A Milestone Day in the 'Streaming Wars'
A milestone day in the 'streaming wars'... Disney+ has launched... What this means for the media industry... A mass exodus from Netflix?... The winners and losers... More subscriber feedback on Dan's Friday Digest...
The 'streaming wars' just got a lot more interesting...
Today was the official U.S. and Canadian launch of Disney+, the direct-to-consumer ("DTC") video-streaming service created by one of the world's largest and most well-known entertainment giants.
As I (Corey McLaughlin) am sure regular Digest readers know, major companies like Disney (DIS), Netflix (NFLX), Apple (AAPL), Comcast (CMCSA), Amazon (AMZN), Alphabet (GOOGL), and AT&T (T) are racing to win as much of consumers' media consumption as they can.
These companies either have already spent or plan to spend billions of dollars building out their own video-streaming services.
These platforms allow consumers to watch their favorite TV shows or movies anytime, anywhere. They're the fuel for the "cord cutting" trend that we've followed for some time.
More and more, consumers are ditching expensive cable and satellite packages in favor of cheaper, more-focused "a la carte" streaming options.
A recent study from research firm eMarketer said one in five U.S. adults will have cut the cord by 2020. And according to the Motion Picture Association of America, the number of streaming subscribers worldwide (613 million) surpassed the number of cable subscribers (556 million) last year for the first time in history.
We've closely tracked the cord-cutting trend, and in particular, Disney's position in it...
In December 2017, Porter and the Stansberry's Investment Advisory team first broached the topic with a warning against buying Disney shares.
They like Disney's brand and its "trophy assets" – including its catalog of movies and characters, and its theme parks. But at the time, the company was facing substantial headwinds from the cord-cutting trend...
Significant numbers of consumers were realizing they didn't need to pay for large cable packages that bundled a few popular channels with hundreds they would never watch. That put Disney's media-network business at risk. And that part of the business generated half of the company's profits.
But just five months later, in the April 2018 issue of the Investment Advisory, Porter and his team reversed course on Disney – and with conviction... In the issue, they called Disney a "forever stock" and said you could safely hold the media giant in your portfolio.
Why the abrupt about-face?
Disney's largest acquisition ever, a sign that the company was putting its full weight behind its own subscription content service...
In mid-December 2017, Disney took over 21st Century Fox in a $71 billion acquisition... The deal gave Disney more trophy assets in the form of more rights to TV shows and a controlling stake in the Hulu streaming service.
In April 2018, Disney also launched a sports-specific ESPN+ subscription service.
Porter and his team didn't stop there...
Just a few months later, in the July 13, 2018 Digest, Porter urged all Stansberry Research readers to buy shares of this high-quality, capital-efficient business.
The following month, he went even further... In the August 3, 2018 Digest, Porter called Disney one of "the two best stocks you can buy in the world right now." He told subscribers... "If you don't own [these stocks], buy them."
But Disney invested in its DTC business even quicker than Porter and his team expected...
In April of this year, Disney shares surged 12% in one trading day when the company announced the official launch date of its Disney+ streaming service.
The company said it would focus on entertaining kids and families, with things like original Star Wars programming... its collection of Marvel and Pixar content... and decades of Disney classics.
With the announcement, some analysts believed Disney+ could emerge as a serious competitor to industry leader Netflix...
Disney+ costs just $6.99 per month in the U.S., offers desirable programming, and will include more original shows and content in the future.
The price for a subscription to Disney+ is less than Netflix's cheapest tier ($8.99 per month) and half of Netflix's most popular plan that costs $12.99 per month. It just so happens that $12.99 is the same price as Disney's bundle deal for Disney+, ESPN+, and Hulu.
So what does Disney's presence mean for the 'streaming wars'?...
It means competition is ramping up.
For instance, earlier this year, Disney said it was banning advertising from Netflix and any rival streaming services. The company also said its content would be available exclusively on its own platforms.
Meanwhile, Netflix keeps burning through cash... In October, the streaming pioneer added $2 billion in junk bonds to its already huge debt load as it races to produce more and more content...
