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Analyst Asks If Streaming Is Really a Better Business Than Pay-TV

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NEW YORK—With media companies pivoting to streaming, analyst Michael Nathanson of MoffettNathanson is asking if streaming is really a better business than traditional pay-TV.

His conclusion: With Netflix the only mature streaming company to use as a model, domestic streaming isn’t all that much different in terms of profit margins from low-end basic cable and premium pay networks, said Nathanson in a report.

The profit picture gets better when you look at the international opportunity, where Netflix is a strong performer. 

“Netflix’s greatest asset—and the likely Achilles’ heel of many of their competitors—is indeed their international footprint, which should drive incremental profit and ROIC into the future. Absent a truly global ambition and subscriber base, we struggle to see how many of these nascent SVOD/AVOD services will profitably scale,” Nathanson said. 

Disney and Discovery are so far the only competitors that have shown the ability to successfully build business on their content around the world, he said.

In addition to international, advertising has the potential to make streaming a stronger business—something Netflix, the leader, seems determined to avoid.

Streaming technology makes it possible for media companies to sell advertising that is better targeted and therefore get better prices per impression. 

“The shift in revenue models from linear to DTC will most likely favor programmers that have high brand identities and a buffet of fresh content choices that requires minimal third-party marketing support while driving long-term pricing power,” Nathanson concluded.

“In addition, networks that can better effectively monetize advertisers by selling against individual targets rather than broad demographic reach should ultimately find the move to be accretive,” he added. “Lastly, outside the United States, as Netflix has proven, there is a greater revenue TAM available in OTT models than previously existed in the economics of linear TV. Very few media companies aside from Disney can check all these boxes at scale.“