The Streaming Society: Globalization and Gaming

Date: 4/29/2020
Author: Mr. X

About 120,000 are reportedly unemployed in Hollywood and movie theaters around the country remain closed. While AMC Entertainment [AMC] surged more than 23 percent on Tuesday, it’s only been able to fend off bankruptcy by taking on $500 million in new debt.

A year ago, a single share was $15… Today, even after a massive surge, it costs less than five. 

Meanwhile, Netflix [NFLX] is over $400 a share and is directly producing content. Amazon [AMZN] is a content creator as well as America’s shopping center. Disney’s [DIS] cruise line and theme parks are closed, but Disney Plus has more than 50 million users. Finally, YouTube Premium (owned by Alphabet/Google) reported 20 million paying subscribers in February. 

While outraged theater owners are protesting that this won’t be the “new normal,” it’s hard to imagine Americans going back to the theater if they have already signed up for a subscription service during the last few months or if they can watch new movies from home.

The same kind of transformation could come to professional sports. WWE, which is down over 25 percent over the last three months, saw its attempted reboot of the XFL crushed by the coronavirus.

Major League Baseball, the NBA, and the NHL are all considering games without fans, at least initially. 

Concerts may also be a thing of the past – Live Nation [LV] lost almost 40 percent over the last three months, and that’s even after including the boost the stock received when Saudi Arabia announced it was taking a $500 million stake in the company.

Instead, we’ll see audio hardware companies like Sonos [SONO] become content creators much like Netflix morphed from a distribution company into putting out its own material. 

Even when American states reopen their economies, American consumers won’t just go back to business as usual. Just as Zoom [ZM] (which was already profitable before the pandemic) has become a verb, streaming will become the primary way Americans watch movies.

For example, “Trolls World Tour” has brought in about $100 million for Comcast after Universal Studios released the movie as a digital rental instead of waiting for an old-fashioned premiere. 

Entertainment will become a private experience. The coronavirus isn’t forcing this transformation – it’s simply accelerating what was happening already. Netflix is already reaping the benefits and Disney is successful adjusting, but it’s hard to see how a company like AMC can ever recapture its position over the long term. 

While the coronavirus has limited travel for most people, it may actually further the globalization of entertainment. If entertainment becomes something you consume at home, there’s no reason for “foreign” companies like Alibaba’s [BABA] Youku Todou to limit itself to China.

Chinese-speaking diaspora communities will be able to watch just about any kind of content they wish, whenever they wish, with English language entertainment just another “channel.” This will probably fuel more competition (or potential mergers and cooperation) between Chinese and American companies that will be increasingly fighting over one common, worldwide audience. 

One major area where we have yet to see a full transformation is video games. Gamestop [GME] spiked recently on the news that “Big Short” investor Michael Burry was reportedly investing in the company. Gamestop has won some new customers with exclusive deals for the Nintendo Switch, but it is not developing a large-scale streaming service. 

In contrast, Microsoft [MSFT] is preparing to launch Project XCloud, which will likely be critical to its upcoming Xbox Series X console release. This will lead to a head-to-head clash with Sony, which is also scheduled to release the new Playstation 5 later this year and has its own streaming service, Playstation Now. 

Streaming defines television today, movies tomorrow, and video games not long after that. What we’re really looking for is action by GameStop to react to this new environment.

In the long run, it can’t let companies like Sony and Microsoft have a direct route to its customers. The distinction between supply and distribution is fading as customers will increasingly demand and expect instant access to any form of content from their own homes. 

The disruption that Amazon brought to the bookselling business and that Netflix brought to films will be coming to video games next. There are still short-term opportunities for investors with stocks like Gamestop, but in the next few years, relying on physical stores will seem as outdated as going to Borders to get the new bestseller.

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