In recent years, the media and entertainment sector has faced significant obstacles, grappling with labor strikes, diminishing profits, and a sweeping transformation toward streaming that has disrupted renowned industry giants.
However, amidst these tumultuous changes, one streaming service has emerged victorious: Netflix (NFLX).
The company released its third-quarter earnings on Oct. 17, surpassing Wall Street’s projections in every critical financial category, leading to a remarkable surge in its stock price, which has achieved record highs. Since the beginning of the year, Netflix shares have increased by over 50%.
When compared to competitors, Netflix’s subscriber base and profitability metrics are particularly impressive.
Since implementing its password-sharing crackdown in May 2023, Netflix has successfully onboarded over 50 million new paying subscribers. The company is projected to achieve full-year operating margins of 27%, with executives suggesting that Netflix could eventually reach profitability margins similar to those enjoyed by traditional broadcast networks, which historically range from 40% to 50%.
In the first three quarters of 2024, Netflix’s net income reached approximately $6.9 billion. Unlike Netflix, its rivals have not come close to achieving such results.
Recently, Disney (DIS) and Paramount Global (PARA) reported their first streaming profits, highlighting a noteworthy shift in the industry landscape. However, these gains do not resolve the persistent challenges afflicting traditional media, as evidenced by Comcast (CMCSA), which is now contemplating a divestiture of its cable networks.
Numerous analysts have chimed in, declaring that the fierce competition of the streaming wars has reached a conclusion.
According to MoffettNathanson, a highly regarded equity research firm specializing in tech and media, analyst Robert Fishman articulated last week that “Netflix has indisputably won the streaming wars.” He elaborated that the current media landscape showcases a distinct dichotomy, with Netflix standing out as a notable exception.
Bloomberg Intelligence analyst Geetha Ranganathan echoed this sentiment, affirming in a recent conversation with Yahoo Finance’s Market Domination that Netflix has “undoubtedly” cemented its status as the leading streaming service.
The so-called “streaming wars” unofficially began in November 2019, ignited by the launch of Disney’s flagship streaming platform, which spurred an intense race for the acquisition of content, talent, and subscribers.
During this explosive growth phase, Netflix took the lead, securing major deals with prominent producers such as Ryan Murphy, who signed a high-profile $300 million contract in 2018, and Shonda Rhimes, who also joined the platform with a reported $100 million agreement.
The competitive landscape intensified as industry players engaged in costly pursuits, with Warner Bros. Discovery (previously WarnerMedia) reportedly paying over $1 billion for streaming rights to “The Big Bang Theory” and Comcast’s NBCUniversal forking out $500 million for “The Office” on the same year. Additionally, Apple (AAPL) committed a staggering $6 billion to debut Apple TV+, which initially rolled out with only nine original series.
As investors gradually recognized the inherent difficulties of the streaming business—like user monetization, justifying exorbitant content costs, maintaining subscriber interest, and achieving profitability—the struggles faced by Disney, Warner Bros., and Paramount became apparent.
Netflix has been regarded as “the gold standard” in streaming, leveraging its first-mover advantage as a dedicated streaming entity. Innovative monetization strategies, including the controversial crackdown on password sharing and varied subscription tiers, have further enhanced Netflix’s competitive edge.
Currently, Netflix’s total enterprise value surpasses the combined worth of Disney, WBD, Fox, and Paramount.
Moreover, Netflix boasts an enterprise multiple—an important valuation ratio—almost on par with tech titan Apple, marking remarkable success for a streaming-dedicated company.
Fishman’s analysis indicated that a select group of essential assets would be critical for streaming platforms not only to catch up to Netflix but to sustain themselves amidst the industry’s massive transition.
These crucial assets include a scaled streaming service operating both domestically and globally, a free advertising-supported video-on-demand (AVOD) platform, premium sports broadcasting rights, a US broadcast network, and comprehensive film and television studios.
While not every company may require every asset, possessing any combination can significantly enhance a firm’s standing within the industry.
For instance, Disney has built an asset portfolio that ticks all the boxes except a free AVOD platform. However, the success formula currently seems to hinge on establishing a robust streaming service akin to Netflix’s expansive reach.
Fishman concluded, “That really is, it seems, the end goal,” emphasizing that whether driven by traditional players or businesses like Amazon looking to enhance sales, achieving a comprehensive streaming service is paramount.
The landscape suggests that joint ventures and acquisitions may be inevitable developments as players strategize heading into the latter half of the decade.
In a related move, Paramount (PARA) has reached an agreement to combine forces with Skydance Media, a transaction anticipated to conclude in the latter half of 2025 and potentially marking a substantial shift in the Redstone family’s control of the conglomerate.
Nevertheless, regulatory challenges may pose significant hurdles, illustrated by a judge’s recent decision to pause the launch of Venu Sports, a forthcoming sports streaming service by Disney’s ESPN, Warner Bros. Discovery (WBD), and Fox (FOXA), due to antitrust concerns.
Similar obstacles are expected for Big Tech firms considering mergers, while traditional media companies joining forces face their own set of challenges amidst excessive debt burdens.
Fishman noted that Fox and WBD present the most compatible assets for any potential merger, particularly as WBD has recently lost access to NFL and NBA broadcasting rights, leading to ongoing litigation following a lawsuit against the NBA.
Given that sports represent a critical frontier in the evolving streaming arena, leagues have remained cautious about completely forsaking traditional television.
Consequently, established companies with broadcast networks, such as Fox, Comcast, and Disney, hold an advantageous position as they evaluate partnerships with sports leagues.
Fishman underscored that while sports leagues are gradually becoming amenable to collaborations with streaming services, as illustrated by the NFL’s Thursday Night Football transitioning from Fox to Amazon, this shift entails a trade-off concerning viewership. He emphasized that possessing a broadcast network has increasingly become an essential factor for top sports leagues in choosing distribution partners.
Moreover, new data indicates that companies with both traditional television assets and streaming services typically attract the highest viewer engagement.
Disney’s combined traditional and streaming viewership accounted for 11.3% of total TV viewing time in September, according to Nielsen’s latest Gauge report.
In the same timeframe, YouTube (GOOG, GOOGL) captured 10.6%, NBCUniversal (CMCSA) 9.3%, Paramount (PARA) 8.2%, and Netflix 7.9% of viewing figures, respectively.
Looking ahead, Fishman anticipates that “Disney possesses the right asset mix to establish a genuine global streaming contender following Netflix,” particularly as the company searches for its next CEO with Bob Iger’s contract set to conclude at the end of 2026. Disney’s upcoming quarterly earnings announcement is scheduled for Nov. 14.
However, he cautioned that traditional media entities, including Comcast, Paramount, and Warner Bros., must quickly devise strategies to determine their next steps in the competitive streaming arena—whether it be through merger, asset divestiture, acquisition, collaboration, or alternative strategies altogether.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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Ctively. This demonstrates the competitive nature of video consumption and the importance of having a diversified media portfolio.
As the streaming landscape evolves, companies face ongoing challenges in balancing content creation, user engagement, and profitability. The recent success of Netflix highlights its unique position in the market, driven by effective monetization strategies and a strong content library. Meanwhile, other traditional media companies continue to grapple with their transition from legacy models to more dynamic digital environments, often hindered by debt and regulatory pressures.
The anticipated mergers and partnerships suggest a trend towards consolidation in the industry, as players seek to bolster their offerings and fend off competition. Companies with a broad array of assets, especially those that can merge traditional television with streaming capabilities, are likely to emerge as leaders in this space.
Ultimately, the winners in the streaming wars will be those who can adapt to changing viewer habits, capitalize on technological advancements, and forge strategic alliances, ensuring they remain relevant in an increasingly crowded marketplace.
