For years, the entertainment industry has sung one song when it comes to the consumption of their products: user-consumed media, purchased from a tape, CD, or digital download and listened to on a device built for playing music or watching film. However, times have changed in the media business, and now you can purchase entertainment directly from a streaming company. With category growth in a new and emerging industry, there are several companies that have innovated well.
The Walt Disney Company (NYSE:DIS), which has long been known for movies, vacations, and sports entertainment, has been a quiet but stable player in the video streaming service. Cable network revenues grew to $3.7 billion for the quarter, due partially to higher advertising revenues and a decrease in deferred payment schedules. Almost 55% of The Walt Disney Company (NYSE:DIS)’s value comes from its cable networks, which drew in $1.7 billion in operational revenue for the quarter. With an additional 10% of The Walt Disney Company (NYSE:DIS)’s value being drawn from Broadcasting (revenues exceeding $1.5 billion), this model is working well for the entertainment powerhouse.
ESPN has developed several different streaming models in recent years and looks to the future to include partnerships with mobile providers to provide sports entertainment without consuming massive amounts of bandwidth. The WatchESPN App is the number one app for sports with over 100 million subscribers in the United States. Talks with mobile company Verizon Communications Inc. (NYSE:VZ) have fueled speculation that ESPN would change mobile sporting streams by allowing users not to cap data for using ESPN. For sports enthusiasts this would be a godsend. Much of data usage is consumed by watching games on a mobile device as well as interacting on other networks, such as Facebook Inc (NASDAQ:FB) and Twitter.
ESPN has become almost a monopoly on sports in recent years. With a bid on the US Open starting in 2015, currently televised by CBS, ESPN now holds a near monopoly on tennis with a previous acquisition of Wimbledon in 2011. With rights to the entire playoff season worth $470 million a year, shared rights to college tournaments (Big East and Mountain West conferences), NBA and NFL rights, and a host of other portfolio investments, ESPN has its hand on every cookie in the cookie jar.
Along with streaming on ESPN, ESPN2 or ESPN3, this digital service has almost monopolized the sports industry. With a subscription model fueling bottom-line growth, its no surprise that revenue for ESPN continues to grow year after year. Operationally, ESPN cut jobs to finance new sports portfolio growth, however this purchasing strategy will continue to grow the sports streaming monopoly, even if jobs are cut back temporarily.
At the WWDC, Apple Inc. (NASDAQ:AAPL) released iTunes Radio with much fanfare from all Apple Inc. (NASDAQ:AAPL) developers and enthusiasts. Apple Inc. (NASDAQ:AAPL) believes that streaming radio will change the way users consume music. Released in iOS7, this streaming music service will be much like Pandora Media Inc (NYSE:P)’s. With Pandora Media Inc (NYSE:P) dominating the market for so many years, attracting a user base of 70.8 million, it seems that Apple Inc. (NASDAQ:AAPL) will have to create a more innovative user experience for users to adopt this streaming service. Listener hours hit 1.35 billion for May, a 22% increase for the same quarter last year. Pandora Media Inc (NYSE:P) reported $125.5 million in revenue for the quarter, a 55% year-over-year increase.
With Pandora Media Inc (NYSE:P) capturing so much of the market, Apple Inc. (NASDAQ:AAPL) will not only have to sing the Apple Inc. (NASDAQ:AAPL) song, which resonates with its core customer base, but provide a user experience that goes above and beyond Pandora Media Inc (NYSE:P)’s. With over 51% of households owning an Apple product, adoption rates might be what drives this new product to overtake Pandora Media Inc (NYSE:P)’s market share.
The Foolish Bottom Line
With new and innovative technology consuming the streaming space, its fair to say that whoever reaches the consumer most effortlessly wins. Pandora has a huge chunk of the market share, however with a huge fan base and a company culture designed around innovation, Apple is poised to take over the streaming music business as long as users adopt the newest fad in the product line.
The article Entertainment Revolutionized; Streaming Media in the Age of Digital originally appeared on Fool.com and is written by Kaitlyn Tokay.
Kaitlyn Tokay has no position in any stocks mentioned. The Motley Fool recommends Apple and Walt Disney (NYSE:DIS). The Motley Fool owns shares of Apple and Walt Disney. Kaitlyn is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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