The Future of Streaming Is NOT Netflix
I realize I break the rules fairly often. And for whatever reason, I've got a tendency to do so in a very public way. My plausible deniability quotient is a big fat ZERO.
You may be wondering what my big transgression is, what breaking of social norm I am so shamelessly flaunting.
I keep talking about times when I am flat-out wrong.
As a guy on the internet who runs a subscription-based newsletter, I am just not supposed to ever say I am wrong. “Guru” is kind of a derogatory term at this point. It conjures some mystical jackwagon with a bio that includes frequent lunches with Warren Buffett and a secret seat on the NSA who charges a small fortune to scatter pearls of inevitably profitable wisdom on his fawning followers.
Now, when I started in this biz 20 years ago, I quickly learned that it's about personality. And I also learned many of the subtle writing techniques that “gurus” use to enhance that personality. I've never been able to do that. I'd rather be the guy you wanna have a beer with than the guy you envy. If that means fewer people pay $49 to get my stock picks for a year, so be it. (Still, 49 bucks — what the hell, just subscribe, will ya? We're averaging 47% gains on every stock in the portfolio right now.)
Anyway, that's not the “wrong” I'm talking about.
I recommended Disney (NYSE: DIS) to Wealth Advisory subscribers at $110 a share back in October 2015. I recommended selling it in May 2017 because the stock had been trading sideways the entire time we held it. Despite the historic success Disney was having with movies, issues with ESPN weighed and weren't showing any signs of improving.
And while I was (and still am) very bullish on Disney's potential to leverage Marvel and Star Wars and improve margins on its own streaming platform, that was still pretty far in the future.
I felt pretty confident that we'd get a chance to rebuy around $90. But the shares refused to drop below ~$97, and I'm starting to think $90 is not in the cards...
The Future of Streaming
Disney and Netflix (NASDAQ: NFLX) have been friendly since 2012, when Netflix started paying up $300 million for exclusive rights to show Marvel, Star Wars, and Pixar movies. Plus Netflix produced a few Marvel series: Daredevil, The Punisher, etc.
This cozy deal ends in 2019. Because Disney is set to launch its own streaming service.
Now, in 2017, Disney paid up $1.75 billion to increase its stake in Major League Baseball's BAMTech, the streaming platform that delivers baseball games. BAMTech is very robust, a typically great investment for Disney.
It seemed obvious that Disney would use the BAMTech platform to deliver its own content. And I've speculated that Disney would even do an end run on movie theaters and debut movies on its own platform. Talk about a must-have subscription, this would be it. Margins would be huge. And Netflix would get some true competition. (Disney CEO Bob Iger says he will “substantially” undercut Netflix's price.)
But a funny thing happened on the way to the Disney Channel. Disney bought a chunk of Fox and now owns 60% of the Hulu streaming platform, along with FX and National Geographic.
So now, in addition to a boatload of content, Disney has two — count 'em, two — streaming platforms in Hulu and BAMTech.
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The Family That Gambles Together...
I was thinking about this, pondering the question of why Disney wants two streaming platforms, and the light bulb went *ding* (yeah, that's a terrible mixed metaphor, and not funny at all, I know).
The answer is ESPN. ESPN is Disney's biggest division, accounting for nearly half of total revenue. Disney's not selling it, and it isn't going to let it languish on cable with declining subscriber numbers (even though those declines appear to be stabilizing). Besides that, live sports is still awesome and always will be awesome. The model is just a little broken because of the fractured cable/streaming/network landscape.
I think Disney gives ESPN its own streaming platform. And not just for sports. There's gonna be sports betting, too. Remember that?
The Supreme Court ruled that states control their gambling rules, not the Feds. And a few are doing it already. New Jersey is about to offer up mobile gambling via an app. Buffalo Wild Wings is thinking about opening up betting in its restaurants.
So how far off can gambling through an ESPN streaming service be?
Say you download an app from ESPN, drop some money in your account, and can then scroll through betting options on your TV screen or phone...
Think of the prop bets you could do. Will the Ravens make this first down? 4:1 odds. Will that fumble be overturned by instant replay review? 10:1.
The potential here is also huge. And suddenly there's a model for sports that really might be able to replace cable.
Disney is synonymous with family, so the betting thing will be a bit tricky PR-wise, hence the need for a separate platform. Maybe it even spins the whole thing out. I think ESPN gambling happens. And I think that's why Disney is now trading around $118.
Of course, I could be wrong. But you know if I am, I'll let you know.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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