Like clockwork, another year passes and more people decide to ditch cable TV. According to eMarketer, less than 50% of all households in the U.S. still have their traditional linear subscription package. This powerful secular trend has completely upended the media and entertainment industry.

Netflix (NFLX 3.24%) definitely spurred the cord-cutting movement. Its stock has been a monster winner, up 1,530% in the past decade.

However, investors can't forget about Walt Disney (DIS 2.05%). With unmatched intellectual property, it is also positioned to be one of the few streaming winners.

Which of these top streaming stocks is the better buy in 2025?

Disney's pivot

Disney's business has been in the midst of a transformation. Its legacy networks are in decline to due cord-cutting. Nonetheless, they are still extremely profitable.

While the company was posting massive losses as it built up its direct-to-consumer (DTC) streaming operation, investors weren't pleased. This probably explains why the stock trades 46% off its peak from March 2021.

But Disney is now heading in the right direction. The DTC segment reported two straight quarters of positive operating income. And excluding ESPN+, the leadership team believes it will rake in over $1 billion in operating income in fiscal 2025, a major improvement.

It's easy to be optimistic. Disney's competitive strength lies in its incredibly valuable characters, franchises, and storylines that it's able to monetize in various ways. There's also ESPN, the top name in sports programming. Disney plans to launch a full ESPN streaming service this fall, which should see strong interest among sports fans.

Not only is the now profitable DTC streaming segment a bright spot, but Disney's theme parks, cruise lines, and consumer products division is also an important contributor to financial success. With plans to invest $60 billion in this area over the next decade, Disney is ensuring that its place atop the media and entertainment sector stays intact.

Netflix's dominance

Netflix has become the dominant player in the industry thanks to its first-mover advantage. It rapidly signed up new customers over the past decade due to a cost-effective and superior user experience. The momentum continues to this day.

For the fourth quarter of 2024, Netflix added 18.9 million net new subscribers, bringing the total to 301.6 million. The success of its ad tier and content offerings helped bring new people to the platform, even though this is already a global media powerhouse.

One defining characteristic of Netflix is the presence of pricing power. Management has steadily raised prices of the various subscription tiers to capture the value that it provides to viewers. A price hike was just announced. This hasn't prevented the subscriber base from continuing to rise over time.

It was once unimaginable to envision Netflix as financially lucrative as it is today. The business reported a 27% operating margin in 2024, thanks to Q4 operating income soaring 52%. The forecast calls for an operating margin of 29% in 2025, as Netflix benefits from scale.

This helps drive lots of free cash flow, to the tune of an expected $8 billion this year. Executives must be confident the good times will keep rolling, as they added $15 billion to the share buyback program.

Valuation matters

If the trend over the past decade is any indication, streaming is only going to become more important in the daily lives of people across the globe. Viewed in this light, Netflix clearly looks like the top streaming business right now.

That might be true, but its valuation has gotten stretched. As of Jan. 22, shares trade at a forward price-to-earnings (P/E) ratio of 40. That might be a reasonable entry point for some, but growth will likely slow due to the company's already massive size.

Valuation is precisely why I believe Disney is the better streaming stock to buy in 2025. Its stock trades at a forward P/E ratio of 20, a sizable 50% discount to Netflix. Add this to competitive strengths and rising profits, and it can produce market-beating returns for investors over the next few years.