The streaming battle seems to be in full swing, with Netflix (NFLX 4.17%) hitting some bumps in the road, competitors like Discovery and Time Warner forming Warner Bros. Discovery (WBD -0.35%), and even tech giants like Apple (AAPL 0.64%) and Amazon (AMZN 1.30%) getting into the fray. But not everyone will survive in the streaming business long-term.
I think there are some structural advantages Disney (DIS 1.54%) has in streaming that competitors can't match. And we may see the fruit of the company's streaming investments sooner rather than later.
Franchises matter
If we've learned anything about streaming content libraries in the last year, it's that not all content is created equal. Netflix spent billions of dollars over the last five years to create content, but it's now finding that the content it owns has a relatively short shelf life. Orange is the New Black, Squid Games, and House of Cards were hits, but are you likely to rewatch them again this year -- or in five or 10 years?
Disney has arguably the best content franchises in Marvel, Star Wars, Pixar, and Disney Animation, and more rewatchable content than any streaming provider. This matters when building out a streaming company because hits matter, but rewatchable filler content is what gets views on a day-to-day basis, and it has a much longer value lifespan.
Disney isn't the only game in town with franchise content at this point. Warner Bros. Discovery has put together a great catalog, with Harry Potter and HBO's entire library, but I think Disney still has the best franchise foundation in streaming.
Sports are the next shoe to drop
The streaming wars so far have been fought over periodic hits and the filler time in our lives. Appointment television in the age of streaming is almost exclusively owned by live sporting events on cable TV, and no brand is as big in sports as ESPN, the network 80% owned by Disney. ESPN+ is part of the Disney bundle, and in time it could be part of a larger bundle if rebundling of streaming services occurs.
Apple and Amazon are making a play for streaming sports, but if Disney decides to go all-in on streaming sports it has the balance sheet and infrastructure to be a major force. It has the national cable rights to the NBA, NHL, and key NFL games as a starting point. If these leagues move to streaming, I think it would make sense for them to leverage services with a big audience and global reach -- and in the next couple of years Disney may be the biggest streaming provider in the world.
Profits from streaming will come later
The stock market and media generally want instant gratification from Disney's streaming business, but it's a long game. The company is spending money now to build out the infrastructure and content that will generate value for decades, because franchise content has a long lifetime value.
On top of streaming, Disney has theme parks, cruise lines, merchandise, and other ways to monetize content that goes beyond the infrastructure of competitors. Streaming isn't a one trick pony for Disney.
Remember that it took decades for cable networks to become the profitable behemoths of the early 2010s until streaming started taking share. The streaming transition will be faster, and when we reach a more steady state it may be even more profitable given the ability to reach a global audience with a single service. I think Disney is better positioned as a streaming provider than its competitors when you consider its subscriber base, franchise content, and position in live sports with ESPN. Don't sell this stock before we see fruit from the investments being made today.
