Astro Malaysia ADD, TP RM1.35, RM0.84 close
Astro’s proposition to be a one-stop shop for streaming services could dilute its vigour if more streaming services are consolidated. The silver lining is Astro’s CY22-24F yields of up to 11.9% are some of the highest in CGS-CIMB Research’s Malaysia coverage.
Media Prima Bhd ADD, TP RM0.51, RM0.44 close
The high-margin content sales business is growing in Media Prima’s overall revenue share, from 3.8% in 1H21 to 5.7% in 1H22. While the group is confident it could seek higher prices for its content from
third-party streaming services at contract renewal, fewer streaming services in Malaysia means fewer avenues for Media Prima to sell its content.
Star Media Group Bhd ADD, TP RM0.44, RM0.29 close
We do not expect Star to be impacted by the US streaming giants’ merger because Star is in the news production business. We implore investors to seek value in the stock, as it is trading at only 0.3x CY23F
P/BV. The impending 15th General Election could rouse interest in Star.
The butterfly effect
- News reports last week indicated US media giants are looking to further consolidate their streaming services – and the industry as well.
- While streaming services’ consolidation is inevitable, we would be negative on more mergers and acquisitions in the US media industry.
- We fear Astro’s streaming integration proposition could be blunted if there are fewer services. Media Prima’s content sales growth may be capped as well.
Neutral news: more streaming services to be consolidated
In the week of 11-17 Sep 2022, multiple news outlets in the US reported a slew of possible mergers in the video-streaming space. Deadline’s 14 Sep 2022 report quoted The Walt Disney Co’s (DIS US; Not Rated) Chief Executive Officer (CEO), Mr. Bob Chapek saying the media company is not ruling out merging its Disney+ streaming service with its 60%- owned Hulu. On the same day, the Wall Street Journal (WSJ) quoted sources saying Paramount Global (CBS US; Not Rated) is considering closing its critically acclaimed Showtime streaming service, and moving the content to Paramount+. Both these possible
developments came hot on the heels of Warner Bros. Discovery (WBD; Not Rated) announcing the unification of its two major streaming services, HBO Max and Discovery+, by the northern hemisphere’s summer season in 2023.
Warner Bros. Discovery-Comcast merger could be negative
The bigger news came from The Hollywood Reporter’s 16 Sep 2022 article. According to anonymous media executives quoted in the trade publication’s article, there is a possibility Comcast (CMCSA US; Not Rated) may put in a bid for Warner Bros. Discovery. One reason being Comcast’s wholly-owned NBCUniversal Media (Unlisted) lacks a major franchise like Warner Bros. Discovery’s DC Comics, so that it can replicate the success Disney has had with the Marvel Cinematic Universe. One source also said Warner Bros. Discovery is undervalued, which is another incentive for Comcast to make a move. The executives quoted by The Hollywood Reporter also said the potential takeover would be made in the interest of fomenting Comcast’s streaming service Peacock.
Astro’s streaming integration proposition could be dulled
It is no surprise that the streaming industry is bound for a consolidation. Citing market research firm Parks Associates, a 2019 article by The New York Times reported there were 271 video streaming services in the US then – an unhealthy number that had led to the “subscription fatigue” phenomenon (source: Variety). However, what we find to be concerning is that even the major subscription-based video-on-demand (SVOD) services from Hollywood’s studio giants could be consolidated if more Hollywood studios merge. In our view, Astro Malaysia’s streaming-integration proposition could lose its vigour if there are fewer tent-pole SVOD services under its ecosystem. Lest we forget, the whole idea behind Astro’s strategy is to aggregate all the major content dispersed by various streaming services, in order to make it easier for viewers to find all their favourite shows and movies on one device. If the major Hollywood studios consolidate their SVOD services, there would be less fragmentation of content in the streaming space. Also, remember that Astro’s distribution agreements are not on an exclusive basis; viewers can still get various SVOD services without subscribing to Astro. Media Prima, meanwhile, may have little wiggle room for its content sales growth with fewer SVOD services coming to Malaysia.
Reiterate Overweight; sector remains in flux
The Warner Bros. Discovery-Comcast merger is not something concrete – there could be anti-trust regulatory hurdles and issues of financial viability that could get in the way of the merger (see the following pages for more information). We stay Overweight on the media sector; excluding Astro, the media stocks are trading at only 0.3-0.7x CY22-23F P/BV. These are undemanding valuations for stocks that are in net cash positions and hold choice real estate assets. The sector also offers CY22-23F yields of 4.9-10.4%. Downside risks: advertising sales slumping and rising newsprint prices further choking margins.