Global downloads of the Netflix app fell in September, while Disney Plus saw gains and Paramount Plus tallied records, according to a scorecard published by Evercore ISI media analyst Vijay Jayant.

Overall subscription video-on-demand downloads were up 13% from a year ago in September, with Netflix taking a 26% share, topping Disney’s 25% share. Ad-supported VOD downloads were up 30% in September, with Pluto TV having the largest share at 37%. Downloads of virtual multichannel video programming distributors (vMVPDs) were up 42% in the quarter, led by YouTube TV.

Netflix’s global downloads dropped 22% in September compared to a year ago and 6% in the third quarter, Jayant said. The analyst said Netflix faced a tough comparison with a year ago, when people were clamoring to watch Squid Game.

But despite the negative download trend, Jayant said he expects that when Netflix reports its third-quarter earnings, net subscriber additions will be up 1 million, in line with the company’s guidance to investors. He also said he expects subscriber growth to accelerate in the fourth quarter because of a strong content slate.

Jayant said he sees strong gains at Disney. Downloads for Disney Plus, minus the Hotstar service in India, were up 97% in September and 39% in the quarter. When adding in Hotstar, Disney set a record for its best month and quarter since losing the rights to Indian Premier League cricket.

For the third quarter, Jayant expects Disney to report 6 million net ads for Disney Plus without Hotstar, including 4 million new international subs and 2 million additional domestic subs. He noted enthusiasm for the content on display on the recent Disney Plus Day.

HBO Max downloads moderated in September after flying high in August thanks to the launch of House of the Dragon, the prequel to HBO’s Game of Thrones. Jayant said he still expects HBO Max to add 2 million subscribers in the quarter. 

Downloads of Warner Bros. Discovery’s other streaming service, Discovery Plus, were down 21% month over month and 41% year over year, hitting their lowest levels since that service launched in January 2021. Marketing spending is down as the company gets ready to launch a service that consolidates Discovery Plus and HBO Max.

Paramount Plus set a record for monthly and quarterly downloads in September and the third quarter. Paramount will have a stronger content offering in the fourth quarter, Jayant added, including NFL football, Tulsa King, Criminal Minds: Evolution and Top Gun: Maverick. ■

Before the start of the first day of trading for Warner Bros. Discovery, Evercore ISI media analyst Vijay Jayant is calling the stock “undervalued” and labeling the company as “the first direct-to-consumer free-cash-flow machine.”

WBD, the company’s stock-ticker symbol, was created after Discovery’s acquisition of WarnerMedia closed Friday.  

In a research note Sunday night, Jayant upgraded WBD to “outperform” from “in line,” where he had Discovery ranked, with a targeted price of $45 per share.

He said that WBD is now the second-largest media company (after The Walt Disney Co.) in terms of revenue. He added that it has the assets “to successfully compete in the global direct-to-consumer video streaming opportunity.”

(Similarly, RBC Capital Markets analyst Kutgun Maral labeled WBD as "Outperform" and set a target price of $50 a share. “Looking beyond the near-term noise, we continue to highlight WBD as the most compelling long-term opportunity across our coverage, and believe it will become a clear leader in the global streaming marketplace, benefit from significant revenue/cost synergies, and has a very credible path to rapid deleveraging,” Maral said.)

In Monday trading, WBD stock rose to a little over $26 a share in early trading before falling back to $24 a share at midday, down 2%. WBD shares closed Monday at $24.78, up  1.27%.

Jayant said WBD’s streaming revenues are expected to increase at a 21% compounded annual growth rate from 2021 to 2026 — a rate similar to Disney. He expects WBD to offer a bundled HBO Max-Discovery Plus product.

“Discovery’s management team has indicated that less than half of domestic Discovery Plus subscribers also subscribe to HBO Max,“ Jayant said. ”Assuming that 40% of Discovery Plus subscribers already subscribe to HBO Max as well, we estimate that consolidating Discovery Plus and HBO Max into a single offering would be roughly neutral to revenue as the lost subscribers would be offset by the higher ARPU [average revenue per user] of HBO Max (~$12/month vs. ~$7/month).” 

