To The Moon

In the second half of 2022, only two companies have ordered more episodic movie series, and those are $Apple(AAPL)$ and $Amazon.com(AMZN)$ . As traditional media companies begin to experience increasing pressure to generate profits from their streaming services, and established companies like Netflix look to reinvigorate subscriber growth, demand for new episodes has fallen off significantly. According to the data, orders for new scripted series for U.S. viewers are down 24% year-over-year. This could be a huge opportunity for Apple and Amazon to snap up new series at better prices.

US and $Amazon.US may not be the first companies that come to mind when we think of the new TV series and media industry. Both of these companies have other major businesses besides streaming video, of which streaming video is only one of the spin-offs. Their primary business generates billions of dollars in free cash flow and operating income each year, so they can afford to continue to operate in this segment as they should, or at least can afford to continue to do so. So the loss of streaming services will not have a huge impact on either company's results. I think more importantly, if the streaming service can inspire and bring positive contributions to their primary business, even a small loss in the streaming segment is well worth it.

Meanwhile, $Netflix.US and other streaming-driven media companies make their money primarily by selling video content. In the past, it has been extremely important for them to appease investors by taking a path to profit growth directly from streaming. That's why when Walt Disney made huge losses in its streaming business, investors sold off the stock across the board to express pressure on management to be profitable on Disney+ by the end of 2024, just as management had promised.

I think the media industry is facing a challenging environment. Advertising spending is growing slowly and is actually declining on traditional linear TV networks. The industry is also facing disruptions, and theatrical releases are still not generating the box office revenues that many had hoped for. Even blockbusters such as Disney's Avatar sequel have failed to meet expectations. At the same time, competition from streaming media and economic uncertainty have made it more difficult to compete for direct-to-consumer subscribers. As companies try to raise prices, they may find that their user base is very price sensitive. Apple and Amazon's ability to continue spending in a media industry downturn is an important advantage, but investors may have to wait a while to see the impact.

I don't think Amazon and Apple's dominant positions will emerge until sometime next year, likely in the second half of the year. That's when all the series that the two companies have approved for development in the last few months will start to appear on their streaming services. In the meantime, competitors won't see many new shows premiere at all. One of the primary reasons consumers subscribe to a new streaming service is because they have a specific drama topic they want to see. As they see more premieres on Amazon and Apple, they gain more opportunities to capture viewers' attention. As consumers continue to move between streaming services, this could lead to larger signups in the coming year.

For Amazon, more Prime Video viewers could mean more Prime subscribers. The company's membership program is a boon to its retail business. prime members are more likely to search for amazon products first, which also benefits the company's advertising business. For Apple, the success of streaming video offers another way to bring consumers into its ecosystem. More importantly, with less competition for new scripted episodes, the opportunity to improve the efficiency of content spending may help drive profitability for its streaming service itself. Because Apple TV+ consists primarily of original episodes with no ongoing licensing deals, the business has significant potential for operating leverage as Apple grows in size.

Both Amazon and Apple have large subscriber bases, which allows them to attract large numbers of producers and advertisers and generate more revenue. Amazon's Prime service is particularly popular, offering many benefits including free shipping and electronic media services, and has more than 35 million subscribers. Apple's Apple TV+ has more than 11 million subscribers. Second, both Amazon and Apple continue to invest heavily in capital and people to ensure that their streaming services provide the best user experience. Amazon has its own production company and invests heavily in the production of original content, such as the hit TV shows Power Girl and Government Agent. Apple also invests heavily in the production of original content, such as the TV series "Black Mirror" and "Ferris Bueller's Day Off". Third, Amazon and Apple also have an advantage in technology. They both have powerful hardware and software platforms that deliver a smooth streaming experience. Amazon's devices such as Fire TV and Echo Show have a significant presence in the market, with powerful computing power and high resolution picture quality. Apple's devices such as Apple TV and Apple Music have the same advantages and integrate well with other Apple products.

While other streaming media businesses such as Netflix, which is a streaming video-based business, may be facing a period of cost-cutting in the current environment, they may have no choice but to reduce their purchases of film series from movie producers, which may result in a poorer user experience and users may shift to Amazon and Apple for streaming media. Amazon and Apple's streaming services are only a small part of their primary business, and they are well positioned to take advantage of opportunities to expand their streaming user base while other streaming companies face challenging business environments. In recent years, Amazon Prime video subscribers have been growing year after year, while Apple's TV+ seems to have seen little growth in subscriber growth in the last couple of years, but I think it may be able to leverage the momentum of other streamers to grow itself next.

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