By: Doug Fogel — May 12, 2020
As Lockdowns Kill Off Cable - This Could Make You a Killing
I’ll bet you’re watching a lot more online entertainment these days.
I know I am.
Make no mistake – streaming and online entertainment viewership is growing fast, thanks in no small measure to all the “shelter-in-place” directives spawned from the coronavirus.
In fact the granddaddy of all streaming services, Netflix (NFLX), reported a record number of subscribers in the first quarter of 2020 – 15.7 million new accounts.
Netflix isn’t the only streaming company capitalizing on this development.
Properties owned by The Walt Disney Company (DIS) and Hulu (private) saw their subscription levels rise 29% and 21% respectively in Q1 2020.
As you might imagine, all these gains from streaming services are coming at the expense of traditional cable TV companies like Comcast (CMCSA).
According to a survey of nearly 3,000 Americans conducted by The Trade Desk (TDD – a global technology company providing software for digital ad buyers), nearly 64% of respondents said they have either cancelled cable, are planning to do so, or had never subscribed at all.
That number jumped to 75% for people aged 18-34.
Brian Stempeck, The Trade Desk chief strategy officer, predicts that this lack of interest in traditional cable TV among young adults means cable’s days are numbered.
Hastening cable’s demise is the absence of live sports, as 60% of Americans say watching professional and collegiate sports is the primary reason they’ve kept their cable subscriptions in the first place.
Joining cable TV in the entertainment world’s misery are the nation’s movie theater chains.
With the world still in the grip of lockdowns and mandatory business closures, theaters shuttered virtually everywhere.
These closures have slashed box office receipts worldwide by more than $7 billion. And things are likely to get much worse.
According to the Hollywood Reporter, that $7 billion could surge past $20 billion if movie houses remain closed into the summer. Major studios appear to be anticipating this, as many are making severe production cutbacks.
For example, Disney has halted the production of all live-action films and shows. These cancellations come after the media giant postponed the global release date of its live-action Mulan remake.
Other studios – including AMC (AMC), Regal Cinemas (private), Cinemark (CNK) and Universal Studios (CMCSA) – have decided to go direct-to-consumer much earlier than expected.
Affected films include The Invisible Man, The Hunt and Emma, all of which experienced extremely short runs in theaters before Universal Studios decided to move them to on-demand titles on Comcast (which owns Universal).
Universal also completely bypassed April 10th theatrical debut of its highly anticipated Trolls sequel. Instead, the company make it available via on-demand that same day.
This was an extremely risky move, as films typically generate far more money at the box office than they do through sales and rentals.
That’s why some studios still plan on releasing new films in theaters, albeit later this year or in 2021. These films include the upcoming James Bond movie, No Time to Die, whose theatrical release has been postponed until November 2020.
Another eagerly anticipated action film, Fast and Furious 10, will make its debut in April 2021.
Late night comedy hits and reality TV are also suffering from the coronavirus fallout.
In March, Jimmy Fallon suspended live studio production of The Tonight Show Starring Jimmy Fallon (although he produces a stripped down version of the show from home).
The Late Show With Stephen Colbert and Late Night With Seth Meyers also suspended production.
Meanwhile, production was halted for the popular series Riverdale after a crew member tested positive for COVID-19.
With so much carnage wreaking havoc on the entertainment industry, you might be thinking there are bearish profit opportunities popping up. And you’d be right.
But I recommend a simple bullish play on this development. It involves Netflix, the 1,000-pound gorilla in the world of streaming companies.
The stock is up 34% year-to-date -- a stunning achievement considering the overall market swan dive in 2020.
And as the outfit best positioned to leverage America’s growing love affair with streamed content, it looks primed to continue marching higher.
I like a relatively short-term play on this stock and suggest you consider buying the Nov 365 Strike Call option.
Right now mean price between the bid and the ask is 95.22.
If Netflix stock goes up 10% within the next month, you’d make a quick 36.35% gain on this option.
That’s it for this week - take care out there.
Your streaming-in-place analyst,
Editor, True Market Insiders