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conclusion of this episode. Wasn't.

0:25

Investing in sides i'm your

0:27

host idea to have been

0:29

adding subscribers at all costs

0:31

no longer satisfies many investors.

0:33

Wall Street Once streamers to

0:35

produce profit companies are cutting

0:37

costs, bundling services an competing

0:39

for live sports to generate

0:41

more revenue. Morning Sars and

0:43

Media and Telecommunications team has

0:45

taken it in depth look

0:47

at the streaming industry. Matthew

0:49

Dog and is a senior

0:51

equity analyst for Morningstar Research

0:53

Services. Wasn't it

0:56

a pack? as met? A Thanks I Vanna. So

0:58

Netflix dominance extends beyond stream Me.

1:01

Your team's research highlighted that Netflix

1:03

likely now reaches more Us homes

1:05

than traditional Tv. Matt: How do

1:08

we get here? Well

1:10

it seems like it happens slowly

1:12

and then all at once. There

1:14

were two sides to this Netflix

1:17

coming up from what had been

1:19

of course, the beginning small subscriber

1:21

base and the pay Tv subscribers

1:23

or services losing subscribers at a

1:25

rapid clip. So from the Netflix

1:27

point of view it started out

1:29

probably more of like is a

1:31

niche product. It didn't have necessarily

1:33

premier content. It wasn't huge, but

1:35

it had some features that were

1:37

attractive for consumers. It was a

1:40

low monthly fat low monthly price.

1:42

There was a lot of different

1:44

content. it could be consumed anywhere

1:46

so that was able to kind

1:48

of build and we know what

1:50

happened. A he became huge. It

1:52

started getting premier type of content

1:54

and it is the behemoth in

1:56

the stream of the streaming platforms

1:58

now. I'm

2:01

a T T V point of view

2:03

and part of this is because if

2:05

Netflix, but not all these traditional media

2:07

companies probably didn't initially take Netflix in,

2:09

its offering is a huge threat, but

2:11

as it grew they saw how big

2:13

maybe it would be and they also

2:16

started creating most of them their own

2:18

streaming platforms. So we start getting a

2:20

lot more content. In. A lot

2:22

more different places and a lot

2:24

of it wasn't necessarily exclusive to

2:27

the pay Tv bundle anymore. Couple

2:29

that with bows and probably mislead

2:31

the younger generation, but as it

2:33

went on all generations becoming more

2:35

comfortable with consuming. Information.

2:39

Entertainment outside of televisions and you

2:41

had people seeing. That's the price

2:43

for up pay Tv subscription, which

2:45

by the way has kept rising

2:47

and rising while the Valley my

2:49

become less and less wasn't necessarily

2:51

worth it anymore getting the value

2:53

for it. So we've seen the

2:55

P T V subscriber base in

2:57

the country drop by. I'd say

2:59

over thirty percent in the last

3:01

decade. Plus, whereas Nestles grows and

3:03

all the sudden you've got Netflix

3:05

and about the same number of

3:07

subscribers. So they're streaming

3:09

wars and is a truce followed.

3:12

Now. Are we in a time of

3:14

alliances? Any yet? Disney Socks and Warner

3:16

Brothers Discovery Team and up for a

3:18

sports focussed streaming service. Yeah,

3:21

we think that alliances are both

3:23

coming to a greater extent and

3:25

also really necessary for this in

3:27

the industry, especially for the traditional

3:30

media firms. So is this point

3:32

I'm it's pretty much been each

3:34

of these companies out on their

3:36

own with their soon platform Ogre

3:38

Again, We've seen that change a

3:40

little bit in last year's but

3:42

that hasn't worked out great for

3:45

very many of them. and we

3:47

end up with Environment again where

3:49

there are so many different. Platforms.

3:53

And. Content is all over the place and

3:55

it's a little bit of an overload for

3:57

a consumer. Date for the most part are.

4:00

Subscribing to all all at once and

4:02

that doesn't work as well and we

4:04

think the best value most consumers and

4:06

ultimately also friends. Certainly the traditional media

4:09

companies that relied very much on a

4:11

television is for more of a bundle

4:13

type products in so I think we

4:15

will see more alliances. and as you

4:17

mentioned ah the sports joint venture which

4:20

is going to be the joint streaming

4:22

platform with. Fox, Warner Brothers,

4:24

Discovery, and Disney. I is a

4:26

step in that direction and we

4:28

expect we'll see more if not

4:31

in that exact same. Type.