With its increased scale, Jayant said, the combined company ought to be able to increase the margins for its traditional TV business. The new size will give it more clout with distributors and added reach show command higher advertising prices, he added.

“Warner Bros. Discovery’s linear networks will be the profit center that the company uses to fund its investments in streaming,” he said.

Discovery has promised Wall Street it will be able to find $3 billion in cost savings when the companies are combined. Jayant expects $1.5 billion in cost cuts to come from the direct-to-consumer business (marketing and tech will be consolidated), $1.2 billion from its linear networks and $300 million from reduced corporate overhead. 

Jayant warned that in the short term, many of the AT&T shareholders who now own WBD might be looking to sell, flooding the market with supply and holding down stock prices. The spinoff and sale left about 71% of WBD shares in the hands of AT&T shareholders, who are used to getting paid substantial dividends. “The lack of a dividend at WBD could result in a substantial flow-back of stock from existing AT&T shareholders,” he said. 

MoffettNathanson analyst Michael Nathanson was less enthusiastic about the new company. He gave its shares a neutral rating and a $27 target price. 

“We expect the elevated debt load and uncertainty around key strategic questions to be an overhang for shares,” he said.

Nathanson has been among those on Wall Street questioning whether streaming is a good business for media companies. The ad market has been stronger than expected and cord-cutting has remained steady, he noted. Those factors have helped media companies pay for the content they need to compete in streaming.

“We still worry that the primary need to reduce leverage puts WBD at a relative disadvantage to bigger entities that have greater financial flexibility to invest in streaming,“ Nathanson said. “Even if the company doesn’t plan to win the spending war and will re-allocate some of their combined $20-plus billion in content spend towards HBO Max, we question if the other constraints and pressures in the business will be enough to hit WBD’s $14 billion 2023 EBITDA guidance.” ■

The term “metaverse” has become a thing again because Mark Zuckerberg has decided to wholeheartedly embrace the idea of a 3D, interactive world where users can work, play and be entertained, even changing Facebook’s holding company name to Meta. 

So while the social media mavens continue to tout how the cool kids will use whatever Silicon Valley can throw at them to interact with content, create creepy little avatars of themselves while they talk to and text their friends’ equally creepy-looking avatars and play games and whatnot using advanced augmented reality (AR) and virtual reality (VR) technology, just remember that this is really nothing new. 

It’s being touted as a revolution but for me, a person definitely way outside the target audience for these products, we’ve been down this road before. Interacting with content is nothing new for media watchers — we’ve been talking about it ever since Time Warner Cable launched the Full Service Network back in the 1990s. And with streaming and ultra high-speed broadband outpacing more traditional forms of entertainment consumption, media types have long prepared for this inevitable evolution.  

But the media business has never met a buzzword that it couldn’t beat to death and for the moment, “metaverse” appears to fit that bill. According to Bernstein Research, “metaverse” mentions on public company conference calls rose from just one in Q2 2020 to 449 in 3Q 2021.

Even actor Keanu Reeves, an owner of bitcoin and enthusiastic embracer of technology — he’s Neo, for gosh sakes — has asked for the metaverse hype to be turned down a notch, telling The Verge during the press tour for the upcoming Matrix: Resurrections movie that the term is decades old. 

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“Can we just not have metaverse be like invented by Facebook?” Reeves told The Verge. “The concept of the metaverse is like, way older. It’s like, c’mon man.”  

Bernstein Research hosted a conference call with its clients about the metaverse on Dec. 10 (a transcript was provided on Dec. 16) and for software developers and hardware manufacturers it appears that momentum is going their way.

According to Bernstein, the metaverse could represent a $2 trillion annual revenue opportunity, but there is a big question regarding timing: nobody knows exactly when that opportunity will come. Still, that revenue is expected to come from multiple sources — advertising, gaming, software, mobile apps and more — and some is even being spent to some extent today.  

“Companies are already spending to build it [the metaverse] and that costs real capital dollars,” Bernstein Internet analyst Mark Schmulik said on the call. “As they build it, we're already starting to see certain companies like Meta gain traction in hardware sales and related software sales. While it's still too early to draw a line of whether that's going to be successful or not, it's certainly underway.” 

