Cahall went on to analyze and predict the financial performance of entertainment giants and their streaming services, along with music streamers, with a focus on operating margins. Cahall's conclusion: "We're bullish on the DTC outlook for Disney/Netflix, bearish for Lionsgate/AMC Networks/Pandora/Spotify, unconcerned for Discovery/Fox Corp. and waiting to see on ViacomCBS."
The analyst forecast subscribers, average revenue per user, gross profit margins and operating profit margins from year 1 into the future to find that scale matters or, in other words, that "in streaming the bigger, the better." He also explained that profit margins in streaming differ depending on whether services focus on video or audio and on global or niche offers.
At more than 200 million subscribers, Netflix has operating profit margins of about 18 percent, up from 4 percent at 50 million, Cahall noted. "Many video DTC services will never get to 100 million or even 50 million subs, and our work shows that profitability will be a future challenge at smaller scale," he wrote. "Competition is fierce: we think Netflix has defined consumer expectations with a 'golden ratio' of more than $1 billion in annual content spend for every $1 of monthly customer average revenue per user (ARPU). Only Disney looks set to match it, though Discovery+ and Paramount+ could if the price is right."
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