. Monthly rate: $4.99. (One year free with purchase of an Apple device).
Peacock. Programming: Hundreds of programs and movies from AT&T subsidiary NBCUniversal, including The Office and Saturday Night Live…films from Universal Pictures and DreamWorks Animation…new original content including Brave New World starring Demi Moore and a Battlestar Galactica reboot. Monthly rate: Free, with ads, for Comcast cable and Internet customers…rate for nonComcast customers to be determined.
HBO Max. Programming: HBO Max will offer thousands of TV shows and films from Warner Brothers, HBO, TBS, TNT, Cartoon Network, Turner Classic Movies and BBC. Content ranges from Sesame Street, The Sopranos, Veep and Game of Thrones to Gone with the Wind, the Superman, Batman and Wonder Woman film franchises and A Star Is Born featuring Lady Gaga. Original content includes new projects with Reese Witherspoon and Lupita Nyong’o. Monthly rate: $14.99.
Netflix. Programming: 4,000 movies including Marriage Story and Martin Scorsese’s The Irishman—both Oscar contenders…1,500 original TV shows including Stranger Things, The Crown and Orange Is the New Black. Monthly rate: $8.99 to $15.99.
Hulu. Programming: More than 2,000 movies and tens of thousands of TV episodes including The Handmaid’s Tale. Monthly rate: $5.99 with ads and $11.99 without. (Or $44.99 to $50.99 for a version that also has current programming from more than 60 broadcast and cable networks including ABC, CBS, Fox and NBC.)
Amazon Prime Video. Programming: 18,000 movies and 2,000 episodes of TV shows including original TV programming such as The Marvelous Mrs. Maisel, Jack Ryan and the upcoming Lord of the Rings. Monthly rate: Included with Amazon Prime membership, which costs $119 a year.
CBS All Access. Programming: Original content including Star Trek: Picard…50 movies including Jerry Maguire…content from BET, Comedy Central, MTV and Nickelodeon…and the latest episodes of CBS-TV shows such as NCIS and Survivor are available one day after airing. Monthly rate: $5.99 with commercials…$9.99 commercial-free.
ESPN+. Programming: Much of what is on regular ESPN channels plus additional live sporting events such as soccer, but not Monday Night Football. Monthly rate: $4.99.
*All performance figures are through December 30, 2019. All subscriber targets are by 2025.
