What happened
Shares of cable television content provider AMC Networks (AMCX 2.49%) are deep in the red today, down 18.2% as of 12:35 p.m. ET following the release of fiscal fourth-quarter results. The company didn't miss its revenue or earnings estimates, however, for the quarter in question. Rather, a rival television name dropped a bomb of its own that created an industrywide ripple effect.
So what
That rival is ViacomCBS (VIAC +0.00%) (VIAC.A +0.00%), parent to the CBS network as well as Viacom, which owns cable channels such as MTV, Comedy Central, and Showtime. It's also the name behind Paramount, the Paramount+ premium streaming service, and ad-supported streaming platform PlutoTV.
It's ViacomCBS's streaming businesses that up-ended AMC Networks' stock today. While the company added a record-breaking 9.4 million viewers to its streaming viewer base during the three-month stretch ending in December, that growth came at a steep price. ViacomCBS' Q4 operating income of $0.26 per share was well under the year-ago comparison of $1.04, and missed analysts' consensus estimates ranging from $0.43 to $0.76 per share. Its streaming business is costing the company a relative fortune, yet ViacomCBS also said it's upping its annual streaming content budget from $4 billion to $6 billion.
Image source: Getty Images.
Although AMC Networks topped its expected bottom line of $0.23 per share by reporting a profit of $0.54, investors are simply connecting the dots. In this case, the dots suggest AMC Networks will also need to ramp up its investment in streaming content. Underscoring the idea that investors are increasingly worried about a brewing content-spending war among streaming platforms is the fact that Discovery shares are off by 5.5% on Wednesday, following the lead of ViacomCBS stock's 21.6% tumble.
Now what
Be wary of connecting the dots so many investors just did. Sure, the streaming market is increasingly competitive and will require more content in the future as the industry matures. ViacomCBS' planned spending increase, however, is also expected to be paired with serious subscriber growth. The company expects to be serving 100 million direct-to-consumer customers by 2024, nearly doubling its current headcount.
In other words, subscriber growth should more than cover the impending cost increase. Even if AMC Networks is poised to spend more on streaming content as well -- which it hasn't said it would need to -- the cable TV content maker has already proven it can draw a sizable streaming crowd of its own. It now serves more than 9 million direct-to-consumers, and considering this business only launched in earnest a year ago, there's no reason to think it won't reach its goal of at least 20 million streaming subscribers by 2025.
Today's pullback is a buying opportunity -- a chance to step into a rebound effort that's been underway since early January.
