Disneynomics: Disney+ and Its Effect on Streaming, Including Netflix

by Ray Keating

Disneynomics Column

DisneyBizJournal.com

September 13, 2020

Reed Hastings, the Netflix CEO, and other observers are impressed with what Disney has achieved so far with Disney+, and expectations have only become more robust looking ahead. That’s a good thing, since uncertainty reigns across many of Disney’s other ventures.

In July, Netflix reported that it had gained 10.1 million subscribers in the quarter ending in June of this year. And that came after adding 16.1 million in the previous quarter. Netflix now has more than 190 million subscribers globally, and for the year ending in June, Netflix revenue registered $22.6 billion, which was a 28.4 percent increase over the previous year. 

And who is number 2 in terms of subscribers? That would be Disney+ at more than 60.5 million, and of course, Disney+ only came online in November of last year. However, total subscription numbers for the Walt Disney Company top