Disney will eat into Netflix’s 60 million U.S. accounts and reach 24-30 million domestic subscribers by 2024, Needham analyst Laura Martin says
Disney just put Netflix and the rest of the streaming world on notice.
That much is clear, after CEO Bob Iger said Tuesday the Mouse House will offer a $12.99 per month bundle with Disney+, ESPN+ and ad-supported Hulu this upcoming November. The deal saves viewers $5 per month compared to paying for the services a la carte, and costs the same as Netflix’s standard subscription.
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“I think what they just announced [Tuesday] is the best value in America,” FX CEO John Landgraf told TheWrap. “It’s broadcasting content in the first window from three of the four major broadcast companies. It’s all those unbelievable brands making new original programming; it’s Hulu’s original programming; it’s what FX can contribute to that. It’s ESPN. It’s really like an incredible bundle of value put together.”
(FX is owned by Disney.)
Disney’s package already has some industry experts predicting a changing of the guard when it comes to streaming supremacy.
Needham analyst Laura Martin, in a note to clients on Wednesday, said “We project [Disney] will win (and Netflix will lose) the U.S. SVOD battle.”
Martin forecasted Disney will eat into Netflix’s 60 million U.S. accounts and reach 24-30 million domestic subscribers by 2024, pointing to Disney’s price, its “strong balance sheet” and library of content — including “Star Wars,” Marvel and a laundry list of Disney franchises — that’ll spur growth.
Netflix, however, has been known to weather storms and is in a strong enough position to survive alongside Disney+. The same can’t be said for other new entrants like Apple, HBO Max, NBCUniversal — the latter two of which won’t launch until next year.
Netflix has been relatively teflon to churn issues. At a 7% annual churn rate, “Netflix has had the lowest churn for several years” when compared to other services, Brett Sappington, senior research director at Parks Associates, said. (This is expected to stay consistent as 2019 comes to a close, despite Netflix losing U.S. customers during Q2 for the first time in a decade.) Hulu, for comparison, had a 21% churn rate last year.
The longer a streaming service is around, Sappington explained, the better chance they have of retaining viewers. That’s because by this point, Netflix subscribers know what they’re getting from the service and have less reason to shuffle in-and-out depending on the season. Shows like “Stranger Things” and “Orange Is the New Black” have become TV staples. Netflix’s sheer volume of content — something it’s spending $15 billion on this year to maintain — helps safeguard it against subscriber apathy.
The Netflix-Disney rivalry isn’t shaping up to be a zero-sum game, either. More than 70% of Netflix subscribers said they see Disney+ as a complimentary service, rather than a replacement, according to a recent survey from Ampere Analysis.
“Of course the absence of Disney content from Netflix, alongside the pending removal of shows such as ‘The Office’ and ‘Friends’ may have a slight impact on subscriber numbers,” Toby Holleran, senior analyst at Ampere, said. “However, we expect Disney+ is more likely to displace smaller SVOD services.”
It’s probably best to picture the streaming landscape as a game of musical chairs. The average U.S. household pays for between 2-3 video subscriptions each month. Netflix is essentially glued to its spot, with nine out of ten households with two or more services paying for it, according to Holleran. If Disney+ or Disney’s bundle grabs the second chair in most instances, it leaves the upcoming services scrambling to land that remaining spot.
“What we see is consumers will have the 1-2 services that they want most and then after that, you get to an outer-edge where they can take-it-or-leave-it, swapping out services with regularity,” Sappington added.
To beat Netflix at its own game, Disney still has its work cut out. Its streaming division just lost $553 million during Q2 — and that’s expected to ramp up to $900 million this quarter. Disney’s spending big, while forgoing licensing dollars, to enter the streaming market fashionably late.
It also remains to be seen just how popular Disney’s bundle will be. So far, ESPN+ has been a niche service, with 2.4 million subscribers; it might stay that way as long as it doesn’t have live NBA or NFL action. Hulu, meanwhile, has about 28 million paying customers. How many customers anxiously waiting for Disney+ to launch will feel compelled to add both ESPN+ and Hulu? Even if Disney’s bundle is a hit, Netflix has a formidable streaming lead, with 150 million global subscribers. Other competitors, like HBO Max and NBCU, will likely feel the brunt of Disney’s might, not Netflix.
But for Landgraf, Disney’s bundle — covering sports, family entertainment and prestige shows like “The Handmaid’s Tale” — will be formidable for one reason alone: it’s a really good deal.
“I just think ‘best’ is undeniable. I think what they’ve put together is the best streaming value in America, and it will work because it’s the best streaming value in America,” Landgraf said.. “How [Disney’s competitors fare] I couldn’t tell you, but I can just tell you that being best is always a pretty good business strategy.”
Trey Williams and Matt Lopez contributed to this report.