Report
Derek Terrington

Hardman & Co Insight: Streamed content takes over

The Great Correction of 2022 saw the share prices of streamers plunge after market leader Netflix reported a slowdown/fall in subscriber growth.
Having formerly been seduced by hectic subscriber growth rates, investors quickly refocused, this time on fundamental metrics such as revenue, margins, profits and cashflow.
Since then, streamers have continued to take a steadily greater share of viewing while linear TV continues to decline. But growth in streaming subscribers in the US and UK is now a fraction of what it was, reflecting pressure on consumer incomes and intensified competition in content.
The slowdown in growth of subscribers has led to a revision of business models. Netflix is broadening its offer to subscribers by investing in areas such as sport, gaming and gambling, aiming to become an entertainment hub. The business is scalable, with pricing power, so margins are rising.
Disney has dealt with management issues and with attempts by outside investors to gain a seat on the board. Based on its enormous content assets, it is set to move into profit on its streaming offering this year and, like Netflix, it will be an entertainment hub.
Streamers see advertising as an attractive source of revenue and are offering advertising-supported tiers at low prices. If their content delivers audiences that advertisers want, streamers will have a slice of high-margin revenue. Plus, streamers view the lower prices as a way of reeling in new subscribers, rather than encouraging trading down.
In the UK, competition for viewers is intense with the US-based streamers up against the Public Service Broadcasters. ITV and STV have adopted three-legged strategies: linear broadcasting, programme making and streaming, but, currently, they are still too dependent on linear advertising revenue for investors’ liking.
Streaming is now a global business. Netflix identifies 700m connected TVs worldwide and compares this with its subscriber numbers of 260m. Even in the domestic US market, streaming accounts for only 10% of TV time, so plenty of growth to go for.
In the US, loss-making streamers (Warner Brothers Discovery, Paramount) are considering merging. Outside of Netflix, only Disney looks like making profits from streaming, but Amazon Prime may be on the path to profit too, in view of its strong growth in subscribers.
Streaming is a disruptive, content-led, subscription-based technology. Challenging all video distribution business models, it opens up global opportunities for a growing variety of content, including gaming and sport. Successful use of content to engage and retain subscribers in a scalable business will lead to strong profit growth. The old saying that “content is king” has never been truer.
Underlyings
Amazon.com Inc.

Amazon.com serves consumers through its online and physical stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, and Ring, and the company develops and produces media content. The company operates customer service centers and provides programs that enable sellers to grow their businesses, sell their products in its stores, and fulfill orders through the company The company serves developers and enterprises of various sizes, including start-ups, government agencies, and academic institutions, through its Amazon Web Services segment, which provides a set of global compute, storage, database, and other service offerings. The company also provides services, such as advertising.

ITV PLC

ITV is engaged as an integrated producer broadcaster, creates, owns and distributes content on multiple platforms globally. At its Broadcast and Online operations, Co. operates commercial family of channels in the U.K and delivers content through multiple platforms. In addition to linear television broadcast, Co. delivers its content on the ITV Hub, catch up services on pay platforms, and through direct content deals. At its ITV Studios operations, Co. creates and produces international content business, creating and producing programmes and formats that return and travel, namely drama, entertainment and factual entertainment.

Netflix Inc.

Netflix is engaged in subscription streaming entertainment service including TV series, documentaries and feature films across a variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, without commercials. Additionally, several members in the United States subscribe to the company's DVD-by-mail service. The company improves its streaming content with a focus on a programming mix of content. The company's members can download a selection of titles for offline viewing. The company operates its business as a global operating segment.

PARAMOUNT PICTURES CORP

STV Group

STV Group is engaged in the production and distribution of content across various devices and platforms, including television broadcasting, and the sale of advertising airtime and space in these media. Co. is focused on its television and digital media businesses and is also involved in supporting charitable activities including the operation of its subsidiary, STV ELM Limited, to provide services to the Scottish Children's Lottery. Co. has three reportable segments: Consumer, Productions and External Lottery Management.

ViacomCBS Inc. Class B

ViacomCBS is a media and entertainment company. The company's TV Entertainment segment creates and acquires programming for distribution and viewing on several media platforms. The company's Cable Networks segment creates and acquires programming for distribution and viewing on several media platforms. The company's Filmed Entertainment segment develops, produces, finances, acquires and distributes films, television programming and other entertainment content in various markets and media worldwide. The company's Publishing segment publishes and distributes Simon & Schuster consumer books domestically and internationally and includes imprints such as Simon & Schuster?, Scribner?, Atria Books? and Gallery Books?.

Walt Disney Company

Walt Disney is an entertainment company. The company's segments are: Media Networks, which includes domestic cable networks, broadcast television network and domestic television stations, and television production and distribution; Parks, Experiences and Products, which includes theme parks and resorts, and consumer products operations; Studio Entertainment, which includes motion picture production and distribution, music production and distribution, and post-production services; and Direct-to-Consumer and International, which includes international television networks and channels, direct-to-consumer streaming services, and other digital content distribution platforms and services.

WARNER BROS. DISCOVERY INC.

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Analysts
Derek Terrington

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