Disney+ to Unseat Netflix As Streaming Leader – Analysts

Analysts appear to be betting on Disney+ to match, if not best, Netflix as the worldwide streaming leader over the next three to four years.

With the seemingly unending flow of new streaming services, the playing field can be confusing. However a true battle seems to be taking shape above the fray. The main event looks to be the relatively young company, with a lengthy history of streaming dominance, versus the time-tested giant, who is still in the early stages of their streaming life. 

Netflix versus Disney, who will fall? Neither. Who will prevail? Both. Who will reign as streaming champion? Signs point to Disney.

There is no question that Netflix has been the streaming industry leader for years. Not only was it the big fish in the small pond when it transitioned to streaming, it basically created the pond. Over the years the company has been responsible for a number of the most popular television and movie events and has forever changed popular culture. These include hit series like: Stranger Things, YOU, Orange is the New Black, When They See Us, The Umbrella Academy. Along with hit movies like the Irishman and Spenser Confidential.

Over the years Netflix has seen many competitors enter the market with varying degrees of success: AppleTV+, Amazon Prime Video, Peacock, Discovery+, HBOMax, and the upcoming Paramount+ (which will take over for CBS All Access). The longterm success of these services is still very much up in the air.  Expect a number to continue to grow, another group will likely end up merged into others, and the rest will join the likes of Quibi, gone and quickly forgotten.

And then there is Disney+, the brainchild of former Disney CEO, and current Executive Chairman, Bob Iger.  Disney’s direct-to-consumer division includes Disney+, Hulu, ESPN+ domestically and Disney+, HotStar, and Star internationally.

Disney’s media empire is vast and includes Walt Disney Pictures (Mary Poppins, Who Framed Roger Rabbit, Honey I Shrunk the Kids, along with the live-action remakes of The Lion King, Aladdin, Beauty and the Beast, Mulan, and more). Walt Disney Animation (Frozen, Moana, Tangled, and more), Pixar (Toy Story, Inside Out, Incredibles, Soul, and more), Lucasfilm (Star Wars, Willow, Indiana Jones), Marvel (Avengers, Iron Man, Black Panther, and more), 20th Century Studios (formerly 20th Century Fox, which includes The Simpsons, Bob’s Burgers, Deadpool, Alien franchise, X-Men, and billions of dollars of other content), National Geographic, Searchlight Pictures, and the linear networks ABC, ESPN, FX, Disney Channel, and Freeform, to name a few. 

Investors have studied consumer behavior around streaming and the consensus is that most consumers would be willing to pay roughly $30 a month for streaming. That would mean two to three services per customer. While AppleTV+, Amazon Prime Video, Peacock, and Paramount+ battle over the third spot, it appears that the streaming leaders will be Netflix and Disney+.

Hulu is being left out purposefully as it serves as a sister service to Disney+.

The core strengths of the two services are…
– Netflix essentially created the world of streaming and has been the undisputed leader in creating new content over its thirteen years of growth.

– Disney has nearly a century’s worth of content and has acquired some of the most popular brands in entertainment.

While these are the initial strengths of each company, both of these services are growing beyond these general characteristics. As Netflix continues to grow, what was once considered new content is starting to add up to create a recognizable and strong library. Netflix also bolsters their library with licensing deals, even though some of their biggest draws have moved to other services. An example of this is the wildly successful series The Office, which recently moved from Netflix to Peacock.

Disney is not relying simply on its deep library of family favorites, it has started a massive production machine ready to churn out highly anticipated new content for the service. The Mandalorian has been a huge win for Disney and the next two years are full of new series, movies, and specials.

This investment in new content by Disney is what is driving the attention of investors, along with the forecast-busting subscriber growth Disney+ has seen in its short lifetime.

Disney plans to invest between $14 to $16 billion annually in new content across Disney+, Hulu, and ESPN+ by 2024. This is roughly on par with Netflix’s content spending for 2019, which was around $13.9 billion.

Soon Disney will be matching Netflix’s content creation, all while sitting on the industry’s most valuable library. Disney will be able to grow from the vast array of properties that they own, along with creating new content and using the strength of their media networks, theme parks, and retail division to promote these projects.

In early December 2020, Disney announced that they had amassed more than 86 million Disney+ subscribers, meeting their five year forecast in just one year. Hulu had reached 38.8 million subscribers and ESPN+ reached 11.5 million. Putting Disney’s total streaming subscriber count in excess of 137 million.

Netflix added 37 million subscribers in 2020 and ended their fiscal year with a total of roughly 200 million subscribers worldwide. The benefit of nearly a decade and a half of streaming is the ability to rack up a huge subscriber count, the downside is that growth slows as pockets of available customers shrink.

