It’s impossible to overstate the seismic impact of Netflix on the entertainment industry. In 2007, when the Blockbuster disruptor created its streaming service, cable and movie theaters were still king. Now, less than 15 years later, AMC — the largest theater chain — is on the verge of bankruptcy (things would look even more dire without a Reddit-fueled infusion of capital) and the biggest studios in Hollywood all have launched Netflix competitors. The idea of streaming has gone from a niche market to the dominant medium in entertainment. This isn’t a sea-change moment; the sea has already changed. And then COVID-19 arrived.
The widespread availability of internet-enabled devices — in the form of smartphones, HD televisions and computers — and the improved bandwidth of at-home wifi has made streaming an option for almost every American. Over the last half decade, that has led to an increase in “cord-cutting” and a diminishing box office at theaters across the country. Cable companies have leaned farther into live sports as a result (one of the few eventized offerings that people still feel incentivized to watch in real-time) and movie theaters have raised prices to make up for less ticket sales. Hollywood has also pivoted, hanging their production schedules around tent-pole event films, like Marvel and Fast and the Furious movies, that consumers will fork over the cost of admission to see on the big screen. But when the coronavirus arrived on American shores last year, shutting theaters down, studios finally admitted that the streaming moment had fully arrived.
According to an August 2020 article in the Wall Street Journal, the average American adult was spending 16 hours per day interacting with digital media. People are now streaming television, scrolling through apps, streaming podcasts and music, browsing the internet and more at an astounding rate. Obviously, the fact that everyone is stuck inside plays a factor, but it also creates habits that will be hard to break when the country does reopen. Once consumers have gotten used to watching films at home that feel free (subscription-fees are harder to quantify than a box office purchase), it seems unlikely they’ll excitedly fork over $15 for a ticket at a theater. Clearly, studios have taken a similar view. Warner Bros. announced in December that it would release 17 movies directly to its HBO Max streaming service — for some, that seemed like a death knell for the entire movie theater business model.
So, if people are streaming for more hours and the at-home offerings are improving, where does that leave investors. Where are the opportunities in Entertainment Tech stocks?
When selecting his Themes for the Unifimoney Self-Managed Investing section, Board Advisor Max Osbon identified an opportunity for investors in Entertainment Tech. Like many, he sees COVID-19 as an accelerant but not a spark. Sure, the fact that we’re streaming more and going out less has sped the decline of theaters and the rise of streamers, but the shift in that direction had already begun in earnest. “Everyone being home and spending most of their time on their devices in order to get entertainment is not really going away — that was very popular before COVID and of course it's going to be popular after COVID,” Obson says. “Services like Disney+ and Netflix are incredible entertainment providers. There are companies in the backend that are providing access to these services, like Roku. These technology-focused businesses are leading the way into the future.”
Companies like Netflix and Disney with giant streaming businesses are obvious first-degree investment opportunities, but understanding the move to a streaming industry as a whole means a plethora of ways to profit in the market. Spotify’s stock has more than doubled since February 2020 and Roku’s has nearly quadrupled over the same time period. The question to ask going forward is: what other companies stand to benefit from the shift in how we consume entertainment?
Often, great companies rise to solve problems. With everyone stuck at home, Zoom has risen to fill the void. The advantages of at-home streaming are easy to document: no commute, lowered cost-of-admission, less investment in a movie decision, everything available at your fingertips. But how will other companies rise to fix the issues that arise from at-home entertainment? How can you recreate the bits that have been lost from the decline of the theater going experience? How can cord-cutting and at-home viewing be improved?
If we accept that the sea change has occurred, these are the questions you should be asking when considering investing in the space. Osbon has selected 20 companies in the Entertainment Tech arena that he believes are Entertainment Tech stocks to look at for Unifimoney users. They range from streaming giants and internet providers to hardware companies and video game content creators. The one constant that connects them all is that they’re positioned to thrive in the streaming era. And clearly, the streaming era has already begun.
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The above does NOT constitute an offer, solicitation of an offer, nor advice to buy or sell specific securities. The opinions listed above are not the opinions of Unifimoney Inc. or Unifimoney RIA, Inc. but represent the opinions of independent contributors. These contributors may or may not hold positions in the stocks discussed. Investors should always independently research any stocks listed and form their own opinions, while recognizing that any investments made may lose value, are not bank guaranteed and are not FDIC insured.