Author: Aditya Raghunath
Estimated read time: 4 minutes
Publication date: 17th Aug 2020 11:59 GMT+1
One of the biggest revolutions in modern times in the surge of video streaming industry globally. In the recent past, the popularity of OTT platforms has outdone the conventional broadcast media.
As Deloitte’s latest Digital Media Trends Survey revealed that the respondents that indicated that they have at least one streaming video subscription was 69%, compared to 65% of the respondents who possess a traditional pay-TV subscription. In the U.S., the household penetration rate for streaming services is nearly 100%.
The proliferation of handheld devices, euphoria over social media and rise of various digital mediums has propelled streaming platforms to greater heights. It is expected that these factors will boost the sector further.
According to Grand View Research, the global video streaming market is valued at $42.60 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 20.4% between 2020 and 2027.
COVID-19 as a catalyst to streaming services growth
The past decade has brought in a rapid growth in the on-demand video services. Today, Netflix (NASDAQ: NFLX), Disney + (NYSE: DIS), Amazon Prime (NASDAQ: AMZN), Hulu, Apple TV+ (NASDAQ: AAPL) continue to add millions of loyal viewers.
As more than half of the world is forced to stay indoors thanks to the COVID-19 pandemic, the need for constant entertainment has increased like never before. More so because all the other modes of leisure like travel and outdoor activities have reduced drastically.
Even all the major sports leagues were cancelled or postponed as a result of the novel COVID-19 pandemic. Viewers have turned to binge watching and streaming platforms are the ultimate winners. At the very outset of the lockdown, in March, HBO reported that audience binge viewing series climbed 65%, while movie watching increased 70% on its platform.
Challenges include competition and technical limitations
The prospects of streaming industry were evident since long. As a result, many players have crowded the space. Tech behemoths with considerable muscle power like Apple, Amazon, AT&T (NYSE: T) have also forayed into the space, making it more challenging for individual players to survive.
Many of them also offer the video streaming complimentary or as a part of bundle services. According to Forbes, Netflix is still leading the rally with the largest subscriber base. However, it remains to be seen if the scenario remains the same and if the stock can continue to outperform the S&P 500 and NASDAQ in the upcoming quarters.
To survive and grow in this industry, the focus has to be on premium and original content, consistency and technical supremacy. Nowadays even artificial intelligence (AI) and blockchain technology is being harnessed by many to improve their offerings.
While Netflix is undoubtedly the most technically sound platform, the load on network due to binge watching cannot be ignored. Video streaming is a big strain on the bandwidth as compared to music streaming. Delivering and catering to the increasing demand won’t be possible for the streaming services without a sound ecosystem. Otherwise, the quality of streaming video would be compromised and viewers could opt out.
Netflix already uses adaptive streaming to adjust the quality of video. Other players like Amazon, Google (YouTube) and Disney are also set to follow suit. In a nutshell, the players are doing everything possible to retain their subscriber base.
Investors must focus on long-term prospects
The recent growth spurt in the streaming stocks like Netflix, Disney, Amazon, Roku (NASDAQ: ROKU) and AT&T has been very obvious. The COVID-19 induced lockdown automatically let the viewers go on binge content consumption.
However, the stocks did see a mild reversal in gains as the economies are gradually opening up and people have started to go out. There will be some weakness for sure, but we feel it is just a minor roadblock in the long-run. Hence, it is imperative that investors look at the long-standing potential of the companies and how well they are placed to handle the innate challenges in the sector. It is very likely that the bull run in streaming segment continues even post the lockdown is removed.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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