Streamers are making money, but a lot of them face this problem

Streaming giants Disney (DIS) and Paramount (PARA, PARAA) both reported earnings this week. Disney reported an earnings beat on both the top and bottom lines for its fiscal third quarter, revealing its streaming segment was profitable for the first time. Paramount Global (PARA, PARAA) reported mixed results for its second quarter, with adjusted earnings beating estimates, but revenue falling short of expectations. Morningstar Senior Equity Analyst Matthew Dolgin joins Yahoo Finance to discuss the streaming landscape.

"All these companies other than Netflix (NFLX) are continuing to make progress, but they are just not there, not mature," Dolgin notes, "the difference with them and Netflix, a decade or less ago, is that they have these other legacy businesses that they're managing. And so they're not getting the pass from Wall Street as streaming continues to grow and is not yet a mature or good business necessarily. They're seeing their other business decline, so they need that to turn."

"With that said, we're pretty optimistic generally about how things are going in the streaming space," Dolgin adds, "they're making it a better business, but it takes time and in the meantime, their other businesses continue to struggle and that's why the stocks, we think, are remaining under significant pressure."

Watch the video above to hear why Dolgin doesn't think YouTube posts a "really big" threat to streamers yet.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Mariela Rosales.

Video transcript

Investors hearing from a slew of media names this past week, both Disney and Paramount reported profits out of their streaming businesses for the first time ever.

Join me now with more on the state of the industry is Matthew Dogan Morningstar, senior equity analyst, Matthew.

It is good to see you.

So it feels like a good time to make, take AAA breath here.

Uh Matt, you know, we, we got a lot of reports from some streaming services.

Uh Disney and Warner Brothers Discovery and Paramount, you know those names, Matt, you know, the sector, you read through the reports, you listen to the conference calls.

What were your big takeaways, Matt?

Where, where are we in the great streaming wars?

Well, all these companies other than Netflix are continuing to make progress, but they are just not there not mature.

Um The difference with them and Netflix a decade or less ago is that they have these other legacy businesses that they're managing and so they're not getting the past from Wall Street um as streaming continues to grow and is not yet a mature or good business necessarily.

Um They're seeing their other business decline.

So they need that to turn.

Um But with that said, we're pretty optimistic generally about how things have been going in the streaming space.

Certainly, as you mentioned, losses have come down quite a bit and are turning to profit.

Um in some cases, in a way that we think will be sustainable from here forward, like we've seen a turning point.

Um and they continue to generally add subscribers grow revenue per subscriber.

They're making it a better business, but it takes time.

And in the meantime, there other businesses continue to struggle and that's stocks we think are, are remaining under significant pressure.

And so they, they are getting, you know, they're getting into the black, they're a profitability matt just since you get your take, I've heard some analysts um throw, I guess you would say cold water on that because they say, well, they're getting, they're getting into profitability here, but they're doing it because they're through raising prices and cost cutting.

It's not through investing and creating and delivering really the kind of great content you need.

What, what's your response to that sort of skeptical take?

I think it goes back to these being broader businesses.

And so um they do have uh in each of these cases, the firms you mentioned they have studios, they are continuing to put out content.

Yes, they've cut costs in some places.

But um we don't think that they're um producing too little content right now.

We think that they need to figure out the best way for distribution.

And to us, the thing that needs to get figured out or needs to evolve more is just looking at these businesses as, um as a whole, rather than these separate segments where you have the traditional television or film, the linear business.

Um And television certainly, um with streaming and as they can both reach consumers as one and as the business or businesses are looked at as one, we don't think that it'll look as severe as far as um whether, whether um costs are coming down because the content budgets at most of these firms have remained pretty high.

Actually, let me ask you about, I got a five year old at home.

I'll be honest, all she watches is youtube, Constant youtube.

How much of a competitive threat does that pose to some of the companies that streamers in, in your coverage universe?

Well, youtube, uh along with Netflix is by far the most watched uh streaming service.

So uh it is a, a, a competitor for share of time.

But that doesn't mean that um that we see it as, as a really big threat because generally it's different types of content.

And so certainly, and especially the younger generations gravitate more towards youtube.

Uh we still see it as a different type of viewing experience and um and something that fits within, within broader media, final question, another name, I know you know, very well.

Warner Brothers Discovery got their print.

What, what is the future of that company?

Matt?

Do, do you think, uh, I mean, it's a possible break up coming.

We do think that's possible mostly because the company and the stock has struggled so badly.

So, although we don't necessarily think it's necessary, we certainly think that it could generate interest because of what it has been going through.

But we think the bigger thing is that whether it is outside interest with, with an activist coming in or the company splitting up, we think that it needs to at least partner in the form of bundles or otherwise with some of the other companies to help drive its business forward and help it make that transition a little bit better.

Matt, great to have you on the show today.

Recapping a lot of these prints.

Appreciate it.

Thanks.