AMC Entertainment Holdings (AMC 2.78%), Roku (ROKU 3.64%), and AT&T (T 0.89%) probably weren't popping open bottles of champagne after the brutal quarterly report out of Netflix (NFLX 2.75%). The leading premium streaming video service falling short of expectations for its latest quarter is problematic. The even more sobering near-term outlook isn't a good look for the streaming space.
Decelerating growth at the market leader is going to compress valuations across most of its smaller rivals, but the news won't be bad for everybody. Let's see why AMC Entertainment, Roku, and AT&T may benefit from the stumble at Netflix.
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AMC Entertainment
One of the rare silver linings in the Netflix report is that it put out a pair of films that shattered previous viewership records for new releases. Red Notice in November and Don't Look Up a month later were streamed for 364 million and 350 million hours, respectively, in their first four weeks of availability on the service.
On the surface this probably doesn't sound good for AMC. More people streamed Red Notice worldwide than all of the movie tickets that AMC sold for in 2021. However, this isn't about engagement at Netflix. The service had its two most successful movie releases come out after it offered up its year-end subscriber guidance in mid-October, and Netflix still fell short. Magnetic original content wasn't enough to save Netflix.
What am I getting at? Well, let's talk about theatrical release windows. Most of the major Hollywood studios are owned or at least have partnerships with larger media companies that operate premium streaming services. They compete with Netflix, and over the past two years we've seen them shorten the time of multiplex exclusivity for their new releases if not eliminate those windows entirely. Being able to stream new releases at home makes it harder to justify paying to see them in a room full of chatty strangers. However, Netflix falling short despite strong original titles may lead many rivals to reconsider their content distribution strategies. Maximizing box office revenue ahead of a premium service release is going to become more important in 2022, and that benefits all exhibitors including AMC.
Roku
Weakness at Netflix may weigh on its rivals, but Roku isn't a competitor. It operates the leading hub for all streaming services with 56.4 million active accounts. It's nearly twice as big as its largest stateside rival.
You don't pay for Roku, beyond the initial investment for a cheap dongle to plug into your TV (if your smart TV doesn't come with the Roku operating system out of the box). Roku's biggest revenue driver is the money it makes from advertising. Netflix hasn't had to pay Roku for leads or marketing missives. It's Netflix. Roku has said in the past that the money it makes from the country's two most popular streaming apps -- Netflix and YouTube -- is negligible. Roku banks on the hungrier services that are willing to pay up to stand out among the thousands of options available on Roku. A vulnerable Netflix is good for Roku. It doesn't mean that Netflix is going to have to ramp up its marketing on the platform, but it's blood in the water for everybody else. Rivals should ramp up their ad budgets to either close the gap with Netflix or at the very least make sure they don't lose momentum like we just saw Netflix do.
AT&T
The third and final entry here is one that may not make sense at first. Why is a leading wireless carrier here? Netflix engagement remains high on mobile devices, but what does the slump at Netflix mean for AT&T? Well, AT&T also owns WarnerMedia -- for now. AT&T is in the process of spinning off its WarnerMedia content arm, with shareholders receiving 71% of the eventual business. WarnerMedia owns HBO Max.
Netflix raised prices on its service last week for U.S. members, boosting the monthly rate for its most popular standard plan from $13.99 to $15.49. It's a relevant move because the ad-free version of HBO Max was previously tipping the scales at $14.99 a month. AT&T's streaming service is no longer the most expensive one-off streaming service. Beyond rolling out an ad-supported version of HBO Max for $9.99 last year, there may now be flexibility to increase prices for the flagship plan. If it decides to hold its ground, that wouldn't be a bad call either. HBO Max will benefit from people upset at what is the sixth pricing increase for Netflix in the last eight years, switching to what now would be a cheaper service.