Disney is growing faster than Netflix, but that can be attributed to Disney+ being a new service, meaning, it has a lot of room to grow. At the same time, Netflix has a larger subscription total, but that can be attributed to the fact that it has been adding customers for thirteen years – ten times longer than Disney+.

So the question remains, which future is brighter?

Right now, it appears the investment community sees Disney as the better bet. Analysts see a bright future for both streaming services, but Disney’s massive and multigenerational library, their recent streaming-focused corporate restructuring, their huge investment in new content, and their wide array of popular properties, combined with their initial success of attracting subscribers, has given Disney the edge.

One Wall Street analyst has forecasted that Disney will eclipse Netflix in subscriber count by 2023 and a number of analysts have moved Disney’s stock from hold status to buy. The stock closed Friday, January 22nd, at $172.78 a share. Citigroup analyst has set Disney’s stock target price at $205, roughly 16% above where the stock has been settling this past week. The Wall Street analyst UBS has lifted it’s target price for Disney’s stock to $200, stating they believe Disney will achieve scale similar to Netflix by 2024.

Disney’s stock price has grown rapidly since it’s pandemic-related drop in March of 2020. Even while the Covid-19 has hobbled Disney’s Parks, Experiences, and Products, one of the company’s most profitable and well known divisions, the stock price has reached all-time highs this past month. This is due primarily to the strength of their streaming service and the expected rapid recovery of their theme parks and cruise line once Covid-19 numbers start dropping.

Another advantage that Disney has over Netflix is that they own some of the most popular intellectual properties, this creates pricing power and allows Disney to spend less per subscriber on content. This will drive economics over time. Think about it, hypothetically Disney can create a series around a popular character like Woody from Toy Story without having to pay any licensing fees for the property. They also do not need to spend much on advertising the series, since the character is already known worldwide.

This advantage adds up quickly overtime and bodes well for Disney’s future. Whereas Netflix would have to pay licensing fees to create a new series with a popular character, or, create a brand new character and spend time and large sums of money to familiarize the public, with no guarantee that the project would be well received.

This points to the brilliance of Bob Iger and his foresight to purchase Pixar, LucasFilm, Marvel, and 20th Century Fox, during his tenure as CEO. The strength of these properties goes far beyond the content boost to the library. They provide endless opportunities to create new content with a fanbase already established, saving the company a tremendous amount of money.

The behemoth that is the Walt Disney Company also allows for a low monthly fee for Disney+. Setting aside any bundles or specials, the standard Disney+ plan currently costs $6.99 a month within the United States and will increase to $7.99 in March of 2021. The standard Netflix plan costs $13.99 a month. Since Disney has many avenues for revenue (theme parks, box office, merchandise, licensing agreements, live theater, and a massive Real Estate portfolio), they can offer their service for a low price. Aside from streaming, Netflix does not have any other large avenues of revenue. This has always been an issue for Netflix when compared to Disney, as well as AppleTV+ and Amazon Prime Video, both of which are some of the most successful companies in the world even without their streaming service.

Disney has also impressed investors with their growth overseas. Disney+ teamed up with Hotstar in Indonesia (the world’s fourth most populous country). Hotstar was owned by 20th Century Fox and was acquired by Disney when they purchased the parent company years ago. Hotstar is a local favorite within India and is the home of a number of popular local series. Disney decided to combine Hotstar with Disney+ and offers the two services as one. This move has already netted Disney+ 2.5 million subscribers in Indonesia, compared to just 850,000 subscribers for Netflix.

This is one, rather large, example of the strategic international rollout of Disney+. The expansion strategy is very localized, Disney is not engaged in a one-size fits all model. The Disney+ available in Canada or the United Kingdom is much different from the Disney+ available in Latin America which is different from the Disney+ available in India, all of which looks different from the Disney+ available in the United States.

The core Disney content is the same, but the local additions and the effort to respect cultural norms makes each region unique.

With so many streaming services being introduced recently there are many examples of companies that have done it right and others that have stumbled. It appears Disney has done it right, so far.

There are no guarantees in the entertainment business and analyst forecasts are simply that, forecasts. It does appear that Netflix, the original streaming leader, might finally have some legitimate competition. If many of the experts are to be believed, Disney may emerge as the new industry leader sooner than anyone anticipated, even just one year ago.

Regardless of who amasses the most number of subscribers, which stock price has jumped the highest, or who can claim the highest return on investment, the future for both Disney and Netflix appears to be bright. The true winner will be the consumer as the battle will likely help to control price increases and the creative race to the top should spur new high-quality content.

As Disney and Netflix battle for bragging rights, the real question remains, which of the other streaming services will go the way of Quibi and which will fill the vacuum for third place? Nobody knows, but the battle will surely be worth the price of admission. 

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