The increasing rivalry in the video streaming industry is likely to be highlighted in the quarterly earnings reports that are to be filed by Walt Disney Co, CBS and Viacom next week. Analysts also expect some volatility in post the earnings reports in the so-called communication services sector that has performed much better than the average market since it was rehashed last year.
So far in 2019, there has been a 20 per cent increase in the S&P 500 communication services index which was more than the 17 per cent growth of the S&P 500 index in each of the 11 sectors except two. The better than average performance has primarily been credit to a very strong performance by Facebook Inc because of investors’ confidence on the performance of the largest social media network company of the world even in the face of growing regulatory challenges.
According to analysts, the June quarter results would make investors most interested to see how the conventional entertainment companies such as Disney, CBS Corp and Viacom Inc compete in the video streaming segment and challenge the market leader of the segment Netflix Inc. Disney, CBS Corp and Viacom Inc fall within the communication services sector.
There has been a 14 per cent drop in the stocks of Netflix since its second quarter reporting on July 17 wherein the company said that during the quarter, it had lost subscribers in the United States which spooked investors who were already concerned about the possible impact on the company due to the impending launch of the streaming service by Disney.
Analysts believe that the most dangerous threat to Netflix is Disney+, the planned family based streaming device from Disney that is set to be launched on November 12. The company has announced a range of new and classic TV shows and movies.
“There is an analysis that has been going on among investors, looking at the number of subscribers Netflix has and the growth that Disney’s service could put up in the next three or four years, and the huge disparity in the two companies’ valuations,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
“The Netflix disappointment and the big Disney box office numbers underscore the importance of intellectual property, of ownership of content,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago. He said that Netflix mainly depends on other producers for content even though it also makes many of its own shows.
Two of the most watched dhows on Netflix in the United States – “Friends” and “The Office” – are set to be transferred in 2020 and 2021 to rival streaming services from AT&T Inc and NBC Universal respectively.
According to recent media reports, if a merger deal is reached between Viacom and CBS, which are both controlled by the Redstone family’s National Amusements Inc, the combined company would be led by Viacom Chief Executive Officer Robert Bakish under a management structure that has been designed for the merger. This arrangement removes a major hurdle in the path to the merger, said the reports.
There would be investor focus on how well CBS has grown in All Access and Showtime streaming services during it quarterly earnings reporting, in addition to seeking clues for a possible confirmation of the merger.
(Adapted from Reuters.com)