Will Disney Keep Releasing Films On Premier Access?
Disney provides new numbers for its on-demand revenue.
As the global middle class continues to expand, demand for entertainment products and services continues to rise at an attractive pace. Demand for entertainment content has also historically been relatively resilient, even during periods of economic uncertainty and downturn. Investors may want to look into entertainment stocks as a way to capitalize on this growth and persistent demand.
Entertainment stocks are the stocks of companies that derive substantial portions of their revenues from the entertainment industry. These companies may operate in other industries and sectors, too, but entertainment stands out as core to their operations. Investors who take a buy-and-hold approach to the category leaders in entertainment are very likely to profit significantly over time.
These six entertainment companies are worth watching:
Disney has a collection of entertainment franchises and a library of classic film and television series that trounces those of every other company on the planet. The company has shown the enduring value of its properties amid the coronavirus pandemic, with its Disney+ streaming service growing explosively.
The incredible growth of Disney+ has highlighted the value of the company’s franchises, and the company's other business segments -- such as its film business and theme parks -- that have been hit hard by the pandemic should be able to recover. With Star Wars, the Marvel Cinematic Universe, the Pixar catalog, and a long list of others, the House of Mouse has more valuable entertainment properties than it’s possible to mention here. Disney's many assets enable it to adapt and thrive amid significant changes in the entertainment landscape.
The global video game industry has enjoyed tremendous growth over the past decade, and Activision Blizzard has been one of the medium’s biggest leaders and beneficiaries. The publisher is responsible for many hit franchises, including Call of Duty, World of Warcraft, and Candy Crush Saga.
Activision Blizzard is still in the early stages of capturing the massive global audience for mobile games. The company’s initiative to bring its Call of Duty series to mobile devices was a huge success and bodes well for Activision Blizzard to bring more of its hit franchises to smartphones and tablets.
With the demand for mobile gaming growing the fastest, along with many forms of interactive entertainment, Activision Blizzard's track record indicates the company will likely continue to flourish. Crucially, too, Activision Blizzard has shown that it’s capable of sustaining demand for its hit properties and using them to drive strong long-term performance.
Zynga, a leading publisher in the mobile games industry, has built an impressive collection of franchises and development studios, putting the company in position to thrive for the long term. Most of the company’s titles are free to play, but the business generates substantial revenue by attracting large audiences and enticing a small portion of its players to spend money. In-game items and other perks generate most of Zynga's revenue.
The company keeps players engaged and spending money by releasing regular content updates for its core titles. The result has been an impressive track record of extending the life cycles of its products. Since releasing new content for existing games is typically much less expensive than developing entirely new titles, Zynga's games that have substantial longevity can be enormously profitable. Some of the game maker's core franchises have been delighting audiences for more than a decade.
Zynga has been focusing on several internal development initiatives and making acquisitions, which has brought new resources into the company. Zynga's core business model is enabling plenty of growth, and the publisher is also beginning to explore opportunities in in-game advertising and augmented reality.
Roku is spearheading the cord-cutting revolution. The company’s streaming hardware is widely integrated with smart TVs, and its leading position in this category allows it to function as a distributor for other companies’ streaming content and services. The business got its start selling set-top streaming boxes but has evolved to generating most of its profits from distribution.
Roku earns ad revenue from other streaming services accessible through its application, and it also operates the Roku Channel -- a free, advertising-supported streaming service. The ads the company serves to viewers are significantly more targeted, and therefore more valuable, than those distributed through legacy cable channels or other streaming services. Roku also generates revenue by licensing its smart television operating system software.
Roku is bringing users into its ecosystem at an impressive rate and building a large user base. At the beginning of 2021, the company acquired the content library of Quibi, a streaming platform focused on short-form, mobile-friendly entertainment. Roku's large user base, strong data analytics capabilities, and advertising expertise are creating many new growth opportunities for this entertainment company.
Tencent is China’s biggest technology and media conglomerate. The company is the world’s largest video game publisher by revenue and owns huge franchises, including League of Legends, Honor of Kings, and Clash of Clans. The company also holds substantial equity stakes in many leading gaming companies, including Fortnite creator Epic Games. Tencent will likely continue to acquire companies that further strengthen its leadership position in interactive entertainment.
Video games aren’t the only segment of the entertainment sector that Tencent participates in. The company has its own movie production studio and a wide range of investments across the film and music industries. It also owns stakes in several social media platforms, including Snap (NYSE:SNAP), Huya (NYSE:HUYA), and Reddit.
Tencent has a diverse collection of businesses, all of which are growth drivers in their own right and strengthen the company’s entertainment businesses. Tencent owns WeChat -- another social media platform and also a messaging service, e-commerce platform, payments processor, and more. WeChat, which has roughly 1 billion active users, helps Tencent to monetize its own entertainment content and generate revenue from third parties in the entertainment industry.
FuboTV delivers premium sports programming as a streaming service. Live sports broadcasts are one of the biggest remaining draws for cable and satellite television providers, but the consumption of sports content will likely also migrate to streaming formats. Fubo wants to spearhead that transition.
Fubo differentiates itself by concentrating on serving sports enthusiasts. The company aims to reach customers who are willing to pay premium prices for expansive content offerings, with basic plans starting at roughly $65 per month. The sports-focused streaming platform is subscribing users at a rapid clip.
FuboTV is still a relatively young company, and the stock probably is not a great fit for investors with low risk tolerances. The company does have some other intriguing growth opportunities and is working to expand into the burgeoning online sports betting industry. Successfully integrating sports betting into Fubo's platform offerings could further boost engagement by its target audience.
Many companies in the entertainment sector rely on continually producing popular franchises to stay in business. Companies in this industry can have their business outlook change quickly, making entertainment stocks generally more risky than the market at large.
The best entertainment companies have consistent sales and earnings growth. They also perform well using industry-specific considerations such as subscriber growth, revenue per user, and how well key releases and service updates are received. Many top entertainment companies also are engaged in other types of business, so it's important to also pay attention to how those other operations strengthen or jeopardize their entertainment offerings.
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