The entertainment industry has changed significantly over the last decade. In 2013, movies generated $34.7 billion globally at the box office, but by 2022, ticket sales had fallen to $25.9 billion. Meanwhile, the subscription video-on-demand (SVOD) space has soared in popularity, climbing from $2.3 billion in U.S. revenue in 2012 to $25 billion last year.
Entertainment companies have taken note of the consumer shift from movie theaters to home streaming, with many big-name studios becoming significant players in the SVOD arena. But with streaming growth slowing, some may question which stocks in that space are worthy long-term bets. Here's why Netflix (NFLX -0.02%), Walt Disney (DIS -1.58%), and Paramount Global (PARA -3.03%) are promising investments right now.
Netflix
Netflix very much paved the way for SVOD. The DVD-by-mail operator pioneered the streaming space in 2007, recognizing the potential of piping content over broadband connections long before many of its current competitors did. That first-mover advantage has paid off for Netflix. The company now claims more than 231 million customers across 190 countries.
Despite the success, Netflix has seemingly started to recognize the limitations of the SVOD business model, perhaps most notably when it experienced its first quarters of net subscriber losses in more than a decade in 2022. Netflix quickly responded by announcing plans for a lower-cost ad-supported subscription tier to attract new customers, and another plan to clamp down on password-sharing among its existing subscribers.
Netflix launched its Basic with Ads tier in November, and some analysts expect the offering will bring in more than $1 billion annually in U.S. ad sales for the streamer by the end of 2024. Netflix itself is also bullish, suggesting its ad revenues could be as strong as Hulu's in a few more years.
When it comes to password-sharing, Netflix has been testing a new approach in a few South American markets: The company is charging subscribers a small additional monthly fee if their account is regularly accessed by another household. And while there have been some consumer complaints, Netflix has made clear it plans to expand the crackdown to more markets soon -- including the U.S. Considering that according to one study conducted last year, some 33% of Netflix subscribers are sharing their account access with people not based at their residence, it's reasonable to conclude the streaming company may soon see a notable bump to its bottom line.
Walt Disney
The through line of Disney's decades-long success has always been its strong catalog of intellectual property. From Mickey Mouse and Pixar to Star Wars and Marvel, Disney has leveraged its characters to sell everything from lunchboxes to immersive fantasy getaways. Despite all this, the company's streaming arm has yet to turn a profit. Its SVOD operations lost $1.5 billion in its fiscal 2022 fourth quarter.
Activist investor Nelson Peltz of Trian Fund Management has been making headlines recently, calling out Disney for its SVOD losses and suggesting the company should get out of streaming altogether if it fails to acquire from Comcast the remaining third of Hulu that it doesn't already own. Disney has been firm in its response, asserting that Peltz doesn't understand streaming, while also noting CEO Bob Iger has instituted a plan to cut SVOD costs and make the unit profitable by 2024.
Peltz has continued to ramp up the pressure on Disney, and while it's too soon to know if he will be successful in his mission to derive more value from Disney's stock, one thing is clear -- he believes his approach working. "Think of all the positive impacts [on Disney's value] we've had in such a short period of time," Peltz said during an appearance on CNBC last month. "Think how much more we can help."
Paramount Global
With 46 million global subscribers, Paramount+ is somewhat of a minnow in the SVOD space. Despite its lack of heft, revenue from the streaming service climbed 95% year over year in Q3 2022.
Perhaps more compelling for market-watchers is the fact that starting in 2024, Paramount+ will be the first-stop home for Paramount Global's movies after they have left theaters. The company has several big pictures on its release slate in the coming years, including a new Transformers movie and two more installments from the Mission Impossible franchise.
Such marquee projects can drive big returns at the box office, while also driving up SVOD subscriber numbers. Case in point: Paramount Global's Top Gun: Maverick made $1.5 billion at the global box office before it landed on Paramount+ and became the most-watched film on the service to date. Or as Paramount Global executive Brian Robbins said in a press release: "The runaway success of this film across theatrical, digital and now in streaming is an undeniable proof point demonstrating the power of Paramount's multi-platform release strategy."
Conclusion
Some may be skeptical about the long-term growth prospects of the film and TV businesses, particularly considering that movie theater attendance is waning and that traditional media must now compete with a plethora of streaming services. Despite this, Netflix, Walt Disney, and Paramount Global are all demonstrating the ability to adapt to the new landscape, indicating that their stock prices have plenty of growth potential.
