Earnings Rundown

Q2 was a tipping point in streaming wars. Here's how the media giants stack up

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Q2 saw streaming numbers take off for media giants
Key Points
  • Disney+ reached a 60-million subscriber goal years ahead of schedule.
  • Netflix ended the second quarter with near-200 million subscribers and its co-CEO Reed Hastings said it was not worried about events like "Hamilton" given its ability to create hits that keep subscribers pleased.
  • ViacomCBS is bullish on its streaming growth; while AT&T and NBCUniversal are still in the early days of growing HBO Max and Peacock. 

There's no question the second quarter was a transformative one for the streaming video business, with consumers streaming an unprecedented volume of internet content and signing up for streaming services in unprecedented numbers. Media companies are increasingly focusing on the streaming market, a rare bright spot on their balance sheets at a time when so many other parts of their business, such as TV advertising, are under pressure, and other parts, such as the theatrical movie business and sports, are entirely absent.

No media company captures this pivot to streaming better than Disney. Its second quarter results were overshadowed by the gains of its direct to consumer subscription offerings and its commitment to double down on that business. The company announced that Disney+ has surpassed 60 million subscribers, four years ahead of its goal of reaching between 60 and 90 million by 2024. That growth is particularly remarkable considering that the service has yet to complete its full global rollout. Disney's streaming subscriptions now top 100 million, including Hulu, and faster-than-expected growth of ESPN+.

Liu Yifei stars in Disney's "Mulan." Disney CEO Bob Chapek said that "Mulan's" streaming release is a "one-off" and not a signal that the company was swapping to a new business model, but the company will pay close attention to how many accounts opt to purchase the film on Disney+.
Disney

"Despite the challenges of the pandemic we've managed to take deliberate and innovative steps in running our businesses," said CEO Bob Chapek in the company's earnings call. "At the same time, [we have been] very focused on advancing and growing our direct-to-consumer business which we see as our top priority and key to the future of our company.

Chapek showed just how important direct-to-consumer businesses are to Disney's future in his announcement that the company is building a new general entertainment streaming service that will launch internationally next year, tied to the Star India brand Disney acquired as part of its Fox deal. He also announced that Mulan, which cost Disney an estimated $200 million to make and whose theatrical release has been delayed multiple times, will be available for Disney+ subscribers to buy on September 4, the same day it's put in multiple theaters. This move aims to bolster demand for Disney+, and test the appetite for paying a premium for premium content, of those consumers with whom Disney is building its relationship.

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Netflix, the leader in the subscription streaming media space, also saw its numbers soar in the second quarter: adding over 10 million subscribers, to end the quarter with nearly 193 million subscribers. Not only did those subscriber additions soar past expectations, but it follows the unprecedented addition of 15.7 million subscribers in the first quarter. While both those numbers were bolstered by stay-at-home orders and a lack of live sports on TV, co- CEO Reed Hastings warned that the growth rate would not last. Netflix shares plummeted on the warning that the company expects to add 2.5 million subscriber adds in the third quarter, half of analysts' forecast.  Netflix explained this was the result of the pandemic "pulling forward" subscriber growth into the first half of the year.

We want to have so many hits that when you come to Netflix you can just go from hit to hit to hit and never have to think about any of those other services.
Reed Hastings
Netflix co-CEO

Hastings dismissed concerns about Disney+ and other rivals that are investing in content for their subscription or free ad-supported services. He even name-checked "Hamilton," which Disney+ released July fourth weekend: "We want to have so many hits that when you come to Netflix you can just go from hit to hit to hit and never have to think about any of those other services. We want to be your primary, your best friend, the one you turn to. And of course occasionally there's Hamilton and you're going to go to someone else's service for an extraordinary film, but for the most part we want to be the one that can always please you."

ViacomCBS, AT&T, NBCUniversal, Roku

ViacomCBS echoed the strength in paid streaming as well as free, ad-supported streaming. The newly-merged media company's shares were bolstered by a 25% increase in domestic streaming and digital revenue over the year-earlier quarter. That was due to a combination of growth in domestic paid streaming subscribers, adding about 3 million over the course of the quarter to end the quarter with 16.2 million, while free ad-supported Pluto TV's domestic monthly active users grew adding about three million over the course of the quarter.  

Bob Bakish, Viacom's CEO, was particularly bullish on demand for ads on PlutoTV, saying the platform has bounced back to pre-COVID growth rates and ad pricing, while the broader ad industry continues to contract.

And like Disney's Chapek, Viacom's Bakish is also doubling down on digital, announcing the company is developing a premium streaming service that will start launching internationally next year.

ViacomCBS upped its domestic pay streaming subscriber guidance to 18 million by year-end, which CEO Robert Bakish said "supports our conviction in the growth potential of our streaming offering, and we're just getting started."
Brendan McDermid | Reuters

But not every company is as bullish on the market for streaming video ads as Viacom.

Roku, which reported better-than-expected results, saw its stock plummet on warnings about lack of visibility into advertising over the rest of the year. CEO Anthony Wood writing in his letter to shareholders: "The ad industry outlook remains uncertain for Q3 and Q4, and we believe that total TV ad spend will not recover to pre-COVID-19 levels until well into 2021. Advertisers in industries like Casual Dining, Travel and Tourism have significantly slowed their spending. However, we remain confident in our ability to grow our ad business, albeit not as much as we would have expected prior to the pandemic." 

And it's still early days for two new players in the streaming space: AT&T's HBO Max, which launched in May, and NBCUniversal's Peacock, which was introduced first to Comcast subscribers in mid-April, before rolling out nationwide on July 15. 

AT&T described the launch of HBO Max as a success, saying it helped grow the overall pool of HBO and HBO Max customers by 1.7 million in the first half of the year. The company reported a total 36.3 million subscribers between the two services. But with the persistent cord-cutting trend, HBO Max may just be helping to counter cord cutting: the traditional HBO service lost over 2 million subscribers in the first quarter. It's far more complicated than Netflix's or Disney+'s business because there are two pieces of this business: getting people who are already paying for HBO to sign up for the expanded Max digital service, and drawing new subscribers. For the latter, AT&T CEO John Stankey said the company signed up nearly 3 million new subscribers, while just 4.1 million of HBO's existing subscribers activated the app. 

Meanwhile Peacock, which doesn't charge a fee for its basic service but relies on viewers to generate ad dollars, reported hitting 10 million signups. NBCUniversal CEO Jeff Shell said that the key metrics it is watching are signups — with the goal of hitting 30 million to 35 million by 2024 — along with monthly active users and monthly active accounts, which can include multiple users within a family. Shell said trends have been better than expected across the board, and that it's still early days for the new app. Peacock is still not available on two of the most popular connected TV platforms: Roku and Amazon's FireTV.

While Peacock and HBO Max push their growth, everyone is keeping an eye on the consumer, and how many services they'll want to subscribe to once they're no longer locked down in their homes.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.