That includes cable and telecom companies, which see the metaverse as another catalyst to drive the need for higher speeds. On the Dec. 10 Bernstein call, cable and telecom analyst Peter Supino noted that he expects 80 million U.S. homes to have at least one way to purchase Gigabit symmetrical service by 2025. 

And while wireless has been capacity constrained in the past, Supino noted that about 500 megahertz of mid-band spectrum has been reallocated by the Big Three carriers (AT&T, Verizon and T-Mobile) to 5G. 

The metaverse also is important to the cloud services business, because connecting as many machines as possible is a big priority. And that need for connectivity could be a potential boon for Dish Network, which has about 100 MHz of fallow wireless spectrum and partnership possibilities with Amazon Web Services, Azure or Google Cloud. 

“Dish is an unencumbered, high capacity link between the industrial metaverse and the cloud service providers that would like to serve and foster it,” Supino said.

But on the media and entertainment side, the benefits of the metaverse aren’t so clear.

Bernstein media analyst Todd Juenger admitted he was a “card-carrying” cynic when it comes to the Metaverse, adding that with all the hype surrounding the industry’s latest buzzword, he’s feeling more than a little déjà vu.  

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“The reason I'm cynical is that I feel like I've seen this before in media and entertainment,” Juenger said according to the transcript. “To me, the metaverse just sounds like a new word to describe an evolution that's naturally happening anyway.”

He then went on to offer an example. Remember 3D? Not too long ago, in the wake of James Cameron’s Avatar, the most successful 3D movie ever made, all content was supposed to be 3D, movies, television, networks began springing up all over the place. In 2010, ESPN was set to launch a 3D channel, Discovery was teaming up with Sony and IMAX to launch a 24-hour linear 3D network with movies, documentaries and children's programming and electronics vendors were scrambling to introduce 3D TVs to satiate what they expected to be tremendous demand. 

I don’t have to tell you what happened, but I’ll let Juenger tell you why it did anyway. 

“A couple years go by and where is 3D, right?,” Juenger said. “It was just [that] consumers didn't like it. They didn't benefit from it. It was almost being forced upon them.”

Sound familiar?

Also: A New Reality Check for VR and AR 

Juenger went on to talk about AR, which was all the rage a few years ago, fueled by Pokémon Go, the mobile game that had young and old alike wandering into traffic to capture little AR anime figures. That was supposed to take the video game business by storm and again, it didn’t. Juenger recalled that while Pokémon Go was a massive success and its still going relatively strong, it remains the go-to example of AR’s supposed takeover of the video game business a half decade after its introduction. 

“It's funny that when we talk about AR when it relates to media, we still have to use Pokémon Go as the example, right?” Juenger said, noting that in the entertainment business, everybody copies everybody else, but so far that hasn’t happened with AR. 

“If AR is a big idea, where are the other AR video games?” Juenger said. “Why do we still have to point to Pokémon Go?”

Juenger wasn’t denying the opportunity that a new and improved metaverse presents. He just believes that the concern as to whether media and entertainment companies will take advantage of it is a bit misplaced.They already seem to be doing it. 

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“When it comes to entertainment, I will say the content creation will follow the technology platforms.” Juenger said. “I don't deny that there will be a big advancement in devices people use and [are] using social elements of entertainment, which incorporates elements of what we call the metaverse.”

Juenger, who also follows the video game industry, said that Roblox, the online platform that allows people to play games created by other users, already bills itself as a metaverse. The difference between Roblox games and more traditional games like Grand Theft Auto, he said, is that a user can move his Roblox avatar through different games. 

“I'm not sure you even want to take your GTA persona and move it into a different game, so maybe those will just stay separate,” Juenger said. “In terms of VR and AR games — in VR games, every major publisher makes some — but they all tell you that they just earn the minimum. And the only reason they do it is not really to make money, it's really just to stay involved and to build capabilities in case this takes off.” 

Even Disney has jumped on the metaverse bandwagon, envisioning a merger of the physical and virtual worlds in its theme park experiences, which Juenger said, although a  bit cringe-worthy, probably makes sense. 

