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Netflix (NFLX), Disney (DIS): A look at the trajectory of the streaming services market

Disney remains on track to reach 230-260 million Disney+ subscribers by FY2024

Streaming services enjoyed a boom during the COVID-19 pandemic and witnessed a normalization since then after the easing of restrictions and reopening of economies. Despite the tough competition in the market and the struggle to retain the interest of viewers, streaming services are projected to see growth over the long term.

A report by PwC states that after surging in 2020, over-the-top (OTT) video grew an additional 22.8% in 2021 pushing revenue to $79.1 billion. It says the pace of OTT revenue growth is expected to moderate, growing at a 7.6% CAGR through 2026, when revenue will be $114.1 billion.

The report also states that traditional TV, beset by competition from OTT streaming services, will see global revenue shrink at a -0.8% CAGR from $231 billion in 2021 to $222.1 billion in 2026.

Revenues and user growth

Looking at some of the major OTT players, Netflix (NASDAQ: NFLX) has always managed to grow its revenues consistently but over the past few quarters, the revenue growth rate has slowed down. From 24.2% in the first quarter of 2021 it has slowed to 9.8% in the first quarter of 2022. For the second quarter of 2022, revenue is expected to grow 9.7% to $8 billion. In Q2 2021, revenues were up 19.4%.

After growing subscribers for the past four quarters, Netflix lost 200,000 subscribers in the first quarter of 2022. The company attributed this loss to the suspension of its service in Russia. Excluding this impact, paid net additions were reported to be 500,000. For the second quarter of 2022, Netflix has forecasted a decline of 2 million subscribers due to slow acquisition and typical seasonality.

Disney (NYSE: DIS) reported revenues of $4.9 billion from its Direct-to-Consumer segment during the second quarter of 2022, which was up 23% year-over-year. The company added 9.2 million subscribers to its streaming services to end the quarter with 205 million subscriptions.

Disney+ added 7.9 million subscribers in Q2 to end the period with nearly 138 million subscribers. The company remains on track to reach 230-260 million Disney+ subscribers by FY2024.

For the first quarter of 2022, AT&T (NYSE: T) reported total global HBO Max and HBO subscribers of 76.8 million, which were up 12.8 million YoY.

Content investment and market expansion

Netflix has continued to invest in original content and its hit shows such as Bridgerton and Inventing Anna have helped drive engagement and growth. It also expects a lot of its growth to come from outside the US over the long term and continues to invest in producing regional content.

Disney’s vast trove of content, particularly its franchises in Marvel, Star Wars and Pixar, are its biggest strength. It provides the company with plenty of resources to tap into for new content creation.

Disney has 500 local original titles in various stages of development and production and the company believes these, along with branded content with broad international appeal, will attract new subscribers and drive engagement. By the end of the third quarter, the company plans to roll out Disney+ to 53 new markets across Europe, Africa and West Asia.

The increasing number of players in the streaming market has led to heavy competition and against this backdrop, major streaming companies continue to make significant investments to attract new subscribers and drive engagement. Over the long term these investments are likely to pay off generating growth for the streaming companies.

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