3 winners and 3 losers in the streaming video wars of 2018

Amazon.com, Roku, and Alphabet have this in common.

  • By Jeff Reeves,
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I was a cord-cutter before it was cool, parting ways with cable television subscriptions back in 2002.

I'd like to say that it was a philosophical break, where I became too intellectual for TV and spent my afternoons reading Sartre instead. But the truth is that I was (and still am) just a cheapskate, and I was flat broke back then. So as cheaper streaming-video options emerged, I jumped all over them.

In 2017, a plethora of streaming companies are available to consider, both for consumers who want entertainment and for investors looking to play this trend. Research firm Gartner estimated that streaming video spend globally, including both regular subscriptions as well as on-demand rentals, will surge to $49.3 billion by 2020 from $26.4 billion in 2016.

Who will win, and who will lose? Some powerful entertainment and technology firms are facing big risks right now. That's because we've reached a tipping point in the "over the top" (OTT) revolution, where content providers are racing to unbundle their shows and making them portable — with no strings attached. The recent news that Walt Disney Co. (DIS) would launch its own streaming service and the wildly successful IPO of set-top box manufacturer Roku (ROKU) in September illustrate how the landscape is shifting.

As consumers settle into regular subscriptions to their favorite providers over the next year or two, the field will divide into those that are connecting and those that are falling behind. Here's a rundown of the biggest players and a prediction of the winners and losers in 2018:

Winner — Walt Disney

In a no-brainer move, Disney announced it would launch a low-priced streaming option that may include everything from a live-action "Star Wars" spinoff to ESPN sports programming. How will this not be a hit? To be clear, investors still face real risks; a BTIG analyst recently mused that lost third-party licensing deals could result in a $2 billion revenue decline for Disney. But long-term, it's undeniable that the powerful brands — from iconic children's programming to Marvel superheroes — will win a big streaming audience and keep Disney alive and well.

Winner — Netflix

Investors may have fretted in years past about the amount of cash Netflix (NFLX) plowed into original content. But now the company is incredibly decorated, including a 2016 Oscar for a documentary and almost 40 Emmy awards for programs including "House of Cards" and "Orange is the New Black." Netflix has made a name as a content creator, but more importantly has the experience and the corporate infrastructure to keep winning.

Most intriguing, Netflix has years of viewing data from its customers to get a sense of what people will watch and what they won't. That will help ensure more hits and fewer big-budget flops going forward. When you're spending more than $10 billion annually on content, a data-driven backstop makes a world of difference — particularly to investors.

Winner — Time Warner

Time Warner (TWX) is an intriguing play that, like Disney, has a lot of brand power and history as a content creator. The road ahead isn't easy, but there's enough will and expertise at Time Warner to make 2018 the year this company finally proves to Wall Street it is a key streaming video player. For starters, its HBO Now service is roaring success, with more than 2 million U.S. subscribers.

Also, it has a deep archive of Warner Bros. movies and TV programming. And to top it off, Time Warner has a deep history of live-streaming sports thanks to a partnership with the MLB Network. If you think Disney has the assets to make a serious go at Netflix with its own OTT service, then give Time Warner a look, too.

Loser — Amazon.com

With its core e-commerce business evolving after its Whole Foods acquisition, big growth coming from its Amazon Web Services cloud computing arm, and high hopes for its Alexa voice assistant, there is a lot going on at Amazon.com (AMZN) nowadays. While some see Amazon Prime as a video service, in truth streaming content is just a way to support the company's broader ecosystem.

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After all, the 90 million subscribers to Amazon Prime find value largely in the discounts and free two-day shipping, with one study saying the average customer racks up $1,300 in e-commerce spend annually and another saying 30% of Prime members order stuff from the site at least once a week.

Judging by Amazon's recent move to scrap its attempted bundled video service, it looks like Amazon has bigger fish to fry then figuring out a dedicated over-the-top content service. Instead, it's content to take what it can for now — and that may mean getting left behind in 2018.

Loser — Roku

Everyone is high on Roku now following its IPO, particularly after a big licensing deal with television manufacturer Philips (PHG). However, there isn't a lot that makes Roku special. Eventually there will be many OTT hardware providers, the same way there were plenty of companies making VCRs in the 1980s and DVD players in the 2000s.

Proponents will say Roku Channel is a unique spin on streaming, putting advertisements on licensed content and splitting that with studios, and that Roku's open platform will help it quickly partner with emerging content creators. But neither element seems to have a wide moat in a digital age, particularly when everyone sees the big opportunity here.

Loser — YouTube

Alphabet (GOOGL) property YouTube has long been a destination for streaming video, but the model has largely been advertising supported. The 2015 launch of YouTube Red was intended to help the platform evolve into a subscription-oriented model, but failed to catch on. An ad-supported video model is a bit of an anachronism, and a lack of original content to draw in viewers will undoubtedly leave YouTube behind. The advertising machine across Google-related websites is still a cash cow, of course, and Alphabet has plenty of other big bets that could pay off in 2018. Just don't expect streaming to be one of them.

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