Islands in the stream –
That is what we are;
No one in between,
How can we be wrong?
Sail away with me
To another world;
And we rely on each other, ah ha.
Songwriters: The Brothers Gibb. Islands in the Stream lyrics © Universal Music Publishing Group.
The Past
Time was*, you could steal a hanger from under a shirt in your closet, fashion a rudimentary antenna out of the wire, place it triumphantly on a pass-me-down TV, and watch anything on the major networks: ABC, CBS, NBC, Fox, and PBS – free and easy. If jury rigging brittle metal was not your style, you could splurge on a proper piece of equipment at the local RadioShack, buying a futuristic-looking, more reliable antenna for, say, $9.99 ($23.99 in today’s money) – with roughly the same results, entertainment-wise. This was terrestrial or over-the-air television (OTA).
Decades later, if you wanted to watch the Paris Olympics triumphantly closing today somewhere in the vicinity of the Arc de Triomphe, you had to subscribe to the Peacock app, so named after the longtime mascot of NBC, which has the broadcasting rights to many sporting events, including the Olympics, in addition to producing original programming in the form of feature films, TV shows, and documentaries. The delivery method is OTT (over-the-top), meaning that content is delivered over the internet rather than through traditional broadcast TV, satellite, or cable boxes. What Peacock and its competitors do is known as SVOD (subscription video on demand) and it’s a popular monetization model for OTT video platforms. Subscribers pay a flat subscription fee for unlimited access to a massive library of video content.
Speaking of Peacock’s competitors, from where the consumer sits, they are: Disney+, Discover, YouTube, Amazon Prime, Netflix, Apple TV+, HBO Max, ESPN+, Hulu,** and various other players, and $9.99 is what you will be lucky to pay – per month – to avail yourself of what’s on offer on any one of these services. If you want to up the quotient of sanity in your downtime, you’ll gladly pay roughly one-and-a-half times that to eliminate the ubiquitous ads that are your lot if you choose a basic subscription.
Ads, while disruptive to many viewers, are a cost many others are willing to endure to minimize expenses, especially if they are paying for multiple monthly subscriptions, as many people tend to do. Ads are also music to investors’ ears, as they provide a welcome additional income stream for companies whose annual capital expenses can reach into the tens of billions of dollars.
In the decades between the days of RadioShack and the ascendancy of streaming platforms, cable companies reigned supreme. If you wanted to see quality original programming – anything from HBO, Cinemax, Bravo et al, in addition to having access to an archive of films from decades past via hundreds of channels, where these films ran linearly, i.e. you couldn’t start or stop them at will – you had to pay for what was known as premium cable. In 1995, 50+ million households in the U.S. paid $22.35 per month for basic cable (à la carte channels and pay-per-view events – or what would have been called premium cable – were extra). In today’s money, that’s closer to $50 and indeed these days, Americans pay an average of $46 a month for streaming services. The fact that 45% have canceled a streaming subscription within the last year due to high costs indicates that even the equivalent of basic cable can be a strain on the average household’s budget.
Between then and now, America has undergone the great cord cutting, where tens of millions of cable subscribers stopped paying their cable providers for access to 57[0] Channels (And Nothin’ On), and now that the changeover has reached its mature phase, very few people in the U.S. have a cable TV subscription, while most people have a subscription to Netflix, Amazon Prime Video, or both.
The Present
Everything old is new again, and if you want to ensure access to a healthy selection of programming that includes sports, new releases of feature films, and the popular TV shows (i.e. the equivalent of premium cable) you will probably be paying that ~$50 a month for a combination of Netflix, Amazon Prime, Disney+, and Peacock.*** The other options are YouTube Premium (no ads), Amazon Prime, Paramount+, and Disney+ (the kid- & teenager-friendly package) or Netflix, ESPN+, YouTube Premium, and Hulu (the bro bundle), etc. A cynic, especially a frugality-focused one, could say that the great cord cutting was for naught, but anyone who has watched and rewatched episodes and seasons of Yellowstone with the freedom as expansive and wild as John Dutton’s hundreds of thousands of acres, will tell you that, in terms of experience, streaming is vastly superior to choice-driven, but still linear, pay cable.
The streaming landscape is varied and overlapping, with the same content available on multiple platforms, and multiple platforms available through certain other platforms, making the latter into meta-platforms (we’re looking at you, Prime, and at you, Apple TV+). Let’s dive into the stream and see what the excitement, both quality (of entertainment) and quantity (of income) -wise is all about.
