After the market close last Thursday, Disney (NYSE:DIS) unveiled details about its long-awaited streaming service, Disney+. When the market opened on Friday, investors bid shares up 11.5% to an all-time high. At the same time, Netflix (NASDAQ:NFLX) saw its stock fall 4.5%. It looks like Wall Street thinks Disney+ has the potential to challenge the streaming leader in the direct-to-consumer market.
Netflix currently boasts about 139 million paid subscribers worldwide and is expecting to add another 9 million more when the company reports earnings on Tuesday. With this type of lead, Disney has its work cut out for it when it comes to taking on the incumbent. But the House of Mouse has several distinct advantages that make it an immediate contender.
Let’s take a look at three reasons why investors are so optimistic about Disney’s potential.
1. More palatable price
Netflix has long shown the pricing power of its service. The company recently instituted its fourth price hike in five years and its subscriber base continues to swell. It’s important to remember, however, that with growth in its domestic market slowing, future growth lies in international locales. The cost of a monthly Netflix subscription has grown to $12.99, which might be prohibitive in many developing countries.
Disney decided to price its offering at $6.99 per month, or an even more reasonable annual subscription of $69.99 — which works out to a monthly cost of about $5.83 — when its service debuts on Nov. 12. At nearly half the cost of a Netflix membership, cash-strapped viewers around the world might choose Disney if they can only afford to choose one.
Netflix is likely aware of this limitation and has reportedly been testing a lower-price, mobile-only subscription in some developing countries. But, thus far, it’s only been a test.
2. Global brand recognition
While Netflix is quickly making a name for itself, it only began its international expansion in 2010 when it started offering streaming video in Canada. The big roll-out for the company came in early 2016 when Netflix announced that it would immediately be available in 190 countries.
Disney, on the other hand, has long been a household name, and Mickey is among the most recognizable characters in the world. In 2016, just as Netflix was making its debut globally, Disney was named the world’s most powerful brand, according to brand valuation and strategy consultancy Brand Finance. Many subsequent studies have consistently placed Disney among the most well-known and most beloved brands. With a host of instantly recognized studio offerings from the likes of Pixar, Marvel, and Lucasfilm, this will give Disney a leg up as it seeks to chase down the video-streaming leader.
3. A never-ending pipeline of lucrative content
Netflix moved quickly to begin creating its own content in 2013, but Disney has a library of intellectual property going back 90 years. In addition to the company’s catalog of feature films, Disney also has decades of programming from Disney Television Studios and The Disney Channel (its cable TV offering).
It doesn’t stop there. Disney is a content-creation machine, churning out new movies and programs every year. This isn’t just filler. It includes box-office blockbusters like Black Panther and Avengers: Infinity War from Marvel, Star Wars: The Force Awakens and Star Wars: The Last Jedi from Lucasfilm, Finding Dory and Incredibles 2 from Pixar, and Zootopia and Beauty and the Beast from Disney. The recent acquisition of Fox content only serves to increase its advantage. For instance, the company announced that all 30 seasons of The Simpsons will appear exclusively on Disney+.
While Netflix has largely stuck to monetizing its content with subscriber fees, Disney has a host of ways to make money from its hit movies and television series. For example, once a movie has been shown in theaters, consumers buy the film on Blu-ray and/or digital copy; visit Broadway shows and other live productions; buy plush toys, coffee mugs, and other consumer products; and visit Disney theme parks around the world to interact with their favorite characters. For Disney, content is the gift that keeps on giving.
It’s important to remember that this isn’t a zero-sum game and there’s room for multiple winners in the nascent streaming industry. There are more than 1 billion global fixed-broadband subscribers and many more accessing the internet via mobile devices. The arrival of data-friendly 5G wireless technology will only accelerate broadband adoption. Streaming will be a huge and growing market that can easily support multiple players.
That said, Disney has several compelling advantages that will make it a serious contender in the over-the-top market.
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