Streaming pioneer Netflix (NFLX -0.90%) achieved a couple of interesting milestones last week: The company's shares hit an all-time high and propelled its market cap to nearly $153 billion, surpassing the valuations of cable TV and broadband provider Comcast (CMCSA 0.66%) and media powerhouse Disney (DIS -1.20%). That's a remarkable achievement, especially considering that Netflix only went public 16 years ago last week.
While this may give Netflix bragging rights of a sort, some would point out that their fundamentals are vastly different. It's important to note that while all of the companies are in the media industry, they serve very different market segments (at least for now). Even more important is the place each company holds in a media space is undergoing a paradigm shift.
There's a new sheriff in town
Netflix has risen to prominence with the advent of the streaming technology it pioneered. The company has been a hit with consumers and the rapid adoption of its services has propelled the stock to remarkable gains, having more than doubled over the past year, while shareholders in both Comcast and Disney have lost ground.
So what's causing these diverging fortunes? Netflix is widely credited with the popularization of streaming video, which has become one of the dominant forces in the entertainment industry. The company's success is unparalleled, with over 125 million subscribers worldwide and more joining each quarter. Netflix's international growth may be just getting started, with some projecting that the company's subscribers could nearly triple, topping 360 million by 2030.
Not giving up without a fight
The rise of streaming has led to fewer subscribers for cable television, which is responsible for a large chunk of revenue for both Disney and Comcast. It's important to note, however, that both companies rely on theme parks, film studios, and other segments for the majority of their revenue, though investors seem not to pay as much attention to those other parts of their respective businesses.
The phenomenon of cord-cutting and lower subscribers for Disney's flagship ESPN sports network has given investors pause, with many waiting for assurances that the company will be able to navigate the changing media landscape. Disney is debuting two services to counter the Netflix effect. The company recently launched ESPN+, a streaming offering designed as a companion to its cable network, which will host thousands of live events and other programs of interest to sports fans.
Late next year, the company will debut its Disney-branded direct-to-consumer service, which will feature movies from the Marvel, Pixar, Lucasfilm, and Disney studios, as well as exclusive content created especially for the platform.
For its part, Comcast is relying on several strategies to position itself for the future -- among them, allying with its upstart nemesis. Comcast's Xfinity X1 platform can integrate a Netflix subscription alongside its own programming.
Another important part of Comcast's strategy is to minimize defections by providing discounts to customers who bundle its phone, cable, and broadband services, and placing a greater reliance on its broadband going forward.
The Fox hunt
Another factor impacting investors in both Disney and Comcast is the looming bidding war for the assets of Twenty-First Century Fox. Disney made a formal bid for Fox late last year, in a deal valued at $52 billion, and Comcast recently announced its intention to make a competing offer.
While these two media giants fight for the spoils of a fading paradigm, Netflix is focused firmly on the future. The company plans to spend up to $8 billion on original content this year in order to continue fueling its massive subscriber gains.
Eyes on the prize
Investors increasingly believe that linear television and cable subscriptions will -- over many years -- continue to experience secular declines, while streaming will enjoy growing adoption. While Netflix commands an estimated 50% of the streaming market in the U.S., its international expansion is only beginning to accelerate.
While Netflix has a higher market cap for the moment, that could foreseeably change in the coming days, weeks, or even months. The undeniable trend toward streaming, however, is here to stay. Check back in a decade and see which company has a higher market cap then. I'm betting Netflix has a shot.