“To me, that just sounds like an idea of a Disney video game,” Juenger said, adding that the prevailing wisdom that only huge conglomerates can afford to take advantage of metaverse opportunities may not hold true. 

Sure, the mega-media giants like Disney have all the money, technology and resources and have managed to build huge communities with their brands, but their size can make them slow to react to changes in the business. With development getting easier and faster and distribution barriers being shattered across the landscape, Juenger said some believe it is time to consider smaller, faster, more advanced startups to displace some of their older, larger competitors.    

“This is all still new enough and video games are inherently innovative,” Juenger said. “I would bet on the big IPs. But I think it's an evolution, not a revolution. Video game manufacturers — they've gone through a lot of change already. I think this is just another one.” 

Other analysts have delved into the metaverse conversation, with Evercore ISI Internet analyst Mark Mahaney issuing a 33-page report on December 10 that highlighted the pros and cons of the technology. Pros: there is a lot of money to be made. Cons: It’s going to take a big change in consumer behavior to realize that revenue.

On the plus side, Mahaney said Meta (the former Facebook) is putting its money where its vision is, investing more than $10 billion annually in the concept, has about 3.5 billion monthly users in its family of apps that are already engaging in what is most likely the core use of the metaverse (social media); and has the majority of the VR device business through Oculus Quest. And the pandemic has shown that consumers are willing to interact more online -- Zoom went from 10 million data meeting participants in 2019 to 300 million by April 2020. Roblox has more than 47 million DAUs that average 2.6 hours per day on the platform in Q3 2021, and while VR adoption is still nascent -- about 2% of monthly users on Steam -- it is rising.

But there’s a downside too. According to Mahaney’s report, the biggest question is whether enough consumers will swap “real” reality for virtual reality or whether VR will just be another niche product. And then there is the technology part of the metaverse. Zuckerberg has said that the biggest challenge for the industry is cramming a super-computer into the frame of normal-looking eyeglasses. 

“Ultimately, we need high-fidelity graphics, low latency, with hundreds of millions of concurrent users in real-time at a relatively cheap price point,” Mahaney wrote.

That, to me, is going to be the real deciding factor in this. People have different expectations as to how the metaverse will look and feel and I will bet you that none of them has a basis in the current reality.

The technology industry is really good at driving interest and excitement about technology, but it takes time for these things to deliver what’s being promised. And now they are talking about a technology that in order to work as promised is literally going to have billions of users accessing servers and whatnot simultaneously. Just think of how annoyed you get when Netflix takes too much time to load a movie and multiply that by 1,000 or so when your virtual jaunt through the rainforest crashes into a sea of pixels. 

And then there are the social and privacy aspects. It’s probably a safe bet that to keep the cost of these products and services down, people are going to have to give up a load of personal data. Sure many are doing that already, but you’ve got to wonder how much more everyone is going to have to surrender to make a low-cost metaverse worthwhile. 

And as far as the social impact, while most people have spent a year in isolation, when they get a chance to go out and interact with actual people, they do it in droves. The news is full of stories of people, young and old, that risked going to large gatherings during the outbreak. Heck, just yesterday (December 16), AMC Theaters said that 1.1 million people went outside to an actual movie theater to watch Spiderman: No Way Home, the second largest box office day in AMC’s history  (The Avengers: Endgame was No. 1). 

So I guess what I’m saying is that for the metaverse to really be worth the hype, it has to deliver on its promises. If it doesn’t, it risks turning consumers off of the concept, or at least substantially delaying its acceptance until it resurfaces years later with another name -- my vote is for  Vitametamegaverse (“It’s So Tasty Too!”). And that’s another thing that this industry has seen before.  ■ 

Altice USA stock was up more than 7% on Thursday, slowly chipping away at the more than 20% hit the shares took in the past week, fueled in part by an analyst report that noted the company could be taken private at an even lower price than once believed.

Shares in Altice USA closed at $20.73 on Sept. 30, up 6.1% or $1.20 per share. Despite the gain, the stock, which rose as high as $21.05 (up 7.8%) during the day, is still behind the $25.26 price it traded on Sept. 23, the day before CEO Dexter Goei said broadband additions would be negative in the third quarter.