The Contenders
Discovery
Founded in 1985, Discovery, Inc. merged with WarnerMedia in 2022 to form Warner Bros. Discovery (WBD). The new company reported revenues for the twelve months ending June 30, 2024 of $39.934B, a 4.67% decline year-over-year. A unique feature of WBD is its broad portfolio, which includes everything from news (CNN) to sports (TNT, TBS) to premium scripted content (HBO) and reality programming (Discovery Channel). In May 2023, Warner Bros. Discovery merged HBO Max’s scripted entertainment with Discovery+’s reality and unscripted content, dubbing the new, more diverse service Max.
One of Max’s most distinctive features is its premium content library of mostly adult-oriented programming that includes HBO series, Warner Bros. films, and Max Originals. The service stands out for its strong brand recognition, thanks to HBO’s long history of producing high-quality content, and its access to a vast library of popular franchises such as Harry Potter, DC Comics, and Friends. Before Max, although the franchise (then known as HBO Max) had faced challenges, especially initial confusion over branding, a controversial decision to release Warner Bros.’ 2021 film slate simultaneously on HBO Max and in theaters, the removal of certain content from the platform, and cancellation of high-profile projects to cut costs, it has also seen significant growth, particularly internationally, as it expands into new markets.
YouTube
Founded in 2005, YouTube is a video-sharing platform owned by Google (Alphabet Inc, GOOGL, GOOG) since its acquisition in 2006 for $1.65 billion. Last month, the video platform reported advertising revenue of $8.66 billion for Q2 2024, up 13% from $7.66 billion for Q22023. In 2022 (the most recent year for which we’ve been able to find this information) YouTube also made $11 billion from its Premium subscription service.
YouTube has been in the news for issues related to content moderation, misinformation, and its competition with TikTok. A unique feature of YouTube is its vast user-generated content library and its position as both a social media platform and a streaming service. One paradigm-breaking emergent possibility is that, as a result of ongoing antitrust activity against Goggle, there is a chance that YouTube might be spun off in the near to medium term.
Amazon Prime Video
Amazon Prime Video is part of Amazon’s Prime subscription service. Amazon (AMZN) doesn’t disclose Prime Video’s specific revenue, but Amazon’s subscription services – which include Prime, and which Amazon defines as “annual and monthly fees associated with Amazon Prime membership, as well as audiobook, e-book, digital video, digital music, and other subscription services” – generated $40.2 billion in revenue in 2023 and $21.59 billion for H12024. The estimated number of Amazon Prime Video viewers in the U.S. is currently 163.6 million. (For comparison, Netflix has ~173.7 million viewers in the U.S.) Between India, Germany, the U.K., Japan, Canada, France, and Australia, Amazon Prime Video boasts another estimated 340.5 million users.
Founded in 1994, Amazon launched Prime Video in 2006. Prime Video has been in the news for its big-budget productions such as The Lord of the Rings: The Rings of Power and its streaming of NFL Thursday Night Football games. A unique feature is its integration with Amazon’s e-commerce platform, offering video content alongside other Prime benefits. Prime Video also makes it easy to sign up for other streaming services while conveniently – for purposes of a familiar interface and billing in one place – staying under the Prime umbrella.
Netflix
Founded in 1997, Netflix (NFLX) is a pioneer, poster child, and market leader of the streaming industry. Netflix reported revenue for the twelve months ending March 31, 2024 of $34.9 billion, a 9.47% increase year-over-year and an improvement on the previous y-o-y increase of 6.67%. The streaming giant has been in the news for its content strategy, introduction of an ad-supported tier, and efforts to crack down on password sharing. Netflix stands out for its large subscriber base (over 277 million globally as of Q2 of this year, up from 48 million a decade prior) and its heavy investment in original content production across multiple countries and languages, to the tune of $17 billion for the current year.
Apple TV+
Apple TV+ is a streaming service launched by Apple (AAPL) in November 2019. Apple doesn’t disclose specific revenue for Apple TV+, but the latter is part of the company’s services segment, which generated $85.8 billion in Q2, up from $81.8 billion a year ago, with net income of $21.4 billion. Apple TV+ has been in the news for its high-profile original content and talent deals. A unique feature of Apple TV+ is its focus on entirely original content – some of it highly successful and award-winning, such as the multi-season star vehicles Ted Lasso (Jason Sudeikis) and The Morning Show (Reese Witherspoon) – unlike competitors that also offer large back catalogs of licensed shows and movies. Apple TV+ offers access to live sports, including live MLB and MLS games. Additional sports coverage is available to subscribers who sign up for Paramount+ in the Apple TV Channels hub.
