20 BARRON’S October 21, 2019
“Most of [the
streaming
services]
won’t survive.
The
economics
aren’t
sustainable. ”
ALEXIA
QUADRANI,
J.P. MORGAN
MEDIA ANALYST
I
t’sfittingthatinternettelevisionservicesare
called “over the top.” That can mean exces-
sive, too, and viewers will soon face a bewil-
dering sprawl of choices.
Thephrasewasalsoonceusedforsoldiers
scrambling up trenches to attack. Now, Disney,
WarnerMedia,NBC,andothersareabouttoenter
the battle for streaming subscribers.
Ifcord-cuttingacceleratesamongtraditionalca-
ble customers, these companies will need to win
streamers quickly. If TV viewers stick with their
cablebundlesforlongerthanexpected,companies
couldenduphavingoverspenttogoover-the-top.
Evenmediachiefsdisagreeoverhowthenext
few years will play out.
Bob Iger at Walt Disney (ticker: DIS) tells
Barron’s thatheexpectscontinuederosionforbig
cable bundles and is intensely focused on Dis-
ney+,whichstartsonNov.12.“We’recreatinga
product that serves the consumer the way they
wanttobeserved,whichisthebestthingacom-
pany can do,” he says.
Bob Bakish, who heads Viacom (VIAB), and
willalsorun CBS (CBS)afterapendingmerger,
saystheindustryissegmentingonprice,butthat
thetraditionalcablebundlestillholdsgreatap-
peal. “There are certainly people that have
moved over the top and gone back,” he says.
“Whatthesteady-statepenetrationwillbe,time
will tell.”
BrianRobertsat Comcast (CMCSA),speaking
from China, where he is building Universal Stu-
dios Beijing to rival Shanghai Disneyland, says
that his company, as a broadband provider, is in
agoodpositiontoreaggregatewhatisnowbeing
taken apart. “Video over the internet is more
friend than foe,” he says. “We want to get to a
place of relative indifference where we can be
rooting for the customer.”
How can investors pick winners or losers?
Mostcompaniesaretakinghedgedapproaches.
Some have lucrative other businesses facing less
disruption, such as theme parks and wireless
phone service. Others have deeply discounted
shares to reflect the uncertainty. There is good
moneytobemadeinmediastocksincomingyears,
not just despite the turmoil, but because of it.
Accompanyingthisarticleisaguide,analyzing
theopportunitiesandrisksforthebiggestcompa-
nies in streaming.
Comcaststacksupbetterthaninvestorsmight
expect, in part because, for it, cord-cutting is a
misnomer. In Comcast’s markets, its broadband
serviceisthetopmeansofdeliveringNetflixand
Amazon Prime to homes.
DisneyhasdominatedHollywoodlikenoother
companyinrecentyears,makingitaheavyfavor-
ite for the No. 2 spot in streaming subscribers,
behind Netflix (NFLX). But the transition will
slow Disney’s earnings growth, and its shares
tradeatapremiumtothegroup.Warnerparent
AT&T (T),alongwithCBSandViacom,arechal-
lenged but cheap. Don’t write them off.
Netflixhasmadefoolsofdoubtersforyears,and
nocompanyspendsmoreoncontentpercustomer
dollar.That’sanexcellentreasontosubscribe,but
thecompany’saggressivecashburn,combinedwith
risingcompetition,makethepathfromhererisky
for shareholders. Apple (AAPL), Amazon.com
(AMZN), Alphabet (GOOGL)—allcanthrivewithor
withoutbecominglargerTVplayers.Asfor Roku
(ROKU),itssharesarealong-shotbetonaspecific
outcome—and they have been soaring.
The main thing to know aboutpayTVisthatsub-
scriptionspeakedin2012,at101millionacrossca-
ble,satellite,andtelecom,andthattheyaredown
toabout90million.Thatincludeseightmillionor
ninemillionskinny-bundlecustomers,whopayfor
streamlined channel assortments delivered over
broadbandtosavemoney.Thedeclinesareaccel-
erating: Investment bank UBS predicts 6.1 mil-
lion lost subscribers in 2019, compared with 1.
million last year.
