We're streaming more video than ever these days. Entertainment is everything right now, and digital video provides the escapism and inspiration a lot of us need to get through the challenges of this pandemic. It doesn't mean the category is a slam dunk for investors, though.
There are a lot of tech and media companies angling for a piece of the market. The launch of HBO Max this week marks another mouth to feed. Against this backdrop, it seems like Netflix (NASDAQ:NFLX), Roku (NASDAQ:ROKU), and Disney (NYSE:DIS) are running away with this market. Each one has a killer advantage helping them lead the way.
Netflix pioneered the premium streaming video market more than a dozen years ago when it disrupted its own business of DVD rentals by mail. It now has nearly 183 million paying streaming subscribers worldwide, and it expects to top 190 million by the end of next month.
All you need is a single killer advantage to make a difference in this booming niche, but Netflix raises the stakes by having things that many of its rivals don't. It has roughly two decades of member ratings and usage data, which makes it smarter when it comes to securing and retaining content.
Having what will soon be more than 190 million paying accounts also allows it to spend more on content than anyone else, and dividing that content by its large user base makes that expense line item lower per member than it is for smaller platforms. Netflix is also ubiquitous in this market. It doesn't have to deal with the legacy operations of the growing number of old-school media companies trying to learn new-media tricks.
Commanding the largest audience also makes it the top choice when a content producer wants to sell a new show or movie to a streaming service. In short, Netflix has an arsenal of weapons that it can use to slay the competition.
One of last year's hottest stocks has cooled in 2020. Roku saw its shares more than quadruple in 2019, only to shed roughly 20% of its value so far this year. Roku is still a winner. Like Netflix, it's a pioneer here, creating the first streaming media device back when Netflix started thinking outside the DVD box.
But Roku's biggest advantage these days is its agnosticism. There are a couple of viable streaming platforms that are gateways to the growing number of services available, but Roku is the one that isn't controlled by a tech giant. It just wants you connected to as many third-party apps as possible, and that has made it a popular choice for smart-TV manufacturers, making it the default operating system for more than a third of the TVs sold in the country.
There are now nearly 40 million Roku users, a 37% surge over the past year. The platform is sticky, and that's another killer advantage. Folks are spending a lot of time streaming through Roku, and that engagement is only getting stronger.
|Quarter||Active Users||Hours Streamed||Days in Quarter||Average Daily Hours Per User|
|Q1 2019||29.1 million||8.9 billion||90||3.4|
|Q2 2019||30.5 million||9.4 billion||91||3.39|
|Q3 2019||32.3 million||10.3 billion||92||3.47|
|Q4 2019||36.9 million||11.7 billion||92||3.45|
|Q1 2020||39.8 million||13.2 billion||91||3.64|
With the average Roku user spending a record 3.64 hours a day on the platform, it's an essential service at this point. You're also not likely to switch out of a platform that's clearly working. One can only imagine what that metric will climb up to in the current quarter.
A lot of new services have been launched over the past few months, but none of them hit the ground running the way that Disney+ has since its rollout six months ago. It's up to 50 million subscribers, and there wasn't a hotter show during last year's holiday season than The Mandalorian.
Disney was a late party crasher, but it brings a lot of goodies to the fete. It has an unmatched catalog of intellectual property. We saw how its Lucasfilm acquisition paid off out of the gate with The Mandalorian, and now it has Marvel and Pixar projects on the way -- and that's before getting into its own industry-leading franchises. It's hard to top Disney's breadth as a media company.
Another killer advantage that Disney has is its vault, which contains decades of family entertainment. With COVID-19 nixing any current filming of new shows or movies, this is a great advantage as rival pipelines start to run dry.
There will be a lot of winners in streaming video, but there will be even more losers by the time it's all done. Netflix, Roku, and Disney have the killer advantages to make sure that they wind up in the winner's circle.