In a research report Thursday, Evercore ISI analyst James Ratcliffe lowered his 12-month price target on the stock to $30 per share from $44, maintaining his “outperform” rating on the shares but reducing his revenue and cash-flow estimates for the company as its broadband outlook declines. Other cable operators have said they expect broadband subscriber additions to slow as the positive effects of the pandemic wane. And though Altice USA does expect broadband additions to slide into negative territory in Q3, Goei said he expected to end the year either flat or slightly positive.

In his note, Ratcliffe said he doesn’t believe Altice USA’s challenges are insurmountable, but added that any solution will take time. 

“With that said, we don’t see any meaningful near-term catalysts for the stock, as we believe investors will need to see evidence of a return to subscriber growth for the stock to move meaningfully higher,” the analyst wrote. “For a long-term investor, however, we believe current levels can mark an attractive entry point for the shares.”

But perhaps the most shocking part of Ratcliffe’s report is the revelation that the remainder of Altice USA’s public float — about 43% of its total outstanding shares — is valued at under $4 billion. Given that low price, and past precedent, it wouldn’t take much for its controlling shareholder, Altice N.V. chairman Patrick Drahi, to take the company private. 

Also Read: Did Altice USA Cut Costs Too Much? 

Ratcliffe noted that Drahi took Altice Europe private earlier this year. By taking out the remainder of Altice USA’s public float at $30 per share, the company’s leverage would only increase to about 7 times 2022 estimated cash flow and still have significant free cash flow to pay higher interest costs. Even with Thursday’s price increase, a $30-per-share takeout would represent a 44% premium. 

Also Read: Analysts Search for Meaning In Altice USA Leadership Change 

Also in his report, Ratcliffe estimated that a $30-per-share takeout would cost Altice USA about $5.9 billion. At $45 per share, the total cost would be about $8.8 billion.  

Other analysts have said Altice USA could go private, with MoffettNathanson principal and senior analyst Craig Moffett estimating earlier this month  that the company sell off its Suddenlink Communications operation to partly finance the transaction.

Bernstein media analyst Todd Juenger said Tuesday that Netflix could be readying widespread price hikes across Western Europe this year, in line with its earlier increases in the United Kingdom, Germany, Japan and Argentina.

Juenger tracked Netflix pricing across 50 countries and said the SVOD giant’s strategy is pretty clear -- increase pricing every two years; raise charges aggressively for its Premium package, moderately on its Standard plan and rarely on its Basic plan. He added that on average, the price increases are in the mid-single digits.

“After very little pricing activity in 2020, evidence is growing that we will see widespread pricing increases in 2021,” Juenger wrote in a note to clients, pointing to “significant” price increases in Q1 in the U.K., Germany (bringing pricing in line with Austria and Ireland); Japan and Argentina. 

Netflix raised pricing for its Standard plan in Canada by about $1 per month and by $2 per month for its Premium plan in early October and three weeks later raised pricing for Standard and Premium plans in the U.S. by similar levels. Juenger estimates that Austria, Ireland and Germany could prove to be similarly “leading indicators” for price hikes in Europe, “perhaps a more gradual roll-out across the Continent rather than one uniform, lockstep pricing change.”

In the United Kingdom, Netflix raised prices for its Standard plan by $1 per month (11%) and by $2 per month for its Premium plan (17%) in January. That same month German customers saw pricing for the Standard plan rise 8% and 13% for the Premium plan. In Japan, Netflix said in February that it would raise prices for the Basic and Standard plans by 13% each. The biggest percentage hikes were in Argentina, where Netflix said in Q1 that  it would raise pricing for all tiers --  Basic (40%), Standard (44%) and Premium (49%). Juenger added that the increases in Argentina were likely due to high inflation rates in Latin America and efforts to account for the decline in exchange rates compared to the U.S. dollar over the past year. He said that Netflix rates in Argentina are roughly 60% lower than in the U.S., in U.S. currency.

Netflix has been under some pressure recently as some analysts have pointed out that the service has lost as much as 31% of its global market share (despite gaining 40 million customers) given the increase in competition from new streaming services like Disney Plus, HBO Max, Paramount Plus and Peacock. 