In addition to losing broadcast rights to all the Disney content, Netflix will lose rights to two of its most-watched shows – Friends and The Office – to AT&T-owned WarnerMedia's HBO Max and NBCUniversal's Peacock in 2020 and 2021, respectively...
At the same time, Apple charges $5 a month for its Apple Plus TV that launched two weeks ago... HBO Max is set to launch in May 2020... and we're only now mentioning Amazon's Prime video service.
In short, there will soon be many more options for consumers to explore.
Looking at the big picture, though, it's hard to imagine that consumers who not long ago dropped a $120-per-month cable package will eagerly pay more than that price for a combination of streaming services.
That brings up two big questions...
Which services will people pay for? And how many?
My wife asked me these questions this morning when we discussed what I planned to write today. It's a topic of discussion in our house because we recently learned that streaming service PlayStation Vue – which we've used for more than a year – is shutting down in January because Sony (SNE) has never made a profit from the service.
Our Stansberry's Big Trade editor Bill McGilton noted these circumstances when he issued a warning on Netflix in his June issue...
Swiss investment bank UBS ran a survey in April and May of this year to gauge how many [over-the-top ("OTT")] services people would be willing to pay for.
The survey found that half were only willing to pay for one... 40% would pay for two or three... and only 10% would pay for four or more.
We followed up with Bill today. He shared more details with us in a private note...
Not everyone can afford multiple OTT services. And Disney+ is offering an alternative at half the price. There's no doubt about it... It's going to hurt Netflix.
Bill also tipped us off to the chart below...
It shows the results of a recent survey of about 1,000 Netflix subscribers... They were asked if they would cancel Netflix once their favorite shows moved to their "native" content houses.
You'll see that people apparently like Marvel movies and episodes of The Office – no matter how many years old they are – enough to drop Netflix... especially young adults.
For example, you can see that about 30% of the surveyed Netflix subscribers ages 18 to 29 said they would cancel their subscriptions when The Office goes to NBCUniversal's Peacock...
That's bad news for a company that this summer said its subscriber count declined for the first time in 10 years.
This is a new era of media...
The battles for consumer attention and recurring subscription charges are just beginning.
Things are getting serious. The gloves are off. There will be winners and losers. And with so many companies in the "war," it's hard to know exactly how the competition will shake out.
But kudos to Porter and his team for their conviction and foresight on Disney... and Bill for his bearish call on Netflix. Subscribers have profited from both pieces of guidance...
Disney shares are up 36% since our team's original buy recommendation in April 2018. The stock is now trading near its all-time high... It closed today at $138.58 per share.
Meanwhile, Netflix – one of the best-performing stocks of the past decade – is down around 20% since Bill's warning back in June.
We'll continue to stay on top of this story. The streaming wars are just getting started.
If you don't already subscribe to our flagship Stansberry's Investment Advisory, you can find out more about a subscription right here. Right now, we're offering a special deal.
And you can click here to learn more about our Stansberry's Big Trade advisory. Bill told us this morning that he plans to update subscribers on his Netflix thesis in this month's issue. If you're already a subscriber, you can look for that issue on Wednesday, November 27.
New 52-week highs (as of 11/11/19): Bausch Health (BHC), Celgene (CELG), Huntington Ingalls (HII), Microsoft (MSFT), and Invesco S&P 500 BuyWrite Fund (PBP).
The feedback on Dan Ferris' must-read Friday Digest is still rolling in. What's on your mind? Let us know at feedback@stansberryresearch.com.
"Hi Dan, this is the first feedback response I have ever found the motivation to send to anybody at Stansberry. Your piece about your Mom and Dad really touched me. Your observations about the shortness of life and what is relevant and important, citing Graham's work was exceptional. Well done and even though what you wrote is not financial investment advice, it is even more important than that. It is advice as to an investment in one's life. Bravo! Good luck to your folks." – Paid-up subscriber Keith M.
"Dan, one of the things I appreciate about my membership with Stansberry is getting to know all of you as people with lives other than your job analyzing investment ideas for us. Your story about your parents has me slightly weepy. How's your mom now? I hope she's recovering. It's unbelievably sad to lose someone you love, and I hope that day is still a long way off for you and your dad." – Paid-up subscriber Laura O.
