The time we spend on offline media consumption continues to shrink as online consumption takes over. The number and variety of mobile devices and availability of on-demand services from content providers have ensured that the trend continues.
A June 2016 report from eMarketer suggests that while time spent on online activity will continue to increase between 2012 and 2018, consumer time will increasingly be split between radio, social networks, video and other. Of these, video is the only category that will grow throughout the period on both desktop and mobile platforms. In 2016, the estimated average time spent per day is 1.08 hours for digital video compared to 4.05 hours for TV. So there is still a very long way to go before any kind of crossover point is reached.
Here is a look at recent events in the emerging video streaming market:
Netflix Skating on Thin Ice
Netflix NFLX is determined to grow its subscribers and it isn’t averse to exploiting legal grey areas. So last week, it entered into an agreement with Liberty Global (LBTYA) to stream content to Liberty’s 29 million customers across 30 countries. Accordingly, Liberty will be rolling out an app that will make Netflix available to its customers as another channel. While the details of the deal aren’t available, the two companies must have some revenue sharing arrangement from Liberty customers signing up for Netflix.
The ground reality is that cable TV is going away and streaming services are taking over. So cable TV operators will increasingly try to incorporate these services into theirs. The only snag is that according to U.S. law, Netflix is bound by the Open Internet Order that propounds net neutrality but makes a specific exception in case of IP-enabled TV. So Netflix can’t enter into a special deal with cable TV operators so its service gets preferential treatment on bandwidth.
On the other hand, Liberty may have been allowed to legally stream its own IP TV service as this would increase competition, but it isn’t allowed to give preference to a service such as Netflix. But the law doesn’t provide for a situation where an over-the-top (OTT) provider such as Netflix is incorporated into the cable TV service.
This isn’t the first time that Netflix has struck such a deal. In July, it did much the same thing to get included in Comcast’s X1 STB. But there’s a slight difference this time: the Comcast case is less complicated because it was just the U.S. market. With Liberty, Netflix is entering international markets where it would be subject to the laws in those 30 countries. There too, there would be a problem only when a competing service like Chromecast or Roku contested it.
Legal battles can drag on forever. At the same time, the popularity of consumer goods and services is dependent on the number of customers trying them out at any point in time. So the greater the number of people trying out a service, the more it’s likely to grow. If these deals are hacked down after a significantly long period of time, it would anyway have won Netflix many more subscribers. So this is solid strategy from Netflix.
Netflix has a Zacks Rank #3 (Hold).
Twitter Gets New ID As Video Hub
Twitter TWTR is the place where most news breaks. It’s also the place where we get the latest on what’s being said about news. So the best strategy for expansion would be to pursue something that is also somehow newsy. And that’s why sports seems like a really good idea because it marries entertainment to news.
Twitter is already one of the best places to get the latest on sports. Twitter fan followings of ESPN’s Adam Schefter and Matthew Berry, or even Darren Rovell (ESPN business reporter) to name just a few, provides evidence of this fact. But this also means that Twitter already has a fairly good idea about what people are watching and what they engage with the most.
Getting the rights to streaming those sports events is a good idea. But sports rights don’t come easy; TV rights to major sports events have already been sold to CBS Corp., Comcast Corp.’s NBCUniversal, Fox, Turner Sports and ESPN. Therefore there is limited scope for any other players to get in.
But Twitter has now launched apps for AAPL TV, Amazon AMZN Fire TV and Microsoft’s MSFT Xbox One that will allow users to stream all the content on Twitter, including live streams of 10 NFL Thursday Night Football games (starting yesterday, Twitter outbid Amazon for this so it’s likely not too profitable), as well as content from Major League Baseball (MLB), National Basketball Association (NBA), Pac 12 Networks, Campus Insiders, Cheddar and Bloomberg News.
There are two things that distinguish Twitter from Cable TV: first, the Twitter service is free/ad-supported and you don’t even need a Twitter account to watch and second, Twitter offers a split screen with the main video on the left side and the relevant tweets on the right. So you can read all the related tweets and if you have a Twitter account, you can also take part in the conversation. Apple TV owners also get a bonus in the form of premium content.
For Twitter, this is a great new way to sign on more users while also earning advertising revenue in the process. Content providers value social platforms a lot these days because it drives engagement. It really looks like Twitter is finally on to something. Is there competition around? Of course. But what’s best about the whole thing is Twitter using its uniqueness to try breaking into a completely new market. And there’s a fair chance it will succeed.
Twitter has a Zacks Rank #3.
Amazon Is Not One To Be Left Behind
Amazon’s interest in streaming live sports has increased in recent times. In July, the company brought on board former Sports Illustrated executive, James DeLorenzo to head its sports unit and Charlie Neiman of YouTube to focus on business development and partnerships with sports content providers.
But the growing interest in sports streaming is really a part of a broader interest in streaming all kinds of content, because it is a new way people consume media. If Amazon doesn’t grow its streaming business, its media business will likely shrink. But this is a market where Netflix and Alphabet’s GOOGL YouTube are well-entrenched and Amazon a distant, albeit faster-growing competitor. Sports streaming is one segment of this market, so Amazon is going after it.
With the Twitch acquisition, Amazon has a huge amount of user-generated content as well as a highly engaged user base. But premium/major league content is really where the money is. So that’s what it’s pursuing now. Plus sports events with global appeal, such as tennis (it’s been in talks with Tennis Channel for roughly a year now according to its CEO), golf, professional rugby, soccer and car racing. At least that’s what Bloomberg’s anonymous sources are saying.
Amazon has a Zacks Rank #3.
Pandora Is On A Roll
Pandora P the radio service will soon be a lot more. In addition to its agreements with performance rights organizations (PROs) ASCAP and BMI, Pandora has signed direct licensing deals with all of the three major music labels, including Sony Music, Universal and Warner, as well as 30 other independent record labels.
Performance rights organizations negotiate on behalf of artists and songwriters so they can grant blanket rights to music distribution services and set the rates they are required to pay. But with artists and song writers fighting for a bigger share of profits and negotiations with PROs dragging on and often litigated, the process has become cumbersome and uncertain. So direct deals with labels and indies is today the way to go and it is the way the leading on-demand music streaming services Spotify and Apple Music have gone.
Pandora is also giving away a little more to users: the ad-supported Internet radio service now allows users the option to skip more songs and even replay songs if they agree to see a video ad. Pandora One is migrating to Pandora Plus and also getting more frills. At the same cost ($5), it’s reportedly offering more skips and replays than the free service, while also automatically determining when a connection is lost and switching to music stored offline. The $10 full-feature service that will compete with Spotify and Apple Music has been promised for later this year.
Which is all very well provided Amazon doesn’t get its Echo into too many more households. Because Echo owners can stream Amazon’s full-feature music service for $5. And Amazon has the ability and the history of endlessly keeping its price at rock bottom so competitors are shoved out of the market.
Pandora has a Zacks Rank #3.
Spotify Is Still Tops
Not long after Apple’s mega product event where it boasted 17 million subscribers since its debut last year, Spotify CEO Daniel Eck tweeted, “40 is the new 30 million”, a subtle reference to its paid subscribers that have grown by 10 million since March. The all-you-can-eat model appears to be beating Apple’s strategy of going after exclusives for its platform. But it’s worth noting that its early days yet for Apple’s streaming service and its larger rival in music streaming has only seen this kind of momentum after around seven years, which again could be partly related to increasing awareness and market making in recent times.
None of the stocks in this piece are worth buying at the moment. But Zacks does have a daily list of Rank #1 stocks and you can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
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