Let's be honest. Sometimes, cable television can be a drag. The monthly bills are cumbersome and tedious and when a consumer lowers those bills, it means sacrificing some of the better channels available.
Many cable providers argue that they offer a menagerie of channels for a decent price, which isn't too bad, until one thinks about the fact that many of these channels are rarely, if ever watched. It's no wonder that some market observers opine that live sports is the only thing keeping cable alive.
That may be a bit of stretch, but it's not a stretch to say that streaming is in while cable TV (also known as "linear TV") is on its way out. Netflix (NFLX) proves as much. Since its 2002 initial public offering, Netflix has been one of the best-performing U.S. equities. As of late 2020, a $1,000 investment in Netflix at its IPO would have been worth close to $500,000.
That's just one example, but it underscores the point that the Roundhill Streaming Services & Technology ETF (SUBZ) is an exchange traded fund that could well be on to something. SUBZ debuted earlier this week and is the first ETF dedicated to streaming entertainment equities.
Good Time to Tune Into SUBZ
Actively managed, SUBZ “consists of companies from across the globe who are actively involved in the business of streaming. This classification includes (i) companies that operate direct-to-consumer streaming services including video, audio, livestreaming; and (ii) companies that create infrastructure or technology necessary to facilitate streaming,” according to the issuer.
As I've frequently noted in this space regarding thematic ETFs, of which SUBZ is certainly one, a clear underlying theme is absolutely crucial to the fund's success and good timing doesn't hurt. SUBZ checks both boxes.
“Disruptive innovation typically evolves slowly, until it hits a tipping point. Since peaking in 2011, the number of U.S. linear TV households has been declining at an annual rate of 2.1%, a rate that we believe will accelerate to -15% at an annual rate during the next five years,” said ARK Invest analyst Nicholas Grous in a recent report. “Cumulatively, the number of U.S. linear TV households could drop 48% from 86 million as of 2019 to roughly 44 million, a level last seen more than 30 years ago in the late 1980s.”
As for timing, plenty of cable subscribers were cutting the cord prior to the coronavirus pandemic, but like so many disruptive technologies, the health crisis is speeding the case for streaming. With so many folks forced to quarantine, in-home entertainment became nearly as essential as hand soap and toilet paper. Cable, which often lacks for bespoke options, lost six million households last year.
Those customers aren't sitting around listening to AM radio. Many converted to over-the-top (OTT) content, highlighting a long runway for growth for SUBZ components.
“Traditional media delivery is limiting, streaming is unlimited. With steaming, users pay a fixed rate for unlimited content that can be accessed at any time, from any device, from anywhere,” notes Roundhill.
More Than Just Netflix
Obviously, Netflix is, for many investors, the streaming name, but the 35-stock lineup in SUBZ reflects OTT's evolution and its reach into gaming and music.
Beyond Netflix, other top 10 components in the new ETF include Roku (ROKU), Spotify (SPOT) and Walt Disney (DIS). Whether it's the decline of linear TV or the rise of streaming music, data confirm SUBZ is a “right place, right time” ETF.
“Data from The Trade Desk suggests 27% of Americans will cancel their traditional TV plan this year, a phenomenon known as cord cutting,” says Roundhill. “Goldman Sachs believes 1.2 billion people will be a paid subscriber to an audio streaming service by 2030, compared to 341 million in 2019.”
SUBZ charges 0.75% per year, or $75 on a $10,000 investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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