Overview of the streaming industry and ways to invest in it

Investing in streaming stocks

Streaming companies have changed the way we consume entertainment and their services have become a household staple. The streaming sector has seen tremendous growth, with many new players entering the market. This in turn has created new investment opportunities. In this article, we will explore the world of streaming service stocks, their potential for growth and how to invest in them.

Understanding streaming services

A streaming service is an online platform that allows users to access and consume digital content such as movies, TV shows, music and podcasts on-demand. Instead of purchasing or downloading the content, users can stream it directly from the service provider's servers over the Internet. It provides an alternative way to receive entertainment at home from cable and satellite on-demand services, often at a lower cost.

In terms of content, each platform varies. Some companies pay a licensing fee to have shows or movies on their platforms, some make original content, and some offer a combination of both licensed and original content.

Is streaming a growing market?

The streaming market has experienced remarkable growth in recent years. With increasing internet penetration and advancements in technology, more people are shifting towards online platforms for their entertainment needs. The convenience, flexibility and personalised recommendations offered by these platforms have attracted a large user base, contributing to their revenue growth.

Also, advancements in technology have allowed for the development of new streaming services catered to specific niches. This diversification has expanded the market and created opportunities for niche content providers, leading to further growth.

What stocks are in the streaming sector?

When it comes to streaming stocks, there are a few major players that dominate the market:

Netflix (NFLX)

Netflix is one of the most famous names in the streaming industry. As a pioneer of online streaming, it offers a vast library of movies and TV shows from various genres. The company was initially started as a mail-order DVD service until 2007, when it began offering online streaming of its content. Due to a slowdown in growth recently, Netflix has cracked down on password sharing and has started including advertisements to its platform. However, with millions of subscribers worldwide, Netflix continues to dominate the market.

The Walt Disney Company (DIS)

Disney entered the streaming market with its platform called Disney+. With a vast library of content from popular franchises like Marvel, Star Wars and Pixar, Disney+ has quickly gained traction since its launch in 2019. The company also owns Hulu and ESPN+ in the US. Unlike some of its competitors, like Netflix, Disney has many other streams of revenue aside from its streaming platform. For example, Disney makes money with its original movies, theme parks, resorts, cruise lines, consumer products and licensed intellectual property.

Amazon (AMZN)

In addition to being an e-commerce giant, Amazon has also made significant strides in the streaming industry with its Prime Video service. It offers a wide range of original content, as well as licensed movies and TV shows, making them a strong contender in the market. Those that are subscribed to Amazon Prime automatically receive access to Prime Video.

Spotify (SPOT)

While primarily known for its music streaming platform, Spotify has been expanding its offerings to include podcasts and other audio content. Unlike some others in the industry, Spotify doesn’t make any of its own original content. However, it’s the leader in the music streaming industry followed by Apple Music.

Roku (ROKU)

Roku operates a popular streaming platform that allows users to access various streaming services through their devices. They also manufacture streaming devices that connect TVs to online content, making them an integral part of the streaming ecosystem. Roku was originally part of Netflix but was spun off as a separate company in 2009 because Netflix didn't want to compete with Apple and Amazon in TV hardware.

Alphabet Inc. (GOOGL)

Google's parent company, Alphabet Inc., owns YouTube, which is one of the largest video-sharing platforms globally. While YouTube offers both free and subscription-based content, it plays a significant role in the streaming industry.

Pros & cons of investing in streaming service stocks

When considering streaming service stocks, it's essential to weigh the pros and cons.

Pros

  • Rapid industry growth: The streaming service industry has experienced substantial growth over the years. With the convenience and accessibility offered by these platforms, more and more consumers are cutting the cord on traditional cable TV subscriptions.
  • Diversification: Investing in streaming service stocks allows you to diversify your investment portfolio beyond traditional sectors like technology or finance. By adding exposure to the entertainment industry, you can potentially reduce risk through diversification.
  • Original content creation: Streaming services have been increasingly investing in original content production, which helps them attract new customers and retain existing ones. Successful original shows and movies can drive subscriber growth and increase stock value.
  • User engagement data: Streaming platforms collect vast amounts of user data that can be leveraged for targeted advertising, personalised recommendations and improving their services. This data-driven approach can lead to improved user experiences and potentially higher revenues.

Cons

  • Competition: The streaming industry is highly competitive, with new players entering the market regularly. This intense competition can lead to pricing wars and increased costs for content acquisition, which may impact profit margins.
  • Content licensing costs: Acquiring licensing rights for popular movies and TV shows can be costly for streaming platforms. As these costs continue to rise, it may put pressure on their profitability unless they can attract enough subscribers to offset these expenses.
  • Technological disruptions: Rapid advancements in technology and changing consumer preferences could disrupt the streaming industry. New innovations or shifts in consumer behavior might render current platforms obsolete if they fail to adapt quickly enough.
  • Risk of subscriber churn: Streaming service providers rely heavily on subscriber retention. If they fail to consistently offer attractive content or improve user experience, customers may cancel their subscriptions and switch to competitors.
  • Volatile stock prices: Like any investment, streaming service stocks are subject to market volatility and fluctuations in stock prices. Factors like earnings reports, competitive landscape or overall market conditions can influence the value of these stocks.

Key takeaways

  • Rapid industry growth: The streaming service industry is witnessing significant growth as more consumers opt for convenient and accessible entertainment options, making it an attractive investment opportunity.
  • Diversification potential: Investing in streaming service stocks allows for portfolio diversification beyond traditional sectors, potentially reducing risk by adding exposure to the entertainment industry.
  • Original content creation: Streaming platforms focus on producing original content can contribute to subscriber growth and increase stock value, making it an important factor to consider for potential investors.
  • User engagement data: Streaming platforms ability to collect and utilise user data for targeted advertising, personalised recommendations and service improvements can lead to enhanced user experiences and potentially higher revenues.
  • Challenges and risks: The intense competition in the streaming industry, rising content licensing costs, technological disruptions, the risk of subscriber churn and potential stock price volatility pose challenges and risks for investors to consider.

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The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks (e.g., price volatility, currency or liquidity risk). You can lose your invested funds. Consider your knowledge and experience when making investment decisions. Past performance is not a reliable indicator of future results. Markets are volatile and can fluctuate significantly due to economic, political, regulatory, or other developments.

Sources: Forbes, Admirals, Investopedia, Business Insider, Statista

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Investing involves risks. You can lose (a part of) your invested funds. We advise you to only invest in financial products which match your knowledge and experience. This is not investment advice.

Investing involves risks.

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