4:34

Of structure. ah more alliances

4:36

to to get. Contents

4:39

of Consumers To Dusk is hardly a

4:41

trying to say our where's the games

4:43

yeah that that's the best. The other

4:45

things is that. It's

4:48

own asked Clunkers war, but as

4:50

clunker, it's not as easy as

4:52

just flipping from one channel to

4:54

the next. And that's another thing.

4:56

In addition to giving consumers the

4:59

ability to. Have access to

5:01

more content. It might make the experience.

5:03

More. Seamless for them and and make them

5:05

happy or in that respect Also, How

5:08

King companies their financial

5:10

independence, cable and satellite

5:12

balance expanding into straining.

5:16

It's not easy, and that's why we've

5:18

seen so many of these companies struggle

5:20

and to this point, It seems

5:23

like they haven't necessarily looked at those

5:25

things together, at least hour or hour

5:27

weeks. They focus very much on the

5:29

streaming business. In the past, it wasn't

5:32

necessarily how much profits they regenerate, but

5:34

was more about getting those subscribers and

5:36

and building have to bigger platforms. I'm

5:38

now they've been more profits, more profit

5:41

oriented as far as their focus, but.

5:44

They. Seem to be looking at

5:46

streaming. In some respects

5:48

separately from pay Tv that the

5:50

other their subs the pay tv

5:52

subscribers through the cable companies and

5:54

time just les mis chips fall

5:56

where they may there again that

5:58

hasn't quite worked. We think they're

6:00

see in that isn't working and

6:02

we've seen steps in bring those

6:04

two things together in the fall

6:06

at Disney. Main agreement with Charter

6:08

which is one of the country's

6:10

biggest cable companies that will allow

6:13

Disney Plus access to Charter subscribers

6:15

to the pay Tv. Recently Tv

6:17

subscribers will not give streaming access

6:19

and we think that's really the

6:21

key to your to answer your

6:23

question. How do you balance it

6:25

Manage This is rather than. Acknowledge

6:29

or accept that traditional pay Tv has

6:31

gone way as auto industry me and

6:33

now that our focuses maybe. Just

6:37

evolves the pay Tv bundle and

6:39

make that more attractive and bring

6:41

some streaming type services into it

6:43

because as I mentioned before the

6:45

value has been there less and

6:47

less for that his more subscription.

6:49

But if you can increase value

6:51

we think so these companies it

6:53

ends up being the best path

6:55

forward for their really for their

6:57

financial situations. Twenty. Twenty five of

7:00

things and be a big year for stray mates. Demidov

7:02

iraq set to debut on Netflix.

7:04

Disney's expected to launch a stand

7:06

alone E S P N app.

7:09

Talk about the role sports are gonna play in the

7:12

next era. Well.

7:14

And the Nextera Sports and be

7:16

really important just like they've been

7:18

in the prior era. For many

7:20

of the traditional media companies, Sports

7:22

have been. Well. When they're

7:24

part of the bundle, really important because

7:26

it gives them power over the Ptv disabuse

7:28

Who are the cable companies. We've.

7:31

Seen in the past with things

7:33

like blackouts were a certain companies

7:35

networks won't be available. They don't

7:37

last long because when they've got

7:39

premier content and sports is really

7:42

at the top of the list

7:44

that doesn't last and eventually it

7:46

has to get back on this

7:48

platform. Sorts of sports has been

7:50

critical for that's. When we

7:53

are in more of a stream

7:55

environment, it ends up. In. Many

7:57

cases being the same if you want to

7:59

watch. Yeah,

8:01

at a subset of football

8:03

games or M B A

8:06

or whatever you. That

8:08

streaming service that has that programming

8:11

is no longer optional or something

8:13

you consider an accent that becomes

8:15

a must have for you. And

8:18

so Sports has has been and

8:20

should remain critical to drunk viewers

8:23

now. Whether as pricing for

8:25

sports right the costs are sparse rice has

8:27

written so much whether that ends up being

8:29

worth of these has news is us another

8:31

question but but it is critical on it

8:33

seems like and. I'm

8:36

always aware of Essential Winners Curse,

8:38

but it seems like it remains

8:40

critical for them and they. Day.

