Streaming Wars

By 2024, Netflix Inc. and The Walt Disney Co. are expected to be neck and neck for leading the global streaming market. But who will claim the No. 3 spot?

During a Feb. 11 earnings call, Disney executives reported that Disney+, Hulu LLC and ESPN+ had a collective 146.4 million subscribers around the globe at the close of Disney's first fiscal 2021 quarter, ended Jan. 2. That is up from the 137 million direct-to-consumer subscribers the company reported at its Dec. 10, 2020, investor day, when Disney boosted guidance for the platforms to between 300 million and 350 million combined worldwide customers by the end of its fiscal 2024.

At that point, analysts widely believe Disney's DTC sub base could exceed Netflix, which added 8.5 million net additions in the fourth quarter to finish 2020 with 203.7 million global members. But while Disney and Netflix will be jostling for No. 1, the field is a bit more open when it comes to the future No. 3 seat.

With Andy Jassy, CEO of Amazon Web Services Inc., poised to succeed Amazon founder Jeff Bezos as CEO in the third quarter, Wall Street is wondering about the company's continued commitment to original series and film production, and if it might pursue more live sports rights, including a larger NFL package.

The analysts, meanwhile, are convinced that the streaming services from the other media conglomerates will fashion a solid second tier over the next few years.

Market Implications

The year 2020 was a difficult year for the deal market even before the outbreak of the COVID-19 pandemic. Financing had been hard to come by for a number of years, resulting in low cash flow multiples and a shift of focus to smaller stations in small and non-rated markets.

Under these circumstances, a total deal volume of over a billion dollars ($1,007.07 million to be precise) is quite an accomplishment. It is significantly lower than the 2019 volume but still higher than the volume of 2010, when the deal market felt the full impact of the 2008-2010 financial crisis. The largest transaction of the year took place in September, when E.W. Scripps Co. announced the purchase of all assets of ION Media for $2.65 billion total. For ION’s 71 TV stations, we estimated an 8.7x forward seller’s multiple, which led to a station value of $337.963 million. Another $30 million were added to the deal market in October, when 23 if the ION stations were spun off to newly founded INYO Broadcast Holdings, LLC for $30 million.

Box Office

The year 2020 turned out to be a down year like no other at the box office. It started out with promise, with weekly box office growing in six out of the first nine weeks of the year. In week 10, the rumblings of the COVID-19 pandemic reaching U.S. shores began, and weekly box office declined 45.3%. In week 11, box office fell 57.5% and was under $100 million for the first time since week 50 in 2011. By week 12, nearly all theaters across the country had closed their doors as the nation went into lockdown.

COVID-19 decimated the 2020 box office year as total box office dropped 80.6% from nearly $11.23 billion in 2019 to $2.18 billion. Admissions also plummeted in 2020, down 80.7% to 236.9 million from nearly 1.23 billion in 2019.

Film Industry

After a year of turmoil, the only certainty in the theater business is that 2021 will bring further uncertainty.

Broadband

In Western Europe, among countries where regulators publish subscriber bundle figures, Portugal and Spain featured the highest household penetration rate in 2019, at 98.1% and 82.0% respectively. In France, the number is higher than the reported 71.1%, which accounts for "accesses to TV bundled with broadband" and omits non-TV combinations. Meanwhile, Denmark and the Netherlands lag at 28.6% and 34.2%, respectively.

Sports

S&P Market Intelligence believes that The Walt Disney Co.'s 10-year exclusive agreement with the Southeastern Conference, announced on Dec. 10, is just the first in a number of long-term sports rights deals that will fuel both ESPN Inc. and its streaming offshoot ESPN+.

Although ESPN (US) has been bleeding subs due to cord cutting and cord shaving, ESPN + is on a growth trajectory. S&P Market Intelligence believes that it will continue to line up digital rights that will enable it to, over time, shift a number of games — and the costs with them — over to ESPN+.

Cable

Rural cable operators have never been hotter.

With the pandemic increasing demand for high-speed internet at home, analysts believe rural cable operators stand to benefit more than other broadband providers from the changing dynamics of the industry. Rural markets are traditionally less competitive; they have lower broadband penetration rates; and a higher proportion of customers in these markets are still using legacy DSL connections, making them attractive targets for cable operators.

Radio

The U.S. broadcast radio sector is still recovering from the pandemic's fallout, more slowly than first expected. Broadcast radio advertising is highly correlated to expectations for consumer spending. Radio advertising is also predominantly local, has short lead times, and is dependent on listening in the car. When the coronavirus pandemic hit in March 2020, radio advertisers were very quick to react and reduce radio adverting spending in response to stay-at-home orders and economic uncertainty. While radio advertising revenue declined relatively in line with our expectations in 2020, S&P Global Ratings expects its recovery will be slower than initially expected and likely extend into 2022.

Advertising

2020 was rough in many respects, but it was a great year for political ad spending.

Five of the largest TV station owners were among the big beneficiaries of that spending, as TV remains the principal means by which candidates and parties disseminate their messages. The broadcasters said robust fourth-quarter 2020 spending capped a record year for political ad revenues. The bounty has executives already looking ahead to the category's prospects during what is expected to be a competitive 2022 mid-term cycle.

Social Media

Regardless of what form Twitter Inc.'s planned subscription service ultimately takes, analysts say it is not just about lifting profits.

While Twitter executives recently confirmed the company is working on a nonadvertising subscription-based service, Twitter has so far provided few specifics on what the offering could look like and when it will launch.

Further Reading