The Media Sector Fighting for Survival Through Streaming

The broadcast media landscape has heavily consolidated in recent years. Today, the space is controlled by a half dozen key players, including Walt Disney DIS, Discovery DISCA, and ViacomCBS VIAC, AT&T T, and Comcast CMCSA. Together, these incumbents are up against the tech giants looking to disrupt the industry via streaming. The competitive pressure is intense as the industry has come to a crossroads. 

Clear Winners

As more people cut the cord and more advertisers shift their ad budgets away from TV towards direct-to-consumer platforms, Roku ROKU and Amazon AMZN are set to benefit from these trends. These two growing platforms will only get stronger as competition in the streaming space grows. But in terms of content providers, there are a few names that stand out. 

Discovery – Olympics

Discovery owns strong content and brands, including HGTV, the Food Network, and its namesake channel. But the main asset of the communications giant is its portfolio of sports rights that allow it to span all over the globe. Its main jewel is the Olympic Games. Over the last five years, yearly sales growth amounted to 12.20%. When it reported its latest quarter in June, earnings per share amounted to $0.77 exceeding consensus estimates by $0.07.

Netflix Isn't Scared Of Competitors

Although Disney+ achieved a record pace of new subscribers, Netflix NFLX remains the largest direct-to-consumer streaming service in the world. In the last quarter reported in July, Netlix delivered a profit of $2.5 billion on increasing revenues of $6.15 billion. Free cash flow came in at $1.06 billion, EBITDA at $9.77 billion, profit margins at 11.90%, return on equity at 33.30%, and return on assets at 7.80%.

Netflix's massive scale provides it with a lot of data it can use to improve the user experience and optimize its content production. While it fuelled its content library expansion through increased debt, the company's growing recurring revenue and improved operating margin should lead to improved cash flow and give the streaming giant the ability to self-fund content investments in the future.

Disney

When it acquired 21st Century Fox, Disney became one of the biggest media companies in the world. The iconic House of Mouse has a portfolio of intellectual property that goes beyond legacy Disney Brands as it now includes Star Wars, Marvel and Pixar. Moreover, it has strong television brands such as ESPN with long-term contracts to broadcast premium sporting events. Its push into direct-to-consumer streaming has gone well since it acquired operational control of Hulu and launched its streaming star, Disney+. Both are bolstered by its acquisition of BAMTech, a streaming technology provider. Although its theme-park and cruise business slumped during the pandemic, streaming was a rare bright spot. Unfortunately, it will take a while before this segment reaches profitability. 

But, its fiscal fourth quarter is about to end and with it, this brutal fiscal year. The figures won't be pretty, but there should be an improvement over the vicious 42% decline in revenue that was posted for its fiscal third quarter. After all, the current quarter is the period when theme parks reopened, sports programming returned to ESPN, and movie theaters started opening their doors. Fiscal 2021 can't start soon enough for Disney.

Viacom

ViacomCBS ensures a broad distribution and large audiences as its cable networks are well diversified across audience demographics. Although the company had many carriage disputes with distributors, adding the CBS broadcast network should strengthen its negotiating power. Meanwhile, joining CBS and Paramount should result in sufficient content to feed its own networks, including direct-to-consumer services. During its second quarter, VIAC showed it was able to absorb the blow to its advertising business by reporting a profit of $2.79 billion with revenues increasing to $6.28 billion. With free cash flow of $1.02 billion from June, EBITDA at $1.41 billion which compares well with its peers, ViacomCBS Inc has strong fundamentals that helped it deal with a 27% drop in advertising and lack of sports. With a market cap of $18.15 billion, the company is focused on newer business models, as its digital revenue jumped 25% boosted by a 52% increase in streaming subscription revenue.

Outlook

The COVID-19 pandemic was double trouble for traditional broadcasters because advertisers reduced their budgets and consumers canceled cable packages at an increased rate.  EMarketer forecasted that around 6.6 million U.S. households will cut the cord in 2020 with ad spending dropping 15%, forcing media companies to focus on direct-to-consumer content. As more consumers cut the cord and advertisers move to digital platforms, streaming players are set to thrive. 

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