8:43

It's. Very important to them. They continue to

8:45

to try to their platforms or to to

8:48

keep them in the bundle. I'm glad you

8:50

brought up the cost of sports because we're

8:52

gonna talk about. The upcoming

8:54

and the a Tv deal. It.

8:56

Looks like some be big fights. What kind

8:59

of competition do you expect? And does winning

9:01

matter? As

9:03

far as money matters, It goes right

9:05

back to I just said about the winners curse

9:07

like yes, winning. Does matter, but

9:09

the casket caviar is. How much does

9:12

it cost to win? Because especially with

9:14

these companies paying more attention to the

9:16

bottom line lately and it no longer

9:18

flying if they're burning a lot of

9:21

cash in their streams are says or

9:23

or ill. for these companies that rely

9:25

more sense visual media, they struggled as

9:27

as as it is consulting companies that

9:29

can be problematic as far as what.

9:33

To expect from from negotiations soak

9:35

right now. I E S P

9:37

N and Turner with his on

9:39

by Warner Bros Discovery are the

9:41

incumbents with the and Be A

9:43

Rights or they've been in an

9:45

exclusive exclusive negotiating window. We think

9:47

the most likely outcome is it

9:49

they retain the bulk of the

9:51

rights. We think it's it's important

9:53

to them, especially Turner. it's it's

9:55

it's the premier content for Turner

9:58

Sports which doesn't have football. our

10:00

certain herself up on. The

10:05

question is to what extent

10:07

do some of these. New.

10:09

Or media companies or that the

10:11

trees on companies amazon, app, all

10:14

arm and and Netflix to to

10:16

what extent does they want to

10:18

get on the spitting? We don't

10:20

think that they will be the

10:22

primary are winners meaning. We. Don't

10:24

think they'll have the bulk of games,

10:27

but they might get some like we've

10:29

seen. and football with Amazon getting Thursday

10:31

Night Football on. Netflix. Of

10:33

course there's the rumbling whatever. Get into more

10:35

sports so. We don't think

10:37

that they will be the the big winners

10:39

securing the bulk of the rights. But

10:42

they may have a place there. Now

10:44

your teens research emphasize that not

10:47

all companies you streaming the same.

10:49

He mentioned the tech companies Apple

10:51

and Amazon Schools typically differ from

10:53

their rivals. Talk about what? Why?

10:55

That makes them tough competitors. Well.

10:59

The biggest reason is because they

11:01

don't rely on these businesses and

11:03

the media business has been tough.

11:06

Those companies generate a huge amounts

11:08

of free cash flow. They

11:11

have great balance seats, which means it's

11:13

they've got the ability to take chances

11:15

to spend on content, see what works,

11:17

and if it doesn't that's okay. It

11:19

was worth it. And on top of

11:21

that, they don't necessarily need to rely

11:23

on sports to be the big profit

11:25

drivers. It for their companies or media

11:28

in general to be the big profit

11:30

drivers, as are in their companies. Where's

11:32

the media firms do so as they

11:34

can events and again, we don't even

11:36

know that they. Feel

11:38

it's necessary to. Make.

11:41

Money in media are in sports because maybe it's

11:43

they see the bigger picture and think it helps

11:45

drive the rest of the business but even of

11:47

person that is actually from breaking even for them.

11:50

Maybe that's good enough because the rest of the

11:52

business can. Can.

11:54

Pick up the slack and help them

11:56

be successful whereas. Most.

11:58

Of the traditional media for and

12:01

then of course Netflix include with

12:03

with these they rely on media

12:05

and or television video content to

12:07

drive their businesses to a great

12:09

extent or exclusively. And so they

12:11

need this to be great businesses

12:14

And will you compete against someone

12:16

who doesn't? That can make it

12:18

tougher. De. With Streamers are

12:20

telling the most compelling growth stories

12:22

to convince investors to stick around

12:24

the next five years. We.

