It’s no secret that the media and entertainment industry has been struggling in recent years, burdened by labor strikes, profitability issues and a transition to streaming that has upended some of the best-known corporate giants.
However, one company has thrived amid the various changes: Netflix (NFLX).
The streaming platform exceeded Wall Street expectations on all major financial metrics in its third-quarter results on Oct. 17, with shares soaring to record highs. The stock is up more than 50% since the start of the year.
Compared to other players, Netflix’s number of subscribers and profitability stand out.
The streamer has added more than 50 million paying subscribers since launching its anti-password campaign in May 2023. Full-year operating margins are expected to be 27%, with management noting that the company has the potential to ultimately secure margins comparable to broadcast networks. which have historically been between 40% and 50%.
And in the first three quarters of 2024, Netflix generated about $6.9 billion in net revenue. The competitors don’t even come close.
Disney (DIS) and Paramount Global (PARA) just reported their first quarterly profits in their respective streaming businesses earlier this summer. A shift for the industry, yes, but not a solution to the problems plaguing traditional media, with Comcast (CMCSA) the latest company to consider ditching its cable networks.
“Netflix is clearly running away with the ball and the media-based streaming companies are struggling to even get on the field,” Barton Crockett, managing director at Rosenblatt Securities, previously told Yahoo Finance.
Other analysts have piled on to that thinking and have officially declared the infamous streaming wars over.
“Netflix has won the streaming wars,” MoffettNathanson, one of the leading stock research firms for the technology and media sectors, said last week in a note written by analyst Robert Fishman. “The media space is currently defined by a dichotomy in which Netflix is the only exception.”
Bloomberg Intelligence analyst Geetha Ranganathan agreed, recently telling Yahoo Finance’s Market Domination that the company has “without a doubt” secured its No. 1 position.
The “streaming wars,” which unofficially kicked off in November 2019 following the launch of Disney’s flagship streaming platform, accelerated an accelerated race for content, talent and, most importantly, subscribers.
The goal was to attract as many users as possible. That led to an era of overspending, as platforms, both new and established, rushed to lure top producers and land the most sought-after shows.
At the time, Netflix (NFLX) was the leader. The platform secured famed producer Ryan Murphy with a high-profile $300 million contract in 2018. “Bridgerton” creator Shonda Rhimes also signed with the company around that time, reportedly landing a $100 million deal.
Others quickly followed. In 2019, Warner Bros. Discovery (then known as WarnerMedia) reportedly forked out more than $1 billion for the streaming rights to “The Big Bang Theory.” Comcast’s NBCUniversal (CMCSA) paid $500 million for the streaming rights to “The Office” that same year. Even Big Tech got in on the action: Apple (AAPL) poured $6 billion into the launch of Apple TV+, which at the time only offered nine original series.
Netflix CEO Ted Sarandos (C) poses with cast and crew as they arrive for Netflix’s “Bridgerton Season 3” premiere at Alice Tully Hall on May 13, 2024 in New York City. (ANDREA RENAULT / AFP) ·ANDREA RENAULT via Getty Images
But investors quickly realized that streaming is a tough business. It’s hard to monetize users, justify the high cost of content, keep subscribers engaged, And make a profit. An example: the profit struggle at Disney, Warner Bros., among others. and Paramount.
Netflix, considered “the gold standard” in streaming even by its competitors, has consistently prevailed due to its first-mover advantage as a pure-play streaming company. Its innovative approach to monetization, including controversial measures against password sharing and offering multi-tiered subscriptions, has also helped strengthen its positioning.
As the market stands now, Netflix’s total enterprise value is now greater than that of Disney, WBD, Fox and Paramount combined. It is seen as a growth stock on Wall Street, with full-year revenue expected to rise more than 15% year over year.
And as the chart below shows, Netflix’s estimated enterprise multiple, a ratio used to determine a company’s value after taking into account debt and cash levels, in addition to its share price and cash profitability, is second only to tech giant Apple . Not too shabby for a pure-play streaming player.
Fishman argued in his note that streaming players will need a handful of significant assets to not only catch up to Netflix, but also to survive the industry’s massive transition.
This includes a scaled streaming service (both in the US and globally), a free video-on-demand (AVOD) platform, top sports rights, a US broadcast network, and film and television studios.
Not every business needs all of these assets. But having them can increase a company’s position within the industry.
Take Disney (DIS), for example. The media conglomerate checks off everything except a free AVOD platform. But having a streaming service that scales in the US and beyond, like Netflix, seems to be the formula for success – at least for now.
“That’s really the end goal,” Fishman said. “Whether a company wants that for itself (all the traditional players) or to increase sales of toilet paper or mobile phones [like Amazon]That’s the goal.”
That means joint ventures and other deals such as acquisitions are likely to continue into the second half of the decade.
Paramount (PARA) has already agreed to merge with Skydance Media in a deal that will end the Redstone family’s control of the company. The transaction is expected to close in the second half of 2025.
However, regulatory challenges can be a bridge. A judge temporarily blocked the launch of Venu Sports, the upcoming sports streaming service from Disney’s ESPN (DIS), Warner Bros. Discovery (WBD) and Fox (FOXA), citing antitrust concerns.
The Big Tech giants would face similar deal-making hurdles given their size, while media companies working with each other would pose their own risk as almost all top players carry heavy debt loads.
In his report, Fishman said Fox and WBD have the most complementary assets for a potential combination, especially since WBD misses the NFL and recently lost the NBA. The company is currently embroiled in a lawsuit after suing the NBA over the loss of those media rights.
Netflix has won the streaming wars, but where does that leave the others? (Getty Images) ·SimpleImages via Getty Images
Until then, sports has become streaming’s last frontier amid a dying cable TV business. But professional leagues are also hesitant to abandon traditional television completely.
According to Fishman, this gives the upper hand to companies with a broadcast network such as Fox, Comcast and Disney.
“While leagues are also becoming more comfortable partnering with streamers, as the NFL Thursday Night Football transition from Fox to Amazon has shown, this still comes with a trade-off in viewership,” Fishman said. “Having a broadcast network has therefore become increasingly a must in the eyes of top sports leagues when assessing distribution partners.”
And as new data shows, companies involved in both traditional television and streaming tend to attract the most attention.
According to Nielsen’s latest Gauge report, Disney’s traditional broadcast and streaming businesses combined for 11.3% of total TV viewing time in the month of September.
Google’s YouTube (GOOG, GOOGL), Comcast’s NBCUniversal (CMCSA), Paramount (PARA) and Netflix rounded out the top five with 10.6%, 9.3%, 8.2% and 7.9% respectively.
Looking ahead, “Disney has the right mix of resources to create a true second global streaming service after Netflix,” Fishman predicted. Disney, which is in the process of finding its next CEO while Bob Iger’s contract expires at the end of 2026, will report its quarterly results on November 14.
But he warned the rest of traditional media companies like Comcast, Paramount and Warner Bros. “still need to quickly determine which path to take to better position themselves within the big streaming game” – whether that be a merger, asset sale, acquisition, partnership or something else entirely.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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