For cable, the situation is much better than
thesenumberssuggest.SatelliteandtelecomTV
servicesarefallingoutoffavor,andAT&T,which
has both, could account for two-thirds of sub-
scriberlossesthisyear.Growthinskinnybundles
has slowed, as providers have raised prices and
customers have questioned the savings. And
broadband is booming. Cable broadband added
nearlythreemillionsubscriberslastyear,includ-
ing more than a million each for Comcast and
Charter Communications (CHTR).
Streaming can refer to different types of ser-
vices,butkeeponedistinctioninmind.Skinnybun-
dles—also called virtual multichannel video pro-
grammingdistributors,orvMVPDs—seektomimic
thecableexperience,withgroupsoflivechannels.
Customerswhochoosethesegenerallyuseonlyone.
Netflix, Disney+, and others are examples of
subscriptionvideoondemandservices,orSVODs,
through which viewers watch what they want
when they want. Consumers may want many of
these services, but surveys suggest that they’re
willing to pay for only a handful. There are also
AVODs,whichoffergenerallylessexpensivecon-
tent for free, supported by advertising.
AlexiaQuadrani,amediaanalystwithJ.P.Mor-
gan,saysthatfutureTVviewerswillbuybundles
ofcorestreamingservicesandnicheones,liketo-
day’scablebundles,andthattherearealreadytoo
manyservices.“Mostofthemwon’tsurvive,”she
predicts.“Theeconomicsaren’tsustainable.”She
likesDisney.“You’llseeprettybignumbersquickly
after launch,” she says.
John Maloney, chief executive of New York—
based M&R Capital Management, says that
streaming’scomplexitycouldresultincableinertia.
“The low-hanging fruit of young streamers has
beenharvested,”hesays.“There’ssuchaprofusion
ofservicesthatolderviewerscouldfreezeandsay,
‘I’ll figure that out later.’ ”
Maloneylikes Discovery (DISCA),whichowns
the Food Network and HGTV and whose stock
trades below eight times earnings.
MichaelLippert,co-manageroftheBaronOp-
portunityfund,saysthatwithstreaming,somecus-
tomerswillsignupforthesavings,andothersfor
the more flexible viewing experience.
HelikesNetflixand TradeDesk (TTD),which
allowsadbuyerstoshopacrossamosaicofdigital
TV s ervices. The company is fast-growing and
tradesatmorethan50timesnextyear’sestimated
earnings.Thestockpricehasmultipliedmorethan
seven times in three years.
HerearethemainTVplayers,theirstrengths
and vulnerabilities—and what to do with their
shares:
Comcast
Buythestock.Itisup34%thisyear,becausein-
vestorshavecomearoundtotheviewthatbroad-
bandgainsincomingyearswillmorethanoffset
video losses, making cable companies low-risk
COMCAST
Peacock
Expected to
launch April 2020
Xfinity Flex
Free with internet
subscription
NETFLIX
$8.99-$15.99/
month
WALT DISNEY*
Disney+
Launches
in November
$6.99/month
Hulu
$5.99-$11.99/
month
ESPN+
$4.99/month
AT&T**
HBO Max
Expected to
launch April 2020;
Details coming
Oct. 29
HBO Now
$14.99/month
AT&T TV Now /
DirecTV Now
$50-$70/month
AT&T TV
Packages start
at $59.
VIACOM/CBS
pending merger
Viacom/CBS
To be announced
CBS All Access
$5.99-$9.99/
month
Showtime
Anytime
$10.99/month
Pluto TV
Free,
ad-supported
Roku.....................................
Roku Channel
Free,
ad-supported
AMAZON.COM
Amazon
Prime Video
$8.99/month or
free with Prime
membership
IMDb TV
Free,
ad-supported
APPLE
Apple TV+
Expected
to launch
November 2019
$4.99/month
Alphabet.................................
YouTube TV
$49.99/month
YouTube
Premium
$11.99/month
SONY
Playstation Vue
$49.99-$84.99/
month
*Disney+, ESPN+, and ad-supported Hulu bundle for $12.99/month
**Will include WarnerMedia content Source: company reportsLiving the Stream
HerearethemainplayersininternetTVandtheirsubscriptionofferings.