If you don’t already have a subscription yourself, you probably know at least a few people who use streaming services to watch movies and TV shows.
Services like NetFlix and IPlayer have become household names, allowing us to watch “on demand” TV rather than submitting to the vagaries of television broadcast schedules. But could these same services offer exciting prospects to creative investors?
Commonly known as “over-the-top” (OTT) services, defined by Wikipedia as the “delivery of audio, video, and other media over the Internet”, there are a surprisingly large number of competitors in the market right now.
Consider, for example, the OTT companies that haven’t yet made it across the pond. From Pandora for music, to Hulu for TV and movies, there’s an ever-growing population of available services.
These are supported further by technology that aims to make watching streamed video content cheaper, easier and more accessible. Popular tools such as Google’s Chromecast, Amazon’s Fire TV or Apple TV all aim to offer “plug and play” simplicity that even the most technically challenged users can benefit from.
What’s more, these innovations seem to be gaining considerable ground. Taking Netflix as an example, the service reputedly grew by 3.9 million subscribers in the last quarter of 2012. Today it boasts global subscriber numbers getting dangerously close to 70 million.
That’s a lot of people willing to shell out for their low-cost subscription packages. Indeed, it is these subscriptions that can make services like this so appealing for investors – quite simply revenue can be pleasantly stable and predictable, making for more confident financial projections.
Contrast this with cable TV providers, many of whom are seeing increasing customers moving away. Comcast, the biggest cable TV provider in the USA has lost 2.5 million subscribers since 2008, while Time Warner has lost 1.8 million. That’s a lot of people moving over to lower-cost streaming solutions.
Indeed, a recent study by Juniper Research expects 332.2 million people to be subscribed to at least one OTT service by 2019. Last year, the figure was a mere 92.1 million, meaning anticipated growth is considerable.
There’s more evidence too. According to recent research by Deloitte, 2015 marks the year where people would rather stream than watch live TV. 56% of Americans now regularly stream movies, and 53% stream TV shows. This is in contrast to the 45% of people who watch programs live.
All that growth, and yet roughly half of Americans still don’t subscribe to any kind of paid OTT service, meaning there is plenty of room for these services to grow.
Indeed, as broadband services continue to increase in speed while dropping in price, it’s not unthinkable that very soon most households will be making use of such services.
All this evidence suggests that digital streaming services should be seen as a growth industry and one for whom market saturation is a long way off. Invest in the right companies and you could just see healthy returns, just like those who invested in Netflix in its early days.
Netflix launched at $15 per share at the time of their IPO in 2002. While there have been lots of fluctuations those same shares are now worth just north of $100 each.
Assuming you re-invested your profits back into more Netflix shares, between the IPO in May 2002 and July 2015 you’d have made a profit of 20,361.42%. Put another way, $1,990 invested with Netflix in 2002 would be worth $407,182.16 at close of play July 24 2015.
That’s a pretty healthy return indeed.
There’s no guarantee that Netflix stock will continue to grow at such a rate, if at all, but there are other OTT services promising IPOs in the next year or two, who might just make suitable targets.
Of these, Roku seems the most likely. Already owning 16% of the OTT market, Roku doesn’t provide TV services itself but instead provides tools which help consumers to enjoy Netflix, Amazon Prime and Hulu at home. You can, for example, use Roku to search through all the streaming services you subscribe to for that elusive movie or TV series you’re looking for.
Such is the promise of Roku’s future earnings that mutual fund Fidelity recently made headlines by increasing their valuation of the business by an incredible 35%.
Investors looking for guaranteed returns should look elsewhere. But for those willing to take rather more of a gamble, you could do a lot worse than to keep a close eye on the digital media streaming industry, looking for companies that seem to show potential.
(Title Image courtesy of methodshop.)