Disney, Hulu, and Max to offer streaming bundle this summer

rebundling an alliance has emerged in the intensifying streaming Wars Disney and Warner Brothers Discovery are teaming up to release a brand new streaming bundle later this year so what does this new partnership mean for the streaming landscape moving forward we're looking at how to navigate the big picture with the Yahoo finance Playbook and we're joined by Ken Leon research director of equity research at cfra and jam Lumley third Bridge sector analyst Jamie going to start with you you're here with us in studio I just keep getting like so amused by this discussion because it's like this new innovation bundling right which is cable what cable did right but do you think that this is the the way forward and is is this going to benefit the various parties who are doing it it definitely is interesting development and we're seeing this increasingly in this space one thing we've been hearing at thir Bridge from the experts we speak with is just the fact that what streamers are looking for are ways to not only drive growth but also manage turn it's a huge issue serial churners are one of the things which all these platforms have to deal with is people either at the end of their show they decided to switch to a new platform at the end of a sports season they decide to just cut off that service by having these bundles it's a new way that they can both Drive longer term customer value while also showcasing different types of content you know with the matchup of a Hulu and a Max and a Disney plus it really covers all the bases of genres and can appeal to a lot of different audiences Ken I want to bring you in you here as well you know can I heard um Rich Greenfield over you know longtime media Analyst at light shed and he said something interesting Ken I want to get your take on this which is that he said he thinks a lot of companies now have a bad case of what he called bundel litis and I think what Rich was getting at I'm hopefully I'm not mischaracterizing rich but if I am he'll definitely let me know I I think what Rich was saying was you know a lot of companies now seem to believe if I just bundle my services together you know that really is sort of the answer to a lot of my problems when it comes to churn or engagement and I I think what Rich was getting at Ken is he was kind of disagreeing with that it really isn't Rich was saying really you want to you know want to answer these questions of these challenges of CH and engagement well you know the answer to that is great content but you got to invest in that what is sort of your reaction to that Ken I I think when you look at the bigger picture it's really a lot of these media companies trying to figure out how can they be profitable so the first step was reducing programming and content spending the second was drisking because they have no control really of the customer unlike Wireless uh or even cable TV decades ago you had one or two your contracts so churn is very high they will never release that um and also uh if you look at where entertainment has moved to events to live sports so none of these managements will say uh that they can get to a a 20% operating margin on this business nor a 50% iida margin like Wireless so it's not a great business and I think they're all drisking they're reducing capital and they're going to say gee Netflix is a winner large technology companies can play here what can we do for two things one try to grow subscribers and two try to get advertising Revenue so that's where bundle comes in but it's only going to be maybe a number three or four there's going to be a lot of players that are really not going to make it in this game because it's just not as attractive as before so I guess there's sort of two questions here then there which bundle is most compelling to customers and then which of the individual streaming companies is most compelling to investors which is maybe those are the same question I don't know Ken but those are seem to me to be the two most most pertinent questions here well they are and and they're mostly more us or North America Centric outside of the US it's a very different game where the average revenue is much lower and if you don't have an agile technology platform like Netflix you're way behind uh both for trying to get subscribers and keeping them and programming so when you talk about bundling again this is a defensive move by these companies and they're looking to reduce their capital in this business because it's just not as attractive as it was before uh for anyone like the CFO of Disney to aine that three or five years out that this is going to be a great business they are not showing a case example of the profitability of streaming it's a very difficult business it's technology agile and subscribers can watch House of dragons on Max and then go somewhere else Junior I want to bring you back in here because we were talking before Disney reported earnings and and we were talking about the streaming business and your big question Jamie correct me if I'm wrong was really Beyond this quarter really you're a long-term question still about what exactly both growth and profitability looks like for that streaming segment what what's your current thoughts on that well certainly if we look at what Disney just reported they definitely had some key positives in the most recent quarter they are now at profitability in their entertainment streaming segment bearing in mind that they have some software expectations for next quarter they are roughly on schedule for the profitability metrics they set out when they launched Disney plus back in 2019 but they're definitely scrambling for growth drivers here if you look at the subscriber additions they had there were 6 million core Disney plus subscribers added um but a lot of that is attributed to the Charter Communications deal which was set up last year and there could be some softness going forward and what was really interesting to see is they cite in Netflix is really the example here to follow when it comes to cracking on and password sharing as really this business is looking for ways to grow and they increasingly have to be creative to find out what the best way is to tap subscriber growth because ultimately while they are focused on profitability they still really want to see this be a full transition away from a legacy linear business and be a new not just uh you know barely profitable but strong resilient business with strong fundamentals so what I'm hearing both of you say is it it sounds really hard what they're both TR to do so Jamie I'll start with you and then Ken I want to get your take so who's best positioned then in this streaming land I mean you guys are both saying Netflix Netflix Netflix are there other companies that are going to come out of this strong besides Netflix well Netflix certainly is in a great position I mean if we look at them right now Ken was talking about operating margins they're at 28% which is certainly Head and Shoulders above every other player and in terms of their ability to catch up it will take a while even for those who might be capable of that it's also worth highlighting Amazon there's certainly a different platform they of obviously rely on e-commerce for e-commerce for a lot of their business but increasingly advertising is going to be a huge Revenue driver for them if you look at right now the percentage of Amazon Prime users who are on Advertising it's the vast majority they'll increasingly be a revenue driver for them which could make that potentially eventually be a profitable business and then it's worth remembering that Disney can get there it's just a question of how long it will take for it to really reach those double digital operating margins everyone though below that 100 million subscriber mark it'll be a tougher story Warner is kind of there depending on how you really look at the way they report but the question really is is Paramount going to be able to deliver this particularly when they're in this time of turmoil as well as Comcast so Ken same question here real quick what should investor who should investors be buying here in this space so they should be buying Netflix for and also uh Spotify for music investors don't have to own three or five names in media because the business models are not that good and I think when you look at growth and algorithms of intelligence for Global platforms it's Netflix and Spotify for music so you need to Netflix and Spotify Ken Jamie thank you guys both for joining the show appreciate it

Channel: Yahoo Finance

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Id: QHdzcZJFyMA

Length: 7min 45sec (465 seconds)

Published: Thu May 09 2024