Superstar firms and the struggle for your TV remote

Big stars, even bigger budgets, a growing subscriber base, Oscars and critical acclaim; in front of the camera, the world looks rosy for Netflix. Yet, behind the scenes, their rivals are eyeing the market and licking their lips. Can it fight off the predators and how will the coming battle inform investment decisions?

Netflix is riding high as one of the decade’s great business success stories. Now operating in almost every country, the world’s biggest TV movie streaming business and programme maker has a name that has become a byword for a relaxing night in. People love Netflix, and it has been popular with investors, too, due to its subscription-based revenue model and consistent returns.

For many observers, Netflix is one of the companies that seems to define the current Superstar Economy, an era when giants such as Amazon, Facebook, Apple and Google inhabit the business stratosphere. So, will Netflix retain its superstar status? At first glance, it is well placed but look harder and the picture gets more complex. Amazon is already competing hard and shamelessly exploiting the data from its core business to grab market share. Disney is about to launch a subscription TV and film streaming service and any company with The Avengers, Luke Skywalker and Buzz Lightyear on its side is a formidable opponent. Apple has announced a similar service and promised a USD 1 billion annual investment in original programming. Even the Brits are putting up a challenger as Britbox will soon make the vast BBC, ITV and Channel 4 back catalogues available to subscribers. Price and programming wars are on the horizon.

This underlines a truth – that today’s superstars are not necessarily the superstars of tomorrow. In the last two decades, almost half of all so-called superstar firms fell out of the top 10% during the business cycle. So, a thoughtful investor needs not only to look at the current top performers, but to delve deeper into the dynamics of the market. Which are the companies on the threshold of superstardom? For example, Facebook currently dominates the social media space but the question is, do Chinese companies such as Alibaba and Tencent have greater potential and offer better value to investors?

Our investment teams undertake extensive analysis of current superstar companies and their common characteristics. We look at the financial metrics as well as the impact these companies are having on society and the environment. This also helps us to spot the superstars of the future, those businesses with a dominant market position, combined with high profits and a long-term business model.

But it’s not just about rapid growth and short-term profitability. We believe the companies with the greatest potential are the ones with sustainable growth rates that defy market trends and also contribute positively to the regions and people they serve.

There’s little doubt it faces turbulent times and a major challenge to its superstar status. It must find a delicate balance between maintaining and increasing investment in original programming while remaining price competitive and satisfying investors. The stakes are high and the competition powerful and well-financed. It’s a struggle we’ll all be watching, popcorn at the ready.

For more insights on superstar firms and the implications for investors, visit Superstar Economy.