How to Play Media Stocks for the Coming 'Streaming Wars'

Nicholas Jasinski Nicholas Jasinski Sector Focus Media AAPL AMZN CBS DIS FOXA NFLX T VIA Amazon.com Apple Walt Disney Netflix AT&T Viacom Machinery Industrial Goods Media/Entertainment John Hodulik AMZN CMCSA DIS HULU.XX M/MENT N/DJN N/WER NBC.XX NFLX NWS NWS.AU NWSA T VIA VIAB Barrons.com Barrons Blogs Wires CODES_REVIEWED Companies Consumer Media Markets Sector Focus Telecom author Nicholas Jasinski author|Nicholas Jasinski id nicholas_jasinski name Nicholas Jasinski topicid 8575 rank 1 extractedtext Nicholas Jasinski codetype author code nicholas_jasinski nameformat surname_first author Nicholas Jasinski id Nicholas Jasinski author author| name Nicholas Jasinski seoname Nicholas Jasinski barrons_display_brand BARSECFOCUS barrons_display_brand|BARSECFOCUS _timestamp 2019-11-20 16:22:04 _uid BARRONS_DISPLAY_BRAND:BARSECFOCUS codetype BARRONS_DISPLAY_BRAND name Sector Focus source MANUAL value BARSECFOCUS canbedisplaybrand true status modified code BARSECFOCUS barrons_display_subject BARMEDIA barrons_display_subject|BARMEDIA _timestamp 2019-11-20 16:21:48 _uid BARRONS_DISPLAY_SUBJECT:BARMEDIA canbedisplaysubject true codetype BARRONS_DISPLAY_SUBJECT name Media source MANUAL value BARMEDIA status modified code BARMEDIA co dis co|dis _timestamp 2019-11-20 15:16:39 _uid co:dis symbol DIS country US codetype co displayname Walt Disney extractedtext Walt Disney source MANUAL name Walt Disney significance prominent onlinesignificance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/DIS fcode DSNYW status modified co t co|t _timestamp 2019-11-20 15:16:53 _uid co:t symbol T country US codetype co displayname AT&T extractedtext AT&T source MANUAL name AT&T significance prominent onlinesignificance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/T fcode SBCATT status modified co cbs co|cbs _timestamp 2019-11-20 15:17:08 _uid co:cbs symbol CBS country US codetype co displayname CBS Cl B extractedtext CBS source MANUAL name CBS significance prominent onlinesignificance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/CBS fcode WSTGE status modified co viab co|viab _timestamp 2019-11-20 15:41:51 _uid co:viab symbol VIA country US codetype co displayname Viacom Cl B extractedtext Viacom source MANUAL name Viacom significance prominent onlinesignificance prominent exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/VIAB fcode VIACMI status modified co nflx co|nflx _timestamp 2019-11-20 15:41:37 _uid co:nflx symbol NFLX country US codetype co displayname Netflix extractedtext Netflix source MANUAL name Netflix significance passing onlinesignificance passing-mention exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/NFLX fcode NETFLI status modified co aapl co|aapl _timestamp 2019-11-20 15:41:38 _uid co:aapl symbol AAPL country US codetype co displayname Apple extractedtext Apple source MANUAL name Apple significance passing onlinesignificance passing-mention exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/AAPL fcode APPLC status modified co amzn co|amzn _timestamp 2019-11-20 15:41:39 _uid co:amzn symbol AMZN country US codetype co displayname Amazon.com extractedtext Amazon.com source MANUAL name Amazon.com significance passing onlinesignificance passing-mention exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/AMZN fcode AMZCOM status modified co fox co|fox _timestamp 2019-11-20 15:41:52 _uid co:fox symbol FOXA country US codetype co displayname Fox Cl B extractedtext Fox source MANUAL name Fox significance prominent onlinesignificance prominent exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/FOX fcode FOXNQW status modified co DSNYW co|DSNYW symbol DIS country US codetype co displayname Walt Disney extractedtext Walt Disney source MANUAL code dis name Walt Disney significance prominent onlinesignificance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/DIS fcode DSNYW status modified co SBCATT co|SBCATT symbol T country US codetype co displayname AT&T extractedtext AT&T source MANUAL code t name AT&T significance prominent onlinesignificance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/T fcode SBCATT status modified co WSTGE co|WSTGE symbol CBS country US codetype co displayname CBS Cl B extractedtext CBS source MANUAL code cbs name CBS significance prominent onlinesignificance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/CBS fcode WSTGE status modified co VIACMI co|VIACMI symbol VIA country US codetype co displayname Viacom Cl B extractedtext Viacom source MANUAL code viab name Viacom significance prominent onlinesignificance prominent exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/VIAB fcode VIACMI status modified co NETFLI co|NETFLI symbol NFLX country US codetype co displayname Netflix extractedtext Netflix source MANUAL code nflx name Netflix significance passing onlinesignificance passing-mention exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/NFLX fcode NETFLI status modified co APPLC co|APPLC symbol AAPL country US codetype co displayname Apple extractedtext Apple source MANUAL code aapl name Apple significance passing onlinesignificance passing-mention exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/AAPL fcode APPLC status modified co AMZCOM co|AMZCOM symbol AMZN country US codetype co displayname Amazon.com extractedtext Amazon.com source MANUAL code amzn name Amazon.com significance passing onlinesignificance passing-mention exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/AMZN fcode AMZCOM status modified co FOXNQW co|FOXNQW symbol FOXA country US codetype co displayname Fox Cl B extractedtext Fox source MANUAL code fox name Fox significance prominent onlinesignificance prominent exchange 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https://www.barrons.com/articles/how-to-play-media-stocks-for-the-coming-streaming-wars-51574334000 Photograph by Drew Angerer/Getty Images How to Play Media Stocks for the Coming Streaming Wars How to Play Media Stocks for the Coming Streaming Wars How to Play Media Stocks for the Coming Streaming Wars

