Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Disney vs. Netflix vs. Coronavirus

The battle for streaming video is fast becoming a Disney vs. Netflix conflict. To explain, The Walt Disney Co. (NYSE: DIS) owns Disney+ and ESPN+ outright and controls 75% of Hulu.

Thus, Disney is now Netflix’s main competitor in the United States. Yes there are other streaming services in the United States but only two companies are investing everything to dominate the market: Netflix (NASDAQ: NFLX) and Disney (NYSE: DIS).

To explain, streaming video is a sideline for Amazon (NASDAQ: AMZN) and for competing entertainment companies. However, streaming video is the only business at Netflix and streaming video is fast becoming the only business at Disney.

How Coronavirus Threatens and Helps Disney

Coronavirus has shut down three of Disney’s main businesses; threater-released movies, theme parks, and cruises.

In addition, I think coronavirus will wipe out what little is left of the video rental market and Disney stores. To explain, many people will stop checking out or renting DVDs because they are afraid the disks could carry COVID-19.

Moreover, many people are no longer going to the store to rent videos out of fear coronavirus. Plus, they have closed public libraries throughout the United States. Public libraries are a popular place to get videos because they distribute videos for free.

Yet more people, including families with kids, are stuck at home with nothing to watch. To make matters worse, they closed all the movie theaters. If you want something to watch besides Dr. Phil, soap operas, and The Antiques Road Show you need streaming video.

How Coronavirus can Help Streaming Video

Consequently, more people will take out Netflix, Amazon Prime, or Disney+ subscriptions to get something to watch.

Anybody who has glanced at what passes for broadcast TV in the United States in recent years will understand why. Twenty minutes of Doctor Phil, infomercials, and Hunter reruns will drive people used to The Walking Dead, Comedy Central, and Breaking Bad to order Netflix or Hulu.

Additionally, there are now many rural areas were over the air TV is no longer available. To explain, many TV stations cut power which means their signals no longer reach many homes. Instead, most rural residents rely on satellite TV even for local stations.

Streaming video is the best Deal in Entertainment

Yes, you can order cable or satellite but streaming video is cheaper. A Disney package that contains Disney+, Hulu, and ESPN+ costs $12.99 a month. Meanwhile, Netflix plans cost $8.99 (Basic), $12.99 (Standard), or $15.99 (Premium) a month.

In contrast, the average cable bill in the United States was $58.49 a year in March 2020, estimates. Hence, you could order a full Disney package, Netflix, and Amazon Prime and pay less. Amazon Prime cost $12.99 a month or $119 a year or $59 for students in April 2020.

Hence, streaming video is now the best deal in entertainment for most people. If you have good internet service you can chose between hundreds of hours stuff you want to watch.

Remember, binge watching was not a thing until streaming video. Now streaming video is as big a part of our lives today as network TV was a part of our parents’ lives in the 1970s.

The Age of Streaming Video

Streaming video’s dominance raises many questions about the nature of our society, the media environment, and the effect of modern technology.

How does the government reach citizens in an emergency, such as COVID-19? Back in 1986, all President Ronald Reagan (R-California) needed to do was go on network on TV to reach 80% to 90% of citizens instantly.

Today, however, under 10% of the population could see Trump’s address. In fact, I estimate a little over 5% of America’s population watched broadcast network television on April 12, 2020.

I calculate that all five US broadcast networks had had 17.1 million viewers on 12 April 2020. Meanwhile, Worldometer estimates the US population was 330.584 million on 13 April 2020. Additionally, the United Nations estimates the US 2020 population was 331.003 million.

In detail, Deadline estimates 5.54 million people watched Disney’s ABC, 7.04 million watched CBS, 3.04 million viewers watched NBC, 1.15 million watched Fox, and 400,000 people watched the CW on 14 April 2020. In addition, 5% of 331 million is 16.55 million.

Plus, America’s most watched television network show; CBS’s NCIS attracted 11.555 million viewers on the week ending on 11 April 2020, TV Series Finale estimates. Yes, many people will watch that address on YouTube. However, far more people will tune Trump out and play a video game or stream The Marvelous Mrs. Maisel  than listen to the president.

Who Watches Streaming Video?

A related problem is that tens of millions of people will hear the presidential address through the ideologically motivated filter of their favorite commentator, podcaster, or pundit. Hence, they will hear that person’s opinion of what the President said, not what Trump’s actual words.

Beyond that there is advertising. How do corporations reach large numbers of people? Ads on network TV now reach less than 1% of the population.

The incredible variety of viewing choices, streaming video offers tears society apart. In contrast, traditional broadcast television brought people together by giving people a handful of choices.

The Fractured Media Environment

On the positive side, traditional television could promote messages such as racial inclusion to tens of millions of people. Remember, in the 1970s and 1980s tens of millions of white people who never met a black person watched Sanford & Son and The Cosby Show and saw positive views of African Americans.

