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It has become impossible to ignore the transformation that streaming video providers have worked on the entertainment industry, and leading the revolution is, of course, Netflix (NASDAQ:NFLX). From the lowbrow, Adam Sandler-schtick end of the spectrum to the critically acclaimed end, where foreign art house film Roma and comedy series The Kominsky Method between them picked up five Golden Globes on Sunday, Netflix has something for everyone, all the time. It also has a target on its back: A whole lot of other media companies want a piece of that streaming action.
And that, as senior analyst Seth Jayson explains to MarketFoolery host Chris Hill in this segment of the podcast, is part of the reason why Roku (NASDAQ:ROKU) should be a serious long-term winner from the trend.
A full transcript follows the video.
This video was recorded on Jan. 7, 2019.
Chris Hill: The Golden Globe Awards were last night. I don't know if they timed it this way, but it certainly is working out well for Roku. Roku this morning released preliminary data for its fourth quarter results, and the viewership numbers are better than expected. Shares of Roku up 20% this morning.
Seth Jayson: 20%? That's good for me!
Hill: You're a shareholder?
Jayson: Oh, yeah! I've been for a while. I've been a big fan of Roku for a few months now.
Hill: Certainly, I understand why you're a fan today.
Jayson: I might actually be in the positive on that one now. Roku is probably still almost down by half from its all-time high just a few months ago, I'm guessing, if it's in the $35 range. I think we were up in the $60s at one point. I didn't buy it there.
It's interesting. Netflix was a big winner at the awards. I saw articles saying, "Does this mean that things are great for their development strategy?" I don't know that it does. I tend to look at the winner in this entire cord cutting movement as Roku. I don't mean that Roku is going to put Netflix out of business or something like that. I mean, if you're looking for a company that stands to benefit from all the competition, Netflix isn't it. The competition is coming for Netflix. Netflix may continue to do fine, but it's going to have a big battle on its hands.
Roku is sort of the Switzerland of online streaming. They're agnostic. They have apps for just about every service out there. They're becoming kind of the default operating system for smart TVs and devices. My smart TV in my basement, actually, I've got one. What happens on smart TVs is, after a while, if it's a proprietary smart TV -- and this was a Samsung, so a pretty big brand -- Netflix and others just quit making and updating the apps for the smart TV. They only want to update their Roku app or maybe their Android app.
With Roku, you get all of that. Roku also sells advertising on its own channel. They also have a payments platform, so you can pay for stuff that you're watching on these other services through Roku. They can take cuts of that. Roku is growing very quickly. I think it's a really interesting investment because of that. They may be the ultimate winner in the cord cutting battle because they're one of the leading, probably the leading platform in that space, I would say.
Hill: It's interesting, when you look at Netflix shares this morning, up about 5%. Amazon up a couple of percentage points. They were both winners at the Golden Globes.
Jayson: That just makes me laugh so much. Do people really care about quality? If we call Golden Globes award winners quality. This is what's crazy. I had not heard of any of these Netflix winners, and I watch Netflix a fair amount. How do they not bubble this up to me?
Hill: It's interesting. We've seen this trend for the last decade, where the Golden Globes, you've got television awards and movie awards, as well. Particularly with the television awards, we've seen this very steady trend of broadcast television dropping when it comes to the awards. Whether it's Netflix, HBO, Amazon, Hulu has even gotten some old award nominations and wins here and there, it's pretty surprising.
Jayson: It is and it isn't.
Hill: Yeah, maybe it's not all that surprising.
Jayson: They've been going for, this is a loaded term, but a lowest common denominator sort. Network television, I feel like, when I see the shows, still have the mindset of pie-in-the-face. Stuff that my 70-year-old uncle would have laughed at when he was 50. You know what I mean? That's just what I see from a lot of network TV. Netflix, good for them, decided, "We're going to do some stuff," and originally, it was stuff that had been rejected by the main studios. A lot of interesting stuff out there.
The problem for Netflix is, in order to be as big as they are, they have to pretty much say yes to almost everything right now. As a result, they send me emails to try to get me to watch Sabrina the Teenage Witch. Swear to God! I don't get emails from anything, and they sent me, "New season of Sabrina!"
Hill: I don't know that you're the demo for that.
Jayson: No! Also, I thought it was creepy. It was a Lolita kind of picture, she was sprawled out, this young girl, she was in Mad Men when she was little. Like, I felt grossed out by it. So I don't understand. What I do get from Netflix these days is, there's so much original material. Some of it is amazing like the Lemony Snicket series on there. Just incredible. Neil Patrick Harris, doing a great job. And then there's a lot of stuff that's really not very good, I don't think. They've done so much.
And then you've got others coming in. Apparently Walmart Vudu might be doing original programming. You've Amazon doing some original programming, some of it pretty good. But I mean, you've got some real problems if you're Netflix if you've got Disney coming out with their service, you've got DC Comics doing their own service, you've got -- if I can read my tiny writing -- Time Warner doing one, you've got Facebook Watch coming out with some original programming. I'm not sure what that will be. Apple is doing something, which primarily is Reese Witherspoon and Oprah at this point, which seems like a narrow demographic to me. I suppose they know what they're doing.
So, there's a lot of competition. That's why, to circle back to Roku, I think that by going with a platform that is agnostic and stands to carry all of these services to every TV, I think you probably have a very interesting opportunity there.
Hill: If you just think about the basic business model of broadcast television -- we'll put basic cable aside for the moment -- the reason a company like Netflix is so attractive to showrunners is because if you're doing a deal with CBS, ABC, NBC Fox, they're saying, "Look, we're probably going to give you more money than Netflix. In return for that, we're going to need 22 episodes. You're going to have to go on this schedule." With Netflix, Amazon Prime, Hulu, and others, they're not laying out as much cash per show necessarily, but the amount of freedom and the fact that it's like, "You want to do 10 episodes? You want to do eight episodes? That's fine."
Jayson: Yeah. "We can find a price that works." Broadcast television is never going to find a good price for an eight-episode [series].