Which of the media old guard are set up to succeed? Here’s how each of them is approaching the streaming future.

How to Play Media Stocks for the Coming ‘Streaming Wars’

Which of the media old guard are set up to succeed? Here’s how each of them is approaching the streaming future.

https://www.barrons.com/articles/disney-stock-earnings-beat-estimates-51573164529 https://www.barrons.com/articles/at-ts-hbo-max-prepares-to-join-the-growing-ranks-of-streaming-services-51562976002 https://www.barrons.com/articles/comcast-stock-streaming-video-cable-telecoms-cord-cutting-51573764081 https://www.barrons.com/articles/disney-stock-jumps-big-first-day-for-streaming-service-51573670038 https://www.barrons.com/articles/at-t-just-unveiled-new-details-about-hbo-max-here-are-the-highlights-51572388869 https://www.barrons.com/articles/nbc-streaming-service-51547503791 https://www.barrons.com/articles/after-disney-deal-how-foxs-stock-can-bounce-back-51570615211 https://www.barrons.com/articles/viacom-and-cbs-merger-makes-media-companies-bigger-but-probably-not-stronger-51566001123 mailto:nicholas.jasinski@barrons.com How to Play Media Stocks for the Coming Streaming Wars By Nicholas Jasinski Photograph by Drew Angerer/Getty Images The media and entertainment giant has a three-pronged strategy for streaming.

Much has been written recently about the coming “streaming wars,” with dozens of mass-market and niche direct-to-consumer services available or soon to be introduced. The way consumers get their entertainment has come a long way from the traditional ecosystem dominated by cable and satellite TV. That meant limited options for consumers, long-term contracts, and little control over the content they receive—but wide profit margins and stable revenues for the distributors.

“The old model was characterized by mass adoption given few substitutes, high barriers to entry, limited competition among a static number of programmers and distributors, and high switching costs,” UBS analyst John Hodulik wrote in a report on Wednesday. “These conditions rarely persist in internet-driven industries where low switching costs, low barriers to entry, higher price transparency, and rapid innovation create a more dynamic playfield.”

That means more players, less loyalty among subscribers, and greater competition for customers’ viewing time. It is a recipe for lower subscription prices to attract users, and greater spending on new content to keep them. And the more attractive streaming services there are, the faster the pay-TV business will shrink.

Traditional media companies including Walt Disney (ticker: DIS), AT&T’s (T) WarnerMedia and the soon-to-be-merged CBS (CBS) and Viacom (VIAB) are all embracing direct-to-consumer streaming. They are going up against industry pioneer Netflix (NFLX) and new entrants with deep pockets such as Apple (AAPL) and Amazon.com (AMZN).

Which of the media old guard are set up to succeed? Here’s how each of them is approaching the streaming future:

• Disney: The media and entertainment giant has a three-pronged strategy for streaming. Disney+ made its debut earlier this month—the home for family and children’s programming. ESPN+ is a streaming service focused on sports and Disney-controlled Hulu targets adult viewers. Hodulik forecasts that the three services could have more than 120 million subscribers in five years. Despite the resulting hit to Disney’s traditional TV and movie businesses, he is bullish on the “all-in” streaming approach.

“We see Disney as the only traditional media company with the scale, brand recognition and [intellectual property] to join Netflix and Amazon as a leader in the retail marketplace for subscription video,” Hodulik wrote. “The launch of Disney+ and broader pivot to DTC [direct to consumer] will require increased investment and changes to business practices that pressure legacy revenue streams. However, we believe the transition will ultimately result in a faster growing company with dramatically lower exposure to secular headwinds in video consumption.”

Hodulik has a Buy rating and $155 price target on Disney stock, 6% above its recent $146.30.

• AT&T: Its WarnerMedia-unit will introduce HBO Max next spring, which will include content from HBO, the Warner Bros. library, and additional original and licensed content. It will be the priciest of the major streaming services, at $15 a month. AT&T sees 50 million U.S. subscribers and up to 40 million international subscribers by 2025. Hodulik noted that the strategy is likely to drive additional pressure on WarnerMedia’s legacy-media revenue, which will make up 28% of the telecom giant’s business this year. Bundling HBO Max with some AT&T wireless plans could help reduce cancellations and increase sales there. Hodulik has a Buy rating and $42 price target on AT&T stock, 14% above its recent $36.80.

• Comcast: The company is taking a more-balanced approach to streaming, having a lot of pay-TV business to defend with more than 40 million TV subscribers in the U.S. and Europe. Its NBCUniversal subsidiary plans to release a streaming service called Peacock next year, with both subscription and free ad-supported tiers for Xfinity TV and internet customers. Hodulik noted that NBCU will continue to license some content and keep other shows and movies for Peacock. That means a smaller decrease in its licensing revenue than the all-in path that Disney is on. Hodulik has a Buy rating and $49 price target on Comcast stock, about 12% above its recent $43.90.

• Fox: Fox’s (FOXA) strategy is focused on live news, sports, and event programming, after it sold most of its entertainment assets to Disney last year. “We believe this programming has less substitution risk to DTC relative to entertainment or kids networks,” Hodulik wrote. “That said, pay-TV subscriber declines have nonetheless pressured the stock in recent months and we expect these trends could continue to weigh on sentiment. Despite Fox’s favorable positioning, trends will remain highly dependent on taking share of a shrinking pay-TV ecosystem.”

Fox’s only direct-to-consumer offering is a Fox News service called Fox Nation, which includes original content from the network at $7 a month. (Barron’s parent company News Corp and Fox share common ownership.) Hodulik has a Neutral rating and $35 target price on Fox stock, just below its recent $35.83.

• ViacomCBS: The two companies are in the process of consummating a re-merger. The company is trying to compete with several of its own direct-to-consumer services—CBS All Access, Showtime, ad-supported Pluto, and niche offerings like BET+ and Noggin—produce content for third parties, and maintain its traditional TV business. But it is hard to have it all ways. Deals with Netflix and Amazon to make shows for their platforms increase the value of those services relative to its own. Keeping content for its own services accelerates the decline of pay-TV viewership. And its traditional TV (about 70% of revenue) best-case scenario is to capture a bigger piece of a shrinking pie. Hodulik rates both stocks Neutral. His $40 CBS stock price target is 3% above its recent $38.76 and his $24 Viacom target is 4% above its recent $23.15.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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