It's no secret the overall media and entertainment industry has struggled in recent years, burdened by labor strikes, profitability challenges, and a transition to streaming that's upended some of the most well-known corporate behemoths.
One company, though, has thrived amid the various changes: Netflix (NFLX).
Compared to other players, Netflix's subscriber count and profitability stand out.
The streamer has added more than 50 million paying subscribers since launching its password crackdown in May 2023. Its projected full-year operating margins are expected to hit 27%, with management hinting the company has the potential to eventually secure margins similar to broadcast networks, which historically have been in the range of 40% to 50%.
And in the first three quarters of 2024, Netflix pulled in roughly $6.9 billion in net income. Its competitors aren't even close.
"Netflix is clearly running away with the ball and the media-based streaming companies are struggling to even get on the field," Barton Crockett, managing director at Rosenblatt Securities, previously told Yahoo Finance.
Other analysts have piled onto that thinking, declaring the infamous streaming wars officially over.
"Netflix won the streaming wars," MoffettNathanson, one of the leading equity research firms for the tech and media sector, said in a note penned by analyst Robert Fishman last week. "The media space right now is defined by a dichotomy in which Netflix stands as a lone exception."
Bloomberg Intelligence analyst Geetha Ranganathan agreed, recently telling Yahoo Finance's Market Domination that the company has "undoubtedly" secured its No. 1 position.
The goal was to attract as many users as possible. That led to an era of overspending as platforms, both new and established, raced to lure top producers and secure the most sought-after shows.
Others soon followed. In 2019, Warner Bros. Discovery (then known as WarnerMedia) reportedly coughed up more than $1 billion for the streaming rights to "The Big Bang Theory." Comcast's NBCUniversal (CMCSA) shelled out $500 million for "The Office" streaming rights that same year. Even Big Tech was all in, with Apple (AAPL) sinking $6 billion into the launch of Apple TV+, which only offered nine original series at the time.
Netflix CEO Ted Sarandos (C) poses with cast and crew as they arrive for Netflix's "Bridgerton Season 3" premiere at Alice Tully Hall on May 13, 2024, in New York City. (ANDREA RENAULT / AFP) ·ANDREA RENAULT via Getty Images
But investors quickly realized that streaming is a tough business. It's difficult to monetize users, justify the high cost of content, keep subscribers engaged, and turn a profit. Case in point: the profit struggles at Disney, Warner Bros., and Paramount, among others.
As the market stands today, Netflix's total enterprise value is now greater than Disney, WBD, Fox, and Paramount combined. Its viewed as a growth stock on Wall Street with full-year revenue expected to climb over 15% year over year.
And as the chart below shows, Netflix's estimated enterprise multiple, which is a ratio used to determine the value of a company after taking into account debt and cash levels, in addition to stock price and cash profitability, comes second only to tech giant Apple. Not too shabby for a pure-play streaming player.
Catching up to Netflix
Fishman argued in his note that a handful of key assets will be needed for streaming players to not only catch up to Netflix but to survive the industry's massive transition.
This includes a scaled streaming service (both in the US and globally), a free advertising video-on-demand (AVOD) platform, top-tier sports rights, a US broadcast network, and film and television studios.
Not every company will need each one of these assets. But having any can boost a company's respective position within the industry.
Take Disney (DIS), for example. The media conglomerate checks off every box except a free AVOD platform. But having a scaled streaming service in the US and abroad, like Netflix has, appears to be the formula to success — at least in the current moment.
"That really is, it seems, the end goal," Fishman said. "Whether a company wants that for its own sake (all the traditional players) or to augment sales of toilet paper or cellphones [like Amazon], that is the goal."
That means joint ventures and other deals like acquisitions will be likely outcomes heading into the back half of the decade.
Paramount (PARA) has already agreed to merge with Skydance Media in a deal that's set to mark an end to the Redstone family's control of the company. The transaction is expected to close in the second half of 2025.
Regulatory challenges could be an overhang, however. A judge temporarily blocked the launch of Venu Sports, the upcoming sports streaming service from Disney's ESPN (DIS), Warner Bros. Discovery (WBD), and Fox (FOXA), citing antitrust concerns.
The Big Tech giants would face similar dealmaking hurdles given their size, while media companies combining with each other would pose its own risk as nearly all of the top players carry heavy debt loads.
In his report, Fishman said Fox and WBD have the most complementary assets for a possible combination, especially since WBD lacks the NFL and most recently lost the NBA. The company is currently tied up in litigation after suing the NBA over the loss of those media rights.
Netflix has won the streaming wars, but where does that leave everyone else? (Getty Images) ·SimpleImages via Getty Images
To that point, sports has emerged as the final frontier of streaming amid a dying cable TV business. But professional leagues have also been hesitant to fully abandon traditional television.
That gives the upper hand to companies with a broadcast network like Fox, Comcast and Disney, in Fishman's view.
"While leagues are also increasingly comfortable partnering with streamers, as the NFL Thursday Night Football transition from Fox to Amazon showed, doing so still presents a tradeoff in viewership," Fishman pointed out. "Having a broadcast network, therefore, has increasingly become a must in the eyes of top sports leagues when evaluating distribution partners."
And as new data shows, companies with exposure to both traditional television and streaming typically capture the most eyeballs.
Google's YouTube (GOOG, GOOGL), Comcast's NBCUniversal (CMCSA), Paramount (PARA), and Netflix rounded out the top five at 10.6%, 9.3%, 8.2%, and 7.9%, respectively.
But he warned the rest of traditional media companies like Comcast, Paramount, and Warner Bros. "still need to quickly determine which path to take in order to better position themselves within the great streaming game" — whether that means a merger, asset sale, acquisition, partnership, or something else altogether.
