Sep 28, 2020 (IAM Newswire via COMTEX) -- Media companies produce and distribute the content we ended up consuming more than ever before when COVID-19 started its relentless march across the globe. Whether it is in the form of film, television series, music, books or radio programming, these companies provided the world with the much-needed therapy during the lockdown.
Due to intense streaming wars ran by services a la Netflix /zigman2/quotes/202353025/composite NFLX -5.65% , much of the media industry's power has been consolidated in just a few names such as Walt Disney /zigman2/quotes/203410047/composite DIS -0.24% , Discovery /zigman2/quotes/200511275/composite DISCA +2.56% , and ViacomCBS /zigman2/quotes/200340870/composite VIAC +1.56% . Some have been acquired by telecom companies such as AT&T /zigman2/quotes/203165245/composite T +0.97% , owner of WarnerMedia, and Comcast /zigman2/quotes/209472081/composite CMCSA -1.90% , owner of NBCUniversal. By joining forces, they integrated quality content with powerful distribution. The competitive pressure is intense as even radio producers have turned to podcasts to capitalize on this opportunity.
As more people cut the cord and more advertisers shift their ad budgets away from TV towards direct-to-consumer platforms, Roku /zigman2/quotes/205087179/composite ROKU -7.13% and Amazon /zigman2/quotes/210331248/composite AMZN -5.45% are set to benefit from these trends. These two growing players will only get stronger as competition in the streaming space grows. As media companies need to stand out, this trend will directly support their long-term revenue growth.
Discovery /zigman2/quotes/200511275/composite DISCA +2.56% owns strong content and brands, including HGTV, the Food Network, and its namesake channel. But the main asset of the communications giant is its portfolio of sports rights that allows it to span all over the globe. Its main jewel are the Olympic Games. Over the last five years, yearly sales growth amounted to 12.20%. When it reported its latest quarter in June, earnings per share amounted to $0.77 exceeding consensus estimates by $0.07.
Although Disney+ achieved a record pace of new subscribers, Netflix /zigman2/quotes/202353025/composite NFLX -5.65% remained as the largest direct-to-consumer video service in the world. As of 2013, it even started its original production to be less reliant on others for content. Despite fears, it is doing more than fine. In the last quarter reported in July, Netlix delivered a profit of $2.5 billion on increasing revenues of $6.15 billion. It blew estimates and eased concern it could be crushed by upcoming competitors with free cash flow of $1.06 billion, EBITDA at $9.77 billion, profit margins of 11.90%, ROE of 33.30% and ROA of 7.80%.
Netflix's massive scale provides it with a lot of data it can use to improve the user experience and optimize its content production. While it fuelled its content library expansion through increased debt, the company's growing recurring revenue and improved operating margin should lead to improved cash flow and give the streaming giant the ability to self-fund content investments in the future.
When it acquired 21st Century Fox, Walt Disney /zigman2/quotes/203410047/composite DIS -0.24% became one of the biggest media companies in the world. The iconic House of Mouse has a portfolio of intellectual properties that goes beyond legacy Disney Brands as it now includes Star Wars, Marvel and Pixar. Moreover, it has strong television brands such as ESPN with long-term contracts to broadcast premium sporting events. Its push into direct-to-consumer streaming has gone well since it acquired operational control of Hulu and launched its streaming star, Disney+. Both are bolstered by its acquisition of BAMTech, a streaming technology provider. Although its theme-park and cruise business slumped during the pandemic, streaming was a rare bright spot. Unfortunately, it will take a while before this segment reaches profitability. Theme parks produce a much higher operating margin and therefore, play a much significant role in company's performance which was nearly wiped out.
But, its fiscal fourth quarter is about to end and with it, this brutal fiscal year. The figures won’t be pretty but there should be an improvement over the vicious 42% decline in revenue that it posted for its fiscal third quarter. After all, the current quarter is the period when theme parks reopened, sports programming returned to ESPN, and movie theaters started opening their doors. Fiscal 2021 can’t start soon enough for Disney.
ViacomCBS /zigman2/quotes/200340870/composite VIAC +1.56% ensures a broad distribution and large audiences as its cable networks are well diversified across audience demographics. After all, it operates one of the four broadcast networks in the U.S. which has its perks. Although the company had many carriage disputes with distributors, adding the CBS broadcast network should strengthen its negotiating power. Meanwhile, joining CBS and Paramount should result in sufficient content to feed its own networks, including direct-to-consumer services. During its second quarter, VIAC showed it was able to absorb the blow to its advertising business by reporting a profit of $2.79 billion with revenues increasing to $6.28 billion. With free cash flow of $1.02 billion from June, EBITDA at $1.41 billion which compares well with its peers, ViacomCBS Inc has strong fundamentals that helped it deal with a 27% drop in advertising and lack of sports. With a market cap of $18.15 billion, it is increasing its credibility in this sector as its digital revenue jumped 25%, boosted by a 52% increase in streaming subscription revenue.
The COVID-19 pandemic was double trouble for pay-TV industry because advertisers reduced their budgets and consumers started cancelling subscriptions as sport events and TV series productions were delayed or annuled. eMarketer forecasted that around 6.6 million U.S. households will cut the cord in 2020 with ad spending dropping 15%, forcing media companies to focus on direct-to-consumer content. As more consumers cut the cord and advertisers move to digital platforms, streaming players are set to thrive. Moreover, Roku is well-positioned to benefit from them all.
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