Walt Disney (NYSE:DIS) stock has been a disappointment in recent years. Disney stock reached $120 per share in 2015. Since then, the shares have hardly budged. While the stock market as a whole has advanced 40%, DIS stock price is up just 10% or so in recent years.
Disney stock popped a bit earlier this year as the company unveiled details of its streaming plans. But investors remain skeptical. It’s becoming clear that there will not be a big streaming winner in the near-term. There are simply too many services fighting for the same dollars and eyeballs. Over the long-haul, however, Disney should become one of the streaming services that thrives.
Streaming Services Reach Their Limits
I’ve been fairly cautious on the streaming space for years. Well-off investors may think: “What’s another $10 or $15 a month to add another streaming service?”
We risk overlooking the pricing pressure on many folks, however. Even if people cut the cord, their cable bill in many cases won’t drop that much, if they keep a fast internet connection with no data limitations. They have to pay for streaming services on top of that.
Meanwhile, all the subscriptions start to add up. Those who subscribe to four or five different video services, to say nothing of music, games, or other content, could easily be paying $70 or $80 per month.
There are certainly a lot of people who wouldn’t mind paying nearly $1,000 per year for access to a bunch of different streaming services. For many people, however, that will be too much; suddenly a cable subscription and the occasional DVD of favorite shows and movies look great by comparison.
What Made Streaming Services Great
Netflix (NASDAQ:NFLX) was great, in its best moments, because it always had something interesting to watch. Now, more and more, that’s not really the case. Its originals are hit or miss, while many of the best classic movies and TV shows are leaving Netflix for more niche streaming services.
Spotify (NYSE:SPOT) works because it has nearly every known album from at least the past 30 years in a clean, intuitive app. If there was a different streaming service for each music label, however, people would say it was too complicated and go back to pirating everything.
Streaming TV services are putting themselves in grave danger of annoying and frustrating consumers. Remember, digital data can always be free; it’s not hard to pirate things on the internet. Netflix works because it’s fun and easy to use. If folks get typical lousy telecom/cable company customer service, many are going to abandon the products.
Disney Has Essential Content
With all that in mind, Disney stock is arguably one of the few media plays that can benefit in the long-run from the streaming wars.
Disney’s legitimately must-see content – particularly for families with children – will create demand for its subscriptions. The likes of Comcast (NASDAQ:CMCSA) and Amazon (NASDAQ:AMZN) Prime don’t have much that would compel people to sign up for those services.
Even AT&T’s (NYSE:T) HBO tends to only have a few widely appealing shows at any given time; consumers could easily binge watch,or download the one or two specific shows they want from HBO rather than paying for a perpetual subscription.
Disney, by contrast, has a ton of top-notch content. At the end of the day, people want hits. They gravitate to what everyone else is watching and talking about. It’s better to have one blockbuster movie than 100 technically competent but obscure movies.
Streaming Will Consolidate; Disney Stock Will Be A Victor
Right now, the supply of streaming video content is massively outstripping demand. It’s an arms race led by Netflix, with many other suitors following in its footsteps.
Each year, content creators spend billions more on new shows and movies. Yet there’s only so much time in a day. People already watch a ton of television. It doesn’t matter how many more shows are made; the overall amount of time people spend watching streaming isn’t going to move very much. In fact, it may even go down as the younger generation gravitates to other things such as video games.
As a result, streaming companies are making unproductive investments. If too much content is made, much of it will go straight into obscurity. Over time, second-tier streaming services, tired of losing billions of dollars, will fold.
That’s a huge opportunity, in the long-run, for DIS stock. DIS will be able to acquire vast sums of content for pennies on the dollar. Using its better distribution, it can turn obscure novelties from weaker streaming services into more popular content. Netflix has successfully done that with a bunch of foreign and relatively low-budget shows already.
Also, as other streaming services shut down, Disney should be able to buy their customer bases and data cheaply. The long-run survivors like Netflix and Disney should eventually be able to make a ton of money as their rivals die off.
The Verdict on Disney Stock
Recently, Disney CEO Bob Iger reflected about how Disney has handled the Star Wars franchise:
“I have said publicly that I think we made and released too many films over a short period of time… I have not said that they were disappointing in any way. I’ve not said that I’m disappointed in their performance. I just think that there’s something so special about a Star Wars film, and less is more.”
The same applies for streaming services. Less is more. There’s way too many also-ran competitors launching services now that will lose money for a few years and then disappear. This excess competition will hit Disney stock in coming quarters and perhaps even for a few years. When there’s too much supply, everyone loses money.
Eventually, however, as with Star Wars movies, executives will realize that a couple of great streaming services are better than a bunch of mediocre ones. Once that happens, Disney stock will be well-positioned to deliver tons of shareholder value.
At the time of this writing, Ian Bezek owned SPOT stock. You can reach him on Twitter at @irbezek.
