Investing in the companies that make the things you use every day is a strategy that many investors have used to guide their investment strategies.
While it doesn’t always pay off – the market is fickle and lightning doesn’t always strike twice – investing in trendsetters and other popular companies can work.
However, you need to make sure that you approach the industry with proper due diligence.
Pros and Cons of Investing in Streaming Services
Take streaming services for example.
In today’s technology-based world, content is king and that makes investing in streaming stocks potentially very lucrative.
The one that offers the best content and the greatest variety is the most likely to win the race, but who is in first changes all the time depending on whom you ask and how you tally it up.
Competition in the streaming video industry is fierce.
Members have little incentive to remain members and the cost of signing up for a competing service is so minimal that many people have subscribed to several and/or cycle through streaming services, choosing different ones each month or as needed.
Distribution channels are changing, and piracy is always a threat.
There are also regulations and licensing concerns. In order to stream specific content, a streaming video provider has to sign a contract with the content producer that often spans several years.
If subscriber numbers expand or ebb off, their costs are the same – and the costs can be significant for high-profile content.
On top of everything, people often share log-ins.
Is Netflix Stock a Buy?
Netflix [NASDAQ: NFLX] has been the leader in the streaming services sector since its early days. The company made the market. It currently has almost 140 million subscribers across 190 countries.
The vast majority of these subscribers are centered on the company’s streamed content, but it does still maintain the domestic DVD service that started everything. Its subscriber numbers tend to grow as people get internet-connected devices, such as at the holidays as a gift or at the start of a new school year. This gives the company a fair amount of seasonality that inflates its first and fourth quarters.
Netflix [NASDAQ: NFLX] has virtually saturated the US markets, but the world does not end at the shores of America.
One of the strategies that this company uses to expand is to look overseas to international customers. To date, that has been a solid strategy – bringing streaming services to the masses much in the way it did stateside so many years ago.
In its early days, Netflix was the only available option and in certain markets, it still is – for now.
That reality is changing – fast.
The international streaming video industry is going to get crowded very soon. Disney [NYSE: DIS] is launching a service and Apple [NASDAQ: AAPL] is rolling out its own offering.
Warner Media, NBCUniversal, RTL Group, and BBC are close behind.
Over the next few years, these companies will be rolling out their own services abroad and potentially eroding Netflix’s market share in those places.
Right now, Netflix is the most popular streaming service provider in Europe. It has over half of the market share in Europe. Its closest competition is Amazon [NASDAQ: AMZN] with 21% and just five streaming video providers make up 89% of the European markets.
Aside from the new subscribers these Netflix competitors could attract, they could also lure some customers away from Netflix [NASDAQ: NFLX].
Should You Invest in HBO via AT&T?
In case you missed the news, HBO is owned by AT&T [NYSE: T], so investing in that streaming service and content producer is much more involved than picking which streaming service is going to come out on the top.
One issue is that HBO is NOT Netflix. It produces content and streams those series as well as select movies, documentaries, and specials – but the similarities stop there.
Netflix also streams shows that it does not produce, and AT&T does more than oversee HBO. That split focus could pose an issue.
For HBO to be successful and draw people in, two things have to happen:
- it has to create content that is so compelling that its customers will pay to subscribe to its streaming service; AND
- its parent company will have to continue to want to develop the connections that make that happen.
“The modern media company must develop extensive direct-to-consumer relationships,” says AT&T [NYSE: T] CEO Randall Stephenson. “We think pure wholesale business models for media companies will be really tough to sustain over time.”
Simply put, it could be cheaper to license content to a streaming provider like Netflix (or Amazon, or Hulu) than it is to build and maintain your own apps.
At some point, the scales are going to tip and HBO as a brand will benefit from licensing its content. AT&T [NYSE: T] has already licensed certain HBO shows for distribution on other streaming services and that trend is only going to continue.
Netflix Vs HBO Stock: The Bottom Line
The streaming video industry has speculative picks like Roku [NASDAQ: ROKU], which is focused on providing technology for streaming services, and its smaller niche offerings, like Apple [NASDAQ: AAPL] or Alphabet [NASDAQ: GOOG].
The former requires an appetite for risk while the latter is just a small subset of what those companies actually offer. In the middle are the big, well-established players like Netflix [NASDAQ: NFLX] and HBO via AT&T [NYSE: T].
Everyone has heard of them and most people have used them at some point in their lives. Whether or not they are worth your investment is a personal call that depends on your outlook for the industry and whether you want to invest in a pure streaming-play.
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