Many of those people watched those shows because there was little else on. Today, the same people can choose programs with all white faces; Hallmark Channel movies, for instance.

Likewise, extremists can get a steady diet of political propaganda from Fox News, MSNBC, leftwing podcasts, Breitbart, and CNN. Back in the 1970s and 1980s, newscasters made a shallow and clumsy attempt to be unbiased.

Contrary to popular mythology, oldtime newscasters such as Walter Cronkite strong biases. However, Uncle Walter tried to hide his bias, most of the time. In contrast, today’s talking heads; such as Tucker Carlson and Rachel Maddow, take extreme positions and pander to audience prejudices.

How Coronavirus could Kill Disney

The age of streaming raises an interesting question for investors. The question is how much money can Disney or Netflix make from streaming video? The subscription fees are low and advertising opportunities are limited.

In addition, Disney can only sell so many baby Yoda dolls and Captain America action figures. Hence, I have to wonder if Disney can stay in business if coronavirus closes theme parks and movie theaters for a year.

America’s favorite COVID-19 expert Dr. Anthony Fauci thinks the coronavirus could continue until a vaccine is ready. Fauci; the director of the US National Institute of Allergy and Infectious Disease, estimates it will take 18 months to develop a COVID-19 vaccine, Business Insider reports. Hence, Disneyland and your local multiplex could be dark for two years.

Can Disney+ generate enough revenue to sustain Disney for two years without the movie box office and park ticket sales? Nobody knows, not even Disney Chairman Bob Iger and CEO Bob Chapek know.

How Coronavirus Threatens Disney and Netflix’s future

A related problem is movie and TV production. What happens when Netflix and Disney run out of original new programming?

What will they show if coronavirus shuts down all the movie and TV studios? I imagine there are enough unseen TV episodes and original movies out there to last about a year. However, at some point the programming will run out.

What happens if cities are still under stay at home orders when the programming runs out? Are movie studios an essential business? Will any government official allow exceptions to quarantine for Better Call Saul filming?

Thus we are in a new world that could threaten even Disney. Will Disney and Netflix be able to sell video subscriptions if they can offer no new original programming? Currently, both services can attract viewers with all the unreleased movies in their libraries. However, that programming will run out.

Is Disney Making Money?

Strangely, Disney (NYSE: DIS) was in great shape financially before the Coronavirus. Impressively, Stockrow estimates Disney had a revenue growth rate of 36.30% in the quarter ending on 31 December 2019.

Moreover, Disney made a gross profit of $7.842 billion on revenues of $20.858 billion for the same quarter. Additionally, Disney achieved an operating income of $2.691 billion and a net income of $2.107 billion for the same quarter.

Additionally, Disney reported an operating cash flow of $1.63 billion, a financing cash flow of $1.117 billion, and an ending cash flow of $6.874 billion on 31 December 2019. Consequently, Disney had $6.833 billion in cash and short-term investments on 31 December 2019.

Thus, Disney was a cash rich company before coronavirus. Hence, that cash could help Disney survive coronavirus, if the pandemic lasts less than one year.

Is Netflix Making Money?

Netflix (NASDAQ: NFLX) made some money in 2019. Specifically, Netflix made a quarterly gross profit of $2.001 billion on quarterly revenues of $5.467 billion on 31 December 2019.

Interestingly, Stockrow estimates Netflix had a revenue growth rate of 30.59% in the last quarter of 2019. Thus, Disney’s revenue grew faster than Netflix’s in the last quarter of 2019.

Furthermore, Netflix reported a quarterly operating income of $458.51 million and a quarterly common net income of $586.97 million on 31 December 2019. However, Netflix reported a quarterly negative operating cash flow of -$1.462 billion on 31 December 2019.

In contrast, Netflix had a $584.07 million ending cash flow and a $2.223 billion financing cash flow for the same day. Consequently, I think Netflix borrowed money to finance its operations in the last reported quarter. Therefore, I think Netflix could collapse if it cannot borrow money.

Should You Buy Disney Stock?

Hence, I think Disney (NYSE: DIS) was a buy at $101.95 on 16 April 2020. Moreover, I think Mr. Market grossly overpriced Netflix (NASDAQ: NFLX) at $438.09 a share on the same day.

Moreover, Disney paid an 88₵ quarterly dividend on 13 December 2019. Hence, was a good dividend stock with a high margin of safety before coronavirus. Unfortunately, I cannot tell if Disney will survive the coronavirus pandemic. However, I think Disney has a better chance of survival than Netflix because its resources are greater.

Thus if you want a stock that could survive the coronavirus, Disney is an interesting choice. To explain, Disney is more likely to survive than Netflix because Disney has more money.