On Tuesday, Netflix stock was up as much as 2.5% ($13.49 each) to $554.16 each in early trading, a day after  Evercore ISI Group internet analyst Mark Mahaney assumed coverage of the company, upgrading his rating on Netflix stock to “outperform” and raising his price target on the stock to $665 per share. Mahaney was encouraged by Netflix’s large cash position, which enables it to invest in more content, which in turn leads to more subscribers. Adding to that strength is Netflix’s massive platform coupled with a global recommendation algorithm that the analyst wrote has the power to transform good content into global sensations. As an example he pointed to shows like The Queen’s Gambit, which he wrote on its own made “chess cool again.”  

“Simply put, a dollar spent at Netflix arguably creates more marketing power than any other platform, generating greater leverage and potentially more subs,” Mahaney continued.

Evercore ISI media analyst Vijay Jayant believes that cord-cutting, after a record 2019, could ease up in 2020 as the remaining pay TV customer base appears more enamored of live news and sports.

In a research note, Jayant acknowledged that cord-cutting reached a peak in 2019 -- 6 million pay TV customers left the fold by his estimate, up from 4 million in 2018 -- but that there are signs that 2020 could be better for traditional distributors.

Jayant added that the 2019 results were in part artificially skewed by DirecTV, which lost 1.1 million customers in Q3 after discontinuing heavy promotional pricing. He also pointed to a survey conducted by Evercore ISI (using about 600 pay TV customers) that suggested that “with payTV penetration now sitting just over ~70%, the marginal cord cutter is more likely a stickier sports / news content consumer.”

As a result, he predicts that pay TVwould lose about 4.8 million subscribers to cord-cutters in 2020.

Virtual MVPDs, after two straight years of solid growth (2.5 million additions in both 2017 and 2018), slowed down in 2019, with Jayant estimating the category added less than 1 million customers in 2019. That slowdown should continue this year, especially since Sony PlayStation Vue, which Jayant estimated once had about 700,000 customers, has said it will close its doors early this year. 

“The slowdown in MVPD subscriber growth has been driven by a combination of lower promotional discounts, higher list prices, and possibly increased password sharing,” Jayant wrote.

Growth in subscription video on demand services is expected to accelerate in 2020, as more new entrants come on the scene. The space, dominated by Netflix, Hulu and Amazon Prime Video, is getting increasingly crowded with the November launch of Disney + and the expected debuts of HBO Max (May), NBC’s Peacock (April) joining other existing services like CBS All Access and Showtime. Jayant estimated that SVOD providers would add 30 million subscribers globally in 2020.

“While these services are not true substitutes for pay-TV, incremental content made available in the direct-to-consumer arena could still weigh on multichannel subscriber trends,” Jayant wrote.

While Jayant expects video margins to continue to contract -- he estimated programming costs per subscriber for Comcast and Charter would rise in the mid-to-high single digit percentages in 2020 -- that should be offset by broadband gains. The analyst expects about 3 million net broadband subscriber gains for the year, with cable continuing to take share from DSL. Fixed wireless 5G, he added, shouldn’t have an impact in 2020.

As far as wireless, Jayant noted that the key themes should continue to be ongoing consolidation efforts and the deployment of 5G offerings.

Jayant expects the 2020 election and the summer Olympics to drive TV advertising revenue up by mid-single digit percentages, with political spending expected to be up by 60% compared to 2016 given a number of tight races, with local broadcasters, MVPDs and cable networks being the biggest beneficiaries.

Among Jayant’s top picks for the year: ViacomCBS (which he says has an underappreciated digital business); Nexstar Media Group (due to political ad seasonality and benefits from its recent Tribune Media purchase); Charter Communications (he increased his price target on the stock to $600 per share citing strong operating free cash flow growth and market share performance).

Cord cutting has the TV industry on edge, but a new report predicts that pay-TV losses will slow for the rest of the year.

After the big 593,000 drop in subscribers in the second quarter, investment company Evercore ISI expects subscribers to be down 363,000 in the third quarter, followed by a tiny 40,000 dip in the fourth quarter.

That would leave total multichannel subscribers down 1.03 million for the year, up from 193,000 in 2014.

Read more at B&C.