"Let me first state that I am a Stansberry Alliance member... I read a lot of investment newsletters. I vicariously receive my dose of news via all the investment subscriptions. I may not check my cell phone for a week, we have very spotty service where I live and it really is a blessing in disguise. I retired from corporate America 15 years ago at age 54... abandoned my condo one block north of ground zero in NYC and moved 200 miles away and live in a house in the woods.
"Your story regarding your parents really focused on what we all should care about, and it's not the money... it's memories! It's those same memories your Dad reminisced about. The last bit of advice my heart surgeon generously shared with me during my exit examination 15 years ago was, 'it's now your goal to create good memories for yourself every day.' That is how I attempt to live life to the fullest. Create good memories every day. Consciously go out and create good memories for me and everyone I come into contact with daily.
"I hope my response will in a small way create a good memory for someone. It is a reminder for us all to focus on the goal. Dan... Thank you." – Paid-up Stansberry Alliance member Carey S.
"Dan, great advice, I've just turned 70 and time seems to accelerate every day. Spend time with your Mom, I wish I had with my parents and now they've gone, it's too late. Ask your Dad every question you can think of about his war experiences, that will have been the defining experience of his life. My Dad was a POW of the Japanese, terrible suffering which he never talked about, but which defined the rest of his life. I've only found out what it was like for him by painstaking research after he died. Don't waste that opportunity or you'll regret it forever." – Paid-up subscriber Martin P.
"Hey Dan, longtime reader and listener to Stansberry Investor Hour. Just read your Friday Digest, and wanted to let you know we will say some prayers for your mother to heal up quickly so she can get back to being her ornery self. I can relate, my mother is 87, and acts similarly. We have to feel blessed to have as good of health as we do – to have parents living that long. Thanks for all you do to help us!" – Paid-up subscriber Eddie C.
"Hello Dan, thank you for the Digest issue of 11/8 and I'm sorry for the fall of your mother. But I am also heartened by the positives of being with your folks, especially your dad. You are lucky to have seen your parents and still communicate at an elderly age.
"My folks died earlier and both died suddenly. No going back, only regrets. Both my grandfathers died in WWII, both before I was born. I am glad you have been averted that fate. But I am working to enjoy my life and to interact as much as possible with my kids and especially my grandkids. The work you and others do at Stansberry help me to pay for vacations with my grandkids which they would otherwise not be able to afford. And I visit them as often as I can, even though it entails driving far more than I'd like. It's all worth for the hugs and kisses and memories. That's all that has real value. Thanks for your work, enjoy your podcasts." – Paid-up Stansberry Alliance member Paul R.
"I really enjoyed what you wrote, Dan! Spot on about not waiting since life is short. In 2012, our son and his wife wanted to move south having grown tired of Wisconsin winters. Knowing how much we'd miss them and their son and daughter, our only grandchildren, and also tired of Wisconsin winters after 65 of them, we sold the home we loved and bought a farm about an hour west of Nashville. (I think it was Porter who recommended this around that time.) Relocating to a new climate and a new culture was difficult at first. We missed our home, our dear friends, and all that was familiar. But we've built a new home on our farm, as have our son and daughter-in-law, and found new friends and new activities. I now line dance! Most of all, we've had the joy of watching our grandson and granddaughter grow into the fine young adults they now are. The family meals we've shared, games of pool in the basement, campfires on cool autumn evenings, and holidays together have made all the upheaval so worthwhile! We truly feel we're living life to the fullest!" – Paid-up Stansberry Alliance member Nancy V.
"Dan, I read your article and it hit home for me. I am one of seven children (my brother Mike died a few years ago). I just buried my almost 92-year-old mother at Arlington National Cemetery along with my Dad and brother after waiting almost a full year to do so. I can only say that I wish I had more time with them. It leaves a terrible hole in your heart once they are not here any longer. I pray for your mother's health. Stay well." – Paid-up subscriber L.M.
Regards,
Corey McLaughlin
Baltimore, Maryland
November 12, 2019