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Netflix Still Poised for Global Growth Despite Disney Threat

Jeff Baumgartner

Netflix is naturally downplaying the threat posed by Disney+, the premium SVoD service set to launch on November 12 and cost just $6.99 per month or discounted to $69.99 on an annual basis.

Confident as ever, Netflix CEO Reed Hastings welcomed the challenge during Netflix's Q1 call earnings late Tuesday afternoon. "There's a ton of competition out there and Disney and Apple add a little bit more, but frankly I doubt it will be material, because … there's already so many competitors for entertainment time, which is great for consumers and it's exciting for us."

Analysts agree somewhat with that assessment. Netflix should be able to add subscribers both in the US and, in particular, internationally, when Disney+ enters the market, MoffettNathanson analyst Michael Nathanson explained in a research note.

And though Netflix and Disney+ are being billed as straight-up competitors, Nathanson believes the two services have different consumer propositions.

Netflix, he said, "is essentially a Blockbuster store in the cloud with a mix of original and off-network all-you-can-eat, commercial-free content." By comparison, "Disney is targeting families and a passionate base of fans of its well-branded, highly recognized, quality content."

While Netflix would probably object strongly to being lumped with the much-maligned Blockbuster (you'll have to travel to Bend, Ore., to visit the last standing US Blockbuster store), Nathanson likewise believes that Disney+, which is expected to pull in between 60 million and 90 million subs worldwide by the end of Disney's fiscal 2024, will have some profound implications for the SVoD sector.

Nathanson argues that Disney+'s relatively low price point for a product that will include high-value blockbuster films will make it more difficult for Netflix to raise prices -- a play Netflix will likely have to return to as programming costs continue to skyrocket for both original and licensed content.

But, given Netflix's strong Q1 results, it's a "great time" for it to increase prices, Paolo Pescatore, tech, media and telcos analyst with PP Foresight, said in emailed comments. He likewise warned, though, that Netflix "must diversify into new services and business models for long-term growth."

Meanwhile, Nathanson believes that Disney+'s strategy also could cause WarnerMedia to rethink its SVoD plans, which will center on a set of offerings -- an entry-level tier focused on movies, a premium tier with unique programming and more theatricals, and a third one that bundles the first two alongside a deeper content library.

"We strongly believe that WarnerMedia should leverage HBO as their global SVoD brand and move their strongest Warner Bros. film and TV library titles (including the DC Universe) exclusively into HBO Now and HBO Go," Nathanson suggested. "We do not think the world needs three more under-scaled SVOD products, especially given the modest entry price point of Disney+."

The low price on Disney+ could also put pressure on what Apple can charge for Apple TV+, a premium video service that will feature a relatively small batch of originals but without the help of a deep content catalog to underpin it.

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— Jeff Baumgartner, Senior Editor, Light Reading

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