Why Netflix Continues to Shrug Off Looming Threats From Disney and Apple

“Many people who get Disney+ will cancel or stop using something else as a result, but I don’t know that Netflix will be most vulnerable,” analyst Jon Giegengack tells TheWrap

If Netflix is worried about the armada of new streaming competitors coming its way, its executives didn’t show it on Wednesday when the company reported its third-quarter earnings.

In fact, the biggest takeaway was Netflix’s defiant tone. Is the company concerned about Disney+ and Apple TV+ — both launching next month — as well as HBO Max and NBCU’s Peacock luring away viewers? No, not really.  Is Netflix worried it won’t be able to raise prices, since these new entrants are priced so far below its Standard and Premium packages? Nope, that’s not a concern, either.

Whether that’s bluster or foresight, only time will tell.

At one point during the company’s video earnings call, CEO Reed Hastings smirked as he pointed out Disney+ and Apple TV+ will launch within two weeks of one another “after 12 years of not being in the market.” Disney is “going to be a great competitor,” and Apple is “just beginning, but they’ll probably have some great shows, too,” he continued, before adding they’re all still competing with linear television — the same industry that’s experiencing record losses.

This was hours after Netflix downplayed the threat from new competitors in its letter to shareholders. The upcoming launch of Disney+, Apple TV+, HBO Max and Peacock will be “noisy,” Netflix said, and potentially impact its growth in the short term. In the long-run, though, the company said it’s poised to continue leading the streaming market.

“While the new competitors have some great titles (especially catalog titles),” the company added, “none have the variety, diversity and quality of new original programming that we are producing around the world.”

Appearing to not sweat the extra competition is an understandable position to take, according to analysts.

“Many people who get Disney+ will cancel or stop using something else as a result,” Jon Giegengack, principal analyst at Hub Entertainment Research, told TheWrap. “But I don’t know that Netflix will be most vulnerable.”

Giegengack pointed to a number of points in Netflix’s favor, including its “high profile [original] shows,” “deep library,” and the fact that its price hikes, which went into affect earlier this year, haven’t scared off subscribers.

Netflix’s confidence comes after the company posted a good-but-not-great Q3 report.

For the second straight quarter, Netflix fell short of its own subscriber growth projections, adding 6.8 million new customers, compared to the 7 million the company and Wall Street forecasted. On the other hand, Netflix matched the $5.25 billion in sales that had been projected, and blew away earnings estimates with $665 million in profit — nearly $200 million more than anticipated. Netflix also rebounded in the U.S., after losing domestic subscribers for the first time ever in Q2, adding another 500,000 customers at home. Altogether, Netflix closed the quarter with 158 million global subscribers.

The results satiated investors. After dropping 25% in the past three months, Netflix’s stock bounced 2.5% on Thursday, hovering near $300 per share for the first time since August.

The results also seemed to embolden Netflix to remind naysayers the new streaming entrants are chasing them, not the other way around.

Case in point: Netflix chief product officer Greg Peters said during the earnings call that Netflix will not be afraid to increase prices moving forward, even if Disney+ and Apple TV+ are much cheaper.

“I think the pricing of our competitors, we don’t feel, is a real significant factor in determining what we can charge for our services,” Peters said.

Apple TV+, launching Nov. 1, will cost $4.99 a month (or free for a year for those who buy a new iPhone, Mac or an iPad). Disney+ hits the market 11 days later on Nov. 12, and will cost $6.99 a month, or $69.99 for a year. Disney is also offering a bundle that adds Hulu and ESPN+ for $12.99 a month. Netflix, on the other hand, costs $8.99 per month on the low end, and up to $15.99 per month for its Premium package.

Moving forward, to expand the “variety and diversity” of content it offers, Peters said Netflix won’t shy away from asking for “more revenue” — i.e. raising prices — from “time to time.”

Not allowing Disney and others to dictate its price point is a shrewd move, according to Brian Frons, former head of ABC Daytime and current lecturer at UCLA.

“We are a funny society. While we love bargains or sales, research shows that higher prices are a sign of quality to consumers,” Frons said. “Netflix is right when they say that they offer a good value compared to cable [and alternative streaming] packages. Mathematically, even losing a few subs in the longterm, in exchange for an ultimately higher price is a good model for them.”

Of course, Netflix still has challenges. It’s reaching a saturation point in the U.S., with more than 60 million active accounts already locked in. It’s spending big bucks — $15 billion in 2019 — to finance its array of content; the battle for top shows will only get tougher as new competitors enter the market. And it faces it’s biggest streaming threat to date in Disney+, a deep-pocketed behemoth that has a stacked library of content and new originals series based on mammoth franchises like “Star Wars.” Analysts expect Disney+ could pull in more than 55 million U.S. subscribers by the end of 2024.

Netflix conceded it could face a “modest headwind to our near-term growth,” in its letter to shareholders, due to competition. That was as deferential as it got on Wednesday. Netflix then added it has no reason to believe it’s place at the top of the streaming food chain is in jeopardy. Instead, it planted its flag and essentially said to its competitors: catch us if you can.

Sean Burch

Sean Burch

Tech reporter • sean.burch@thewrap.com • @seanb44 


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