Paramount+
Paramount+, owned by Paramount Global (formerly ViacomCBS), was launched in its current form in March 2021, as a rebranding and expansion of the previous CBS All Access service, which had been operating since 2014. The lineage goes back to CBS, founded in 1927, and Viacom, founded in 1952. These two companies have a complex history of mergers and separations, merging in 1999, splitting in 2005, and remerging in 2019 to form ViacomCBS, renamed Paramount Global (PARA) in 2022. The parent company, Paramount Global, was bought about a month ago by a consortium led by Skydance, the production company helmed by David Ellison, and Gerry Cardinale’s RedBird Capital.
Paramount+ has been in the news for its content strategy, particularly its focus on leveraging existing Paramount franchises and brands. This includes the development of numerous Star Trek series, the Yellowstone franchise, and content from popular networks such as Nickelodeon and MTV. A broad content offering, spanning news (including live local CBS stations in many markets), sports (including NFL games), and entertainment from a wide range of Paramount-owned brands is one of Paramount+’s distinctive features, setting it apart from competitors that focus more narrowly on scripted entertainment. Another such feature is its ‘Mountain of Entertainment’ branding, emphasizing the vast library of content from Paramount’s long history in the entertainment industry. The service has also been aggressive in international expansion, partnering with Sky in Europe and Telstra in Australia.
Paramount+ leads the industry in domestic sign-ups for the fourth year in a row. Q2 revenue increased 46% year-over-year. H22024 revenue was 14.498 billion. The number of Paramount+ subscribers stood at 68 million.
Disney+
A streaming service launched by The Walt Disney Company (DIS) in November 2019, when 10 million users signed up for the service on the first day, Disney+ has been growing rapidly, reaching over 150 million subscribers globally by early 2023. Disney+ currently has 153.6 million paid subscribers worldwide (far surpassing Disney’s initial expectations of 60-90 million subscribers by 2024, but down from a post-COVID runup that climaxed in an all-time high of 164 million in October 2022). Of these subscribers, 62% continue to be customers after 6 months. Disney+ reports a current (Q22024) average monthly revenue of $7.28 per Disney+ Core subscriber – an increase of 12.52% over $6.47 in April 2023.
With ~2,500 titles available in the Disney+ U.S. content library, the streaming service has a 10% share of SVOD subscriptions in the U.S. (down from 12% throughout 2022). With ~19% of Disney+ subscribers on ad-supported plans, the service is expected to generate $911.9 million in ad revenue in 2024.
Disney+ has been in the news for its content strategy, including the release of high-profile shows from the Marvel and Star Wars franchises. A notable feature of Disney+ is its extensive library of classic Disney content alongside new original programming.
Hulu
Hulu, founded in 2007, is a streaming service majority-owned by The Walt Disney Company, with Comcast owning a minority stake. Hulu’s specific revenue isn’t disclosed, but it’s part of Disney’s direct-to-consumer segment. Not publicly traded separately, Hulu has been in the news for Disney’s plans to potentially buy out Comcast’s stake, and for its content strategy. A unique feature of Hulu is its mix of on-demand content and live TV offerings, as well as next-day availability of many current TV shows from various networks.
ESPN+
Owned by The Walt Disney Company, ESPN+ is a sports-focused streaming service launched in 2018. As with Disney+, its specific revenue isn’t broken out, but it’s part of Disney’s direct-to-consumer segment. (ESPN was founded in 1979 and acquired by Disney in 1996.) ESPN+ has been in the news for its sports-rights acquisitions, including exclusive UFC and NHL content. A unique feature is its focus on live sports and original sports programming, complementing the traditional ESPN cable channels.
ESPN+ has also helped Disney start turning a profit on its combined streaming business one quarter earlier than expected. As recently as November 2022, the business was losing $1 billion per quarter. Now, as of end of Q2, 2024, Disney’s combined streaming portfolio – Disney+, Hulu, and ESPN+ – has turned a profit for the first time, bringing in $47 million from April through June, a y-o-y bounceback from a loss of $512 million for Disney’s media and entertainment segment.
As always, Signal From Noise should be used as a source of ideas for further research rather than as a source of investment recommendations. We encourage you to explore our full Signal From Noise library, which includes deep dives on investments related to natural disasters and an update to our overview of the semiconductor industry. You’ll also find a recent discussion of weight loss-related investments, artificial intelligence, and the Millennial generation.
Statista, Fortune, MacroTrends, MacroTrends, MPP, BackLinko, BackLinko, YahooFinance, CableTV.com, Hollywood Reporter, Hollywood Reporter, Forbes, Paramount
* Say, ~35 years ago.
** From an investor’s point of you, the wrinkle to be aware of is that The Walt Disney Company owns (wholly or in large part) Disney+, ESPN+, and Hulu.
*** 99% of all U.S. households pay for at least one or more streaming services.
