How to cash in on the box set boom
You’ve seen the hit shows. Now here’s...
IF YOU have ever watched The Crown, Orange Is The New Black or recently binged on episodes of Friends, then the chances are you’ve got a Netflix subscription.
The US company which started out sending DVDs through the post is now a media monolith, with 151 million subscribers worldwide.
Lucky investors who snapped up shares at $1.20 when it listed in 2000 are now sitting on a tidy profit – Netflix shares are now worth just under $300 – but the emergence of rivals mean there are potentially many ways to cash in on the box set boom.
Competing with Netflix in the content streaming market – where for a monthly or annual fee subscribers are able to watch films and TV programmes on their televisions, phones, tablets or laptops – is Amazon Prime Video. Apple TV+, Disney+, HBO Max and the BBC/ITV partnership BritBox are all due to launch shortly.
The good news for people wanting to invest in Apple, Amazon, Netflix and Disney is that they’re all publicly traded, and you can invest via a broker such as AJ Bell or Hargreaves Lansdown.
But Keith Bowman, equity analyst at broker Interactive Investor, warns: ‘There is a huge amount of competition in the market now and often these type of shares are quite volatile as they’re in the technology arena. Something also worth bearing in mind is that US companies are priced in dollars so you’re also taking on risk if the currency markets move against you.’
Even if you do opt for individual shares, it’s wise to remember that with some of these stocks you’re investing in the whole business, not just the broadcasting side.
Bowman says: ‘If you invest in Amazon then you’re not just investing in Prime Video but the whole retail operation of Amazon. It’s the same with Apple – you’re also getting exposure to iPhone sales as well as Apple TV+.’
British investors looking to get in on the action are limited for choice in the UK when it comes to buying shares in media companies, with ITV the only major one after Peppa Pig-owner Entertainment One was recently snapped up by US company Hasbro. But some say there could be value here.
Ben Yearsley, of Shore Financial Planning, says: ‘ I see ITV very much as a takeover target. Its shares are cheap at the moment, it’s relatively tiny compared to Netflix and Apple and it’s got great content. Content is everything.’
I nvestors who would rather spread their investments across several stocks rather than piling into individual shares can look at investment trusts.
These are funds that invest in dozens of shares of other companies and are traded on the stock exchange like shares. One to consider is Scottish Mortgage, a strong performer over the past ten years. It has holdings in Amazon and Netflix as well as high-profile stocks such as Tesla and Chinese internet giant Tencent – and £1,000 invested a decade ago would now be worth nearly £ 6,000 compared to just £2,175 from an investment in the FTSE Index of leading shares.
Bowman says: ‘It’s still among the higher-risk funds and it’s quite a concentrated portfolio. But it’s been very popular with investors as it’s done extremely well. It’s a great way to get into this industry without picking an individual company.’
Another fund which is focused on digital companies as well as more traditional technology and telecoms is Pictet Digital. This holds investments in Google’s parent company Alphabet, Comcast (which recently bought Sky), Microsoft and Chinese internet company Baidu. Had you invested £1,000 ten years ago it would now be worth £4,900.
Another is Polar Capital Technology which has Amazon and Apple in its top ten holdings and which has increased in value more than fivefold in the past decade – turning £1,000 into £6,290.
Shore’s Yearsley says: ‘There are quite a few investment funds to look at in this sector and many are run by Edinburgh- based investment house Baillie Gifford which has been a long-term investor in this type of stock. As well as Scottish Mortgage, which they manage, there’s also Baillie Gifford American which has holdings in Amazon, Netflix and Alphabet.’
The most tax- efficient way to invest is via an Isa or self invested personal pension where income paid and capital gains on any investments held are free of tax. Higher risk investors can opt for an Enterprise Investment Scheme or Seed Enterprise Investment Schemes which offer special tax breaks [see box].
While Netflix has been a star performer in the past, its shares recently fell after it revealed it was falling short of subscriber targets and US subscriber numbers had actually fallen. Many of these companies rely on increasing subscriptions but, Russ Mould, investment director at AJ Bell, says: ‘There are not enough eyeballs to go around and people can’t just keep on spending indefinitely on all the streaming services out there. People only have so much income and time.’
Whichever platform outlasts its rivals, providers are going to need an awful lot of content. While many programmes are produced by the companies themselves, smaller media companies provide the rest.
More adventurous (and wealthy) investors can put money into venture capital funds, which are private equity investment vehicles which tend to invest in companies with high growth potential, but have a high risk attached due to the fact they are backing early stage firms.
Other investors can consider putting money into film and TV companies via seed funding platform such as Seedrs, Crowdcube or film finance companies such as Red Rock Entertainment
Even industry insiders can get it spectacularly wrong, particularly in fast-moving sectors which rely on new technology and behaviour. Video chain giant Blockbuster turned down the chance to buy Netflix for £50 million in 2000 – it’s now worth $ 129 billion. Blockbuster, meanwhile, has just one store – in the US state of Oregon.