Streaming wars: How Disney, Apple, Amazon and Alphabet battle for the next leg up
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It’s no secret that battles among the major streaming players have been heating up. But a big acquisition by Disney underscores how the incumbents are trying to take the next steps to win the war. Earlier this month, Disney began rolling out a Hulu integration through its Disney+ streaming platform in a broader push to retain and attract more subscribers. The acquisition of CNBC-parent Comcast ‘s remaining one-third stake in Hulu for $8.6 billion is part of Disney’s larger plan to pull its streaming business out of the red and increase scale. During its quarterly earnings call in November, Club name Disney managed to raise its cost-cutting projections by more than 35% to around $7.5 billion in hopes of boosting profitability. But, Disney isn’t the only streamer looking to bundle. Last week, Verizon announced a bundle of ad-supported services from Netflix and Max, owned by Warner Bros Discovery , for $10 per month. Verizon customers can also get the current Disney bundle, — which includes Disney+ (no ads), Hulu (with ads) and ESPN+ (with ads)— as well as the new Netflix-Max offer for one price of $20 per month. Club holding Apple and entertainment giant Paramount Global were also said to be in early-stage talks to bundle their streaming services together at a discount, according to a Wall Street Journal on Dec. 1. Who knows what that would look like and whether they’d go seek out an intermediary like Verizon. Neither Apple nor Paramount immediately responded to CNBC’s request for comment. Hulu opportunity For years, Disney sold Hulu as a part of a streaming bundle with its Disney+ and ESPN+ products. But by rolling out a Hulu integration, the company is going one step further. Management is creating a unified one-app experience for users, combining Hulu’s high-quality general entertainment with Disney’s family-friendly franchises like Frozen and Marvel that other rivals may find hard to match. The Hulu purchase also aims to address a broader headwind facing streaming services — growing subscriber churn or the number of customers abandoning platforms. We think combining both Disney and Hulu’s popular content in one place creates an entire host of benefits for Disney+. It’s likely to boost engagement and increase hours watched — which, in turn, should create greater advertising opportunities for Disney. A streaming offering like this could be the best way for Disney to compete with giants like Netflix. Disney+ reported 46.5 million total subscribers in the U.S. and Canada, as of the three months ended Sept. 30 (the company’s final quarter of fiscal 2023). Hulu ended that stretch with 48.5 million subscribers. Netflix, by itself, finished the first nine months of its fiscal year 2023 with 77.3 million U.S. and Canada subscribers, according to the firm’s third-quarter results . It’s worth noting that an apples-to-apples comparison with Netflix at this point is tough because, due to bundling overlap, the Disney+ and Hulu subscriber numbers cannot simply be added together. But, the combined Disney+ and Hulu will likely be competitive with Netflix. Jeff Marks, director of portfolio analysis for the CNBC Investing Club, said the integration will not only create “a seamless, one platform experience” but also showcase Disney management’s efforts to cut inefficiencies. “Managing one combined platform instead of two should also help with expenses, which is something we are focused on because we want to see Disney’s direct-to-consumer business become profitable as soon as possible,” Marks explained. DIS .SPX YTD mountain Disney vs. S & P 500 YTD After last month’s earnings, Jim Cramer touted Disney as his top pick out of the major media stocks, praising CEO Bob Iger for his cost-cutting initiatives and the Hulu purchase. To be sure, Disney has been a laggard in this year’s strong stock market — gaining about 8% compared to the S & P 500 ‘s roughly 23% year-to-date gain. However, management’s turnaround plan — including its decision to restore a dividend, which was suspended since the early Covid days in May 2020 — along with its improving fundamentals, are reasons we’re sticking with the stock. We also think activist investor Nelson Peltz’s new fight for board representation will push further management on fiscal responsibility. Peltz’s investment firm Trian owns roughly $3 billion worth of Disney shares . Services boost In the case of Apple, we don’t speculate too much on unconfirmed reports like the one about Paramount talks. But a bundling move could add incremental value for Apple TV+ customers and boost the tech powerhouse’s growing high-margin Services business. Revenue from Services accounts for more than 25% of the company’s overall top line. In its latest quarterly release in October, revenue for Services climbed to a record high of $23.31 billion, up 16% year-over-year. AAPL YTD mountain Apple (AAPL) year-to-date performance Consolidating services by bundling, could increase Apple’s pricing power for its monthly subscriptions as well. In theory, offering customers more original content from Paramount+ gives them another reason to join the platform because it’s at a cheaper price point for both. Bundling can also incentivize current subscribers to stay in case Apple increases the platform’s monthly cost again. Apple TV+’s subscription fee, for example, has been raised twice since 2022. Most recently, in October, management hiked the cost to $9.99 per month from $6.99. Netflix also raised prices in October. Meanwhile, Disney hiked streaming prices in August. We anticipate the Services business, which includes Apple TV+, Apple Music, Apple News and several other services, to grow as more users utilize the company’s offerings. We’re bullish on the Apple One bundle , for example, because it combines six Apple subscriptions at a discount and attracts a larger customer base. After all, it’s harder to cancel a subscription when everything from music to television and cloud storage is included. Live sports Let’s not forget Club names Amazon and Alphabet , which have secured deals with the National Football League in hopes of bringing more value to their services. For Amazon, it’s adding extra value to its streaming service and retaining customers for its popular Prime subscription. In an increasingly saturated market for original streaming content, Amazon has tried to set itself apart by teaming up with the NFL to provide services that eventually only Prime subscribers can access. For example, Amazon secured exclusive rights to NFL’s “Thursday Night Football” in 2021 for $1 billion a year until 2033. AMZN YTD mountain Amazon (AMZN) year-to-date performance Most recently, the NFL’s recent Black Friday game , which was exclusively streamed on Amazon Prime Video for the first time, is a part of the 11-year deal between the league and the company. The streaming broadcast also featured QR codes at the bottom of the screen to drive Amazon’s e-commerce sales, which still account for much of the company’s revenue. However, the Amazon Web Services cloud and online advertising businesses generate lots of cash. This year’s first Black Friday game was accessible to anyone with an Amazon account instead of only those with Prime. This is expected to change in 2024 to Prime only. We’re hoping this long-term partnership with the NFL will not only drive more subscriptions to Prime but also increase ad revenues as well. The other streaming services are also cutting deals to show football. As CNBC’s Lillian Rizzo reported at the start of the NFL season, NBCUniversal’s “Peacock, along with Disney’s ESPN+ and Amazon, will have games that will be streamed only. They are also streaming destinations for Major League Baseball and Major League Soccer. Alphabet has added more premier sports content for its customers as well. In a partnership between the NFL and YouTube TV, customers will be able to watch games through a “Sunday Ticket” subscription via streaming on the Google-owned platform. GOOGL YTD mountain Alphabet (GOOGL) year-to-date performance The seven-year deal, which will cost YouTube an annual $2 billion, is a plus for Alphabet because it can rake in more advertising dollars and boost subscription revenues garnered by the streaming platform. Although we don’t think the agreement will move the needle in terms of Alphabet’s stock price, the service adds incremental value to YouTube TV’s premium offering, which brings in recurring revenues for its parent company. (Jim Cramer’s Charitable Trust is long AMZN, AAPL, DIS, GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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It’s no secret that battles among the major streaming players have been heating up. But a big acquisition by Disney underscores how the incumbents are trying to take the next steps to win the war.
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