NPR recently reported that streaming platforms captured 34.8% of the U.S. viewership in July, 40 basis points ahead of cable -- the first time this has ever happened -- and well ahead of broadcast TV, pulling up the rear at 21.6%.
To be fair to regular broadcast TV channels, the summer isn’t a big time for primetime viewership as most shows are on hiatus until the fall. However, it’s safe to say that the margin between streaming/cable and broadcast TV’s been increasing in recent years and will continue to do so.
The big question for investors is which streaming platform is the best to ride for long-term profits.
To answer this, I’ll rate three of the top streaming platforms, using recent unusual options activity as the lens through which I consider the investment possibilities.
Netflix
Netflix (NFLX) is the granddaddy of streaming platforms. It’s been streaming since CEO and co-founder Reed Hastings flicked the switch on video streaming in 2007. At the end of June, Netflix had 220.7 million subscribers worldwide, with the U.S. and Canada accounting for a third of the total.
Of course, the big news is two-fold: First, its growth has completely halted. Secondly, some of its rivals have gained at its expense.
However, before you write off Netflix, the video streamer had almost double the minutes viewed during the 2021-2022 TV season -- 1.33 billion minutes -- compared to the next highest competitor, CBS, at 753 million. Disney+ was back in the sixth spot, with 245 million minutes viewed.
The two numbers that matter most in video streaming are paid subscribers and minutes viewed by subscribers. Ideally, you want both to grow like gangbusters, but if you can only have one, the answer isn’t nearly as straightforward as you might think.
“Our share of US TV viewing reached an all-time high of 7.7% in June (vs. 6.6% in June 2021), demonstrating our ability to grow our engagement share as we continue to improve our service,” Netflix’s Q2 2022 shareholder letter stated.
Why is engagement meaningful? It’s the best way to keep subscribers from moving elsewhere. Further, when Netflix launches its lower-priced ad-supported version in early 2023, this solid engagement will help keep many ad-free subscribers from switching to the ad-supported plan while attracting new subscribers to the cheaper version.
Translation: Subscriber growth in the U.S. and Canada will reignite while ad revenues should accelerate revenue and profit growth.
I say bring on the ad-supported version.
Walt Disney
Walt Disney’s (DIS) various streaming platforms -- Disney+, ESPN+, Disney+ Hotstar, and Hulu -- generated a combined subscriber base of221.1 millionat the end of its third quarter, 400,000 more than Netflix.
While that’s a fantastic feat for Disney+, which only launched in November 2019, the numbers must be considered. The Disney+ number, excluding the three others, was 93.6 million as of July 2. In the U.S. and Canada, it added just 100,000 paid subscribers from Q2 2022 and 6.0 million internationally.
More importantly, the average revenue per user (ARPU) in the U.S. and Canada was $6.27, less than half of Netflix’s U.S./Canada ARPU of $15.27. Further, Netflix’s ARPU increased 2.4% sequentially from Q1 2022, compared to a 0.8% decrease from Q2 2022.
In an apples-to-apples comparison, Netflix is holding its own versus Disney in the U.S. and Canada.
Disney has many more levers to pull than Netflix, but when it comes to streaming, Disney hasn’t proven that it’s got the superior product. In the quarters ahead, I guess we'll see if that changes.
Paramount Global
I recently decided to get a one-year subscription to Paramount+, Paramount Global’s (PARA) streaming platform.
Straight out of the shoot, I immensely enjoyedThe Offer,the TV series based on the making ofThe Godfather.I’ve watched other Paramount+ originals and find the quality better than I expected.
In July, Paramount+ announced thatStar Trek: Strange New Worldshad the strongest 90-day debut in terms of viewers in the science fiction show’s entire history. Recently, the company announced that its subscriber base hit 43 million globally. More importantly, it had the best sign-up rate in the U.S. of any streaming service, adding4.9 millionduring the second quarter.
The company will release the second season of the latest Star Trek series in 2023. That should also do well.
While Paramount+’s revenue in the second quarter was120% higherthan a year earlier, it came with a $445 million adjusted EBITDA loss, up from $143 million a year earlier. It will likely continue to lose money on its direct-to-consumer business until late 2023 or early 2024.
However, despite the losses, there is no question in my mind that Paramount+ is the diamond in the rough of the streaming platforms.
The Best Buy Through The Options Lens
Using trading data from Aug. 22, three call options exhibit unusual options activity.
First up, the Netflix Aug. 26 $230 contract caught my attention. It currently is almost $7 from breakeven, including the $3.95 ask price. With four days left until expiry, the volume was reasonably high at 5,557, 8.83x the open interest.
The second call option is Disney’s Aug. 26 $118 contract. It’s a little less than $3 from breakeven with four days until expiry. The volume on the contract is 2,539, 5.74x the open interest. It’s not a huge volume, but the best of those with near-term expiry dates.
Lastly, we’ve got the Paramount Global Jan. 20/23 $25 call option. The breakeven is $27.77, 13.2% higher than where it’s currently trading. There’s nothing unusual about this call option’s volume. It’s 2,023 against open interest of 7,237, good for a volume/open interest ratio of just 0.28.
However, if I’m trying to get a better price for Paramount stock, I believe this option makes more sense than Netflix or Disney’s four-day expiries.
And, heck, Warren Buffett’s a fan. Berkshire Hathaway (BRK.B) owns 78.4 million shares, representing 12.9% of the Class B stock.
If Buffett’s a fan, I am too.
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