Netflix’s NFLX content strength driven by aggressive investments has helped it to establish its dominance in the streaming space. The company’s subscribers hit 139.26 million globally at the end of 2018. Notably, the company amassed 28.62 million in the full year. Netflix now expects to add 8.90 million subscribers in the first quarter of 2019.
Apart from content strength, Netflix’s massive subscriber growth can be attributed to binge viewing and a low-cost plan compared with most of the traditional cable companies and broadcasters.
Cord-cutting has been significantly hurting traditional media companies’ top-line growth. Moreover, apart from AT&T’s T HBO Now and Hulu, none of the other streaming services from legacy media companies, have been able to match Netflix’s footprint, in terms of content as well as marketing.
However, the streaming market is now expected to face a major disruption with upcoming services from Disney DIS and Apple AAPL. While the media behemoth with its brand name and vast library is Netflix’s closest competitor, Apple’s huge cash reserves and strong leadership team are a few aspects to look out for.
Innovative Strategies Help Netflix to Dominate
Netflix is taking a number of unique and essential steps to set it apart from its peers. The company has forayed into interactive content, expanded regional content in international markets and tweaked its theatrical distribution strategy. Its content strength is helping it to win awards and accolades
Netflix, Inc. Revenue (TTM)
Netflix, Inc. Revenue (TTM) | Netflix, Inc. Quote
Netflix’s Black Mirror: Bandersnatch gained widespread popularity as users were given the choice to select their own ending. The move apart from boosting user engagement helped the company get detailed insights into consumer behavior patterns, which can be put to use to steer its upcoming content.
Additionally, Netflix has big plans for international markets like Germany, Spain, France and India, which have ample room for growth compared with the maturing U.S. and U.K. markets. Notably, international revenues soared 35.8% year over year to $2.11 billion owing to heavy investments in local content.
This apart, Netflix is increasing theatrical releases of its films to avoid criticism during Academy awards nominations and gain more exposure for its content.
Disney Wages Price & Content War
Disney has a bigger content package that it will offer at a lower price. The company has three separate streaming services — ESPN+, Disney+ and Hulu — based on user content choices.
Disney+, which is expected to be launched by the end of the calendar year, will leverage Disney’s existing IP along with investments in original content. Additionally, to ramp up its content portfolio and to cater to consumer demand, the company is buying content from other providers.
The Walt Disney Company Revenue (TTM)
The Walt Disney Company Revenue (TTM) | The Walt Disney Company Quote
Moreover, the acquisition of Fox will further strengthen Disney’s film and TV slate. Notably, Disney+ is estimated to add 160 million subscribers worldwide, per CNBC as quoted by J.P. Morgan. Further, growth in ESPN+ subscribers is expected to continue owing to its content strength. ESPN+ currently has 2 million paid subscribers.
Hulu’s content portfolio received a boost as Disney recently announced four animated series from its Marvel Studios. Disney currently holds 30% stake in Hulu. Content strength along with price reduction of its basic ad-supported plan to $5.99/month is expected to attract subscribers. Notably, Hulu added 8 million U.S. subscribers in 2018, bringing the total count to 25 million.
Disney is entitled to another 30% stake in Hulu after it acquires Twenty-First Century Fox. Additionally, per media speculations, AT&T is in discussions with Disney to sell its 10% stake in Hulu. Comcast CMCSA owns the other 30%.
Apple’s Service Could be Free
Apple is expected to launch its much-anticipated video streaming service in April or early May this year.
Apple Inc. Revenue (TTM)
Apple Inc. Revenue (TTM) | Apple Inc. Quote
The video service is likely to comprise free original programming (reportedly for Apple device holders) along with subscription-based streaming offerings from providers like CBS Showtime, Lions Gate’s Starz and Viacom. Notably, Apple, which was estimated to spend about $1 billion in 2018, per Macworld, is expected to invest $4.2 billion by 2022 to strengthen its content slate.
The company inked major deals with the likes of Oprah Winfrey, Octavia Spencer, Reese Witherspoon, Jennifer Aniston, Steven Spielberg, Francis Lawrence, Damien Chazelle, M. Night Shyamalan and Kristen Wiig.
Moreover, Apple’s focus on acquiring/partnering with Oscar winning content makers, targeting unique and appealing content in the age of big deals with top stars for drawing audiences, is expected to help the company create a place for itself in the competitive market.
Increased demand for content, low barriers to entry due to decline in technology costs and easy availability of content are a few notable factors driving the rise in the number of over-the-top (OTT) service providers. Notably, more than 200 (OTT) services are available in the United States alone.
Per a Vindicia report, Netflix, Amazon and Hulu will continue to have the largest share in the OTT market in the United States. Nevertheless, the report also suggests that Disney’s streaming service will give heavy competition and is likely to add more subscribers than the existing ones.
All the three stocks, Netflix, Disney and Apple currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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