12:28

Think Netflix is the clear leader

12:30

among the stream and companies now.

12:32

That doesn't necessarily mean that we

12:34

think that it's stock is the

12:36

best buy because we think the

12:38

market recognizes it. But ah, Netflix

12:40

has big advantages are over others.

12:43

Also doesn't have the traditional declining

12:45

television business to contend with so

12:47

it can continue. Plowing.

12:49

More money into creating

12:51

content, making great user

12:53

experiences. We think that

12:55

subscribers. Are already kind

12:57

of attached to Netflix and so.

13:00

It. Would take something for them to

13:03

leaves as opposed to the others.

13:05

We think that that to traverse

13:07

may be in an auto that

13:09

more South Netflix is with a

13:11

clear leader. As far as the

13:13

traditional media companies we think there

13:15

and similar boats, Disney has more

13:17

scale but each of them is

13:19

balancing making these businesses more possible

13:21

or possible, all because they had

13:23

not been a while. Continuing to.

13:26

Add. Subscribers which requires spending

13:28

on content and so

13:30

on. We. Sink Each of these

13:33

diseases get better. We think part of that is

13:35

because what we're talking about earlier? the need to

13:37

bundle and kind of change the way they've gone

13:39

about it. But I can't say that. Any.

13:41

Of the traditional. Media companies with

13:43

streaming services and I'm thinking mostly about

13:45

Disney and One Rose, Discovery and Paramount.

13:49

Is. Clear leader on the

13:51

others, nor is much better

13:54

suited. Although soon as

13:56

I say that if I had that one streaming service of

13:58

the three or it would be Disney this. Yeah.

14:02

Probably give them a legacy. Won't name

14:04

the companies that top your favorites less.

14:07

Well. So. Our

14:11

sector director my code or covers Com

14:13

As and that would probably the would

14:15

be the one Comcast owns Nbc Universal

14:17

Ancestry. not because of Nbc Universal that

14:20

Pcs com passes is so undervalued right

14:22

now. it's more of their broadband business

14:24

if we're talking. More.

14:26

About. Valuation nor or the

14:28

those are from by traditional media. To

14:31

us it's Warner Bros Discovery and Paramount

14:33

and and I'd probably go more towards

14:35

More Brothers Discovery. It's. Those

14:38

companies. Have. Struggled. In

14:42

some ways they have an uphill time still,

14:44

but they have really good assets and they're

14:46

being price like they're never going to figure

14:49

it out and we don't think that's the

14:51

case. Certainly, the environment of last several years

14:53

was not a viable long term solutions, but

14:55

we don't think they're going to. Attempt

14:58

that solution forever and similar things we've

15:00

talked about today as far as bundling

15:02

and integrating with potentially pay Tv and

15:05

then not to mention they've got still.

15:07

Big. Movie and television studios liked. There

15:09

is value there and it's being

15:12

hidden right now so if we

15:14

had to pick stocks are probably

15:16

those. Oh man, thank you for

15:18

coming to the table and think the insights today.

15:20

Thanks for him And then. That's

15:23

it for this week. Check out

15:25

the queue to Twenty Twenty four

15:27

edition of Morningstar Magazines for more

15:29

insights into this trainee industry. Thanks

15:31

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idea Hampton. Only multimedia as Or

15:51

and Morningstar said care. For

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it is for informational purposes home and

15:55

should not be considered investment a day.

16:00

The average the date of according

16:02

to paintings are subject to change.

16:04

His genius. Or

16:07

not necessarily. Those as many carried

16:09

an episode. While we see a

16:11

lot to. Offer com mean that

16:13

the Soviet on the other I

16:15

think it is she had not

16:17

affiliated with. Money for the

16:19

whole. Money. So. Does not

16:22

guarantee the i think he he

16:24

is into data presented here. when

16:26

he says he says ferguson is

16:28

a subsidiary of Moink heard he

16:30

and his what should be a

16:32

Us Securities Exchange Commission for the

16:34

service or services. How not be

16:36

responsible for any. Amazon

16:39

ha. Ha! Ha

16:45

Kenyans. There you have. To

16:52

have. An

17:03

objective and with profile before

17:05

making any investment decision.