Streaming: 'There has to be consolidation' at some point

Disney (DIS) released its fourth-quarter and full-year earnings for 2023, with revenues up 5 and 7% year-over-year, respectively. Many investors have been watching CEO Bob Iger closely as he laid out many plans for the company moving forward, including hiring new CFO Hugh Johnston and purchasing the remainder of Comcast's (CMCSA) stake in Hulu.

Redbird IMI CEO Jeff Zucker recently spoke on the subject of cable TV and streaming, claiming cable TV, for now, is standing tall as more and more media companies move towards streaming. However, with so much competition and platforms to consume content, how long can these services last on their own?

Geetha Ranganathan, Bloomberg Intelligence Senior Media Analyst, joins Yahoo Finance to discuss the state of streaming providers and if consumers can expect a consolidation of these services.

"It's going to come down to re-bundling, right? The Bundle 2.0, which is going to be this kind of hybrid of the linear TV as well as the streaming services," Ranganathan anticipates. "We already kind of got a little bit of glimpse into that with this new Disney-Charter deal, which is kind of this hybrid deal, not just with their TV network, but also potentially for that ESPN full-blown streaming product that comes out in a couple of years."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- Disney is certainly not the only company right now that only media company that's trying to decide what to happen, what to do with some of their legacy assets. Yesterday's Yahoo Invest Conference, we heard from RedBird IMI CEO Jeff Zucker who, of course, used to head up CNN on the future of cable. Take a listen to what he had to say.

- Cable will be part of the landscape for the next decade. It will obviously continue to have fewer and fewer subscribers. But even at 45 to 50 million subscribers, cable is still a very powerful distribution outlet.

- So Jeff Zucker there saying that, look, cable is not going anywhere. We heard similar comments from Kevin Mayer, who used to be with Disney, of course, who said, look, even if you are seeing subscribers move away, viewers move away, the profits are still there. I wonder how you look at that in the context of where streaming is headed right now.

- Yeah. I mean, this has been such a big, big question for media, you know? How do you navigate that transition from linear to streaming. You have to guard your linear profits because that's really the cash cow. I mean, you look at Warner Brothers Discovery, which reported earlier today.

And I mean, Jeff Zucker was there. Warner Brothers, if you just, kind of, look at their profile, 85-- so 50% of their revenue is from their TV networks business. But 85% of their profits is from TV. So TV, obviously, is the lifeblood of so many of these companies.

So it's going to be hard for them to, kind of, navigate that. But I do agree. I mean, I think we are, kind of, thinking of this pay TV floor. I mean, back in the heyday, it was 100 million pay TV households in the United States. That's down to about 70 million right now.

But I think, yes, there is pretty much a floor. It probably will be 50 million. But the question is, are people-- there's going to be a lot of marquee content that moves away from the linear TV bundle to the streaming outlets. And so, that is really what all of these companies are trying to manage.

Again, it's still a question as to whether the streaming profits will be able to recoup the linear losses. I think that's what everybody is kind of really grappling with right now. Again, we have to, kind of, wait and watch. It's going to take a few more years for that to shake out. And I think there's going to be a lot more disruption before we see light at the end of the tunnel.

- And Geetha, turning back to the streaming industry, that's where the eyeballs are headed. There's so much competition there, though, Geetha. You know, Disney, Apple, Amazon, Netflix. If you were to look at 3 to 5 years, Geetha, do you think all those big players are still around, or would you expect some consolidation? Could there be like a cable-like streaming bundle coming? What do you think is coming down toward us?

- Yeah, I definitely think there has to be consolidation. I mean, you look at Netflix, of course, they're far away. They're far ahead of everybody else in the streaming space, 250 million subscribers. We see them going to 300 million just with all of their new initiatives in place, whether it's the advertising tier, the password-sharing crackdown.

Disney Plus, of course, is a close second. And I think just, kind of, with that consolidated streaming strategy and with their bundle, front and center, I think they have a really, really good chance as well. But then, you come to, like, Max from Warner Brothers Discovery.

They are, kind of, pretty much struggling when it comes to subscriber growth. They have achieved streaming profitability, which is a really critical metric for the media companies right now. But as far as subscriber growth and subscriber scale is concerned, I'm not really sure they'll be able to exceed, let's say, about $100, $120 million.

So what happens at that point? I think they will then have to consolidate with some of the smaller players, whether that's a Peacock, whether that's a Paramount Plus. We'll have to wait and watch. But ultimately, you're absolutely right. It is going to come down to rebundling, right?

The bundle 2.0, which is going to be, kind of, this hybrid of the linear TV, as well as the streaming services. We already, kind of, saw. We got a little bit of a glimpse into that with this new Disney charter deal, which is, kind of, this hybrid deal, not just with their TV networks, but also potentially for that ESPN full-blown streaming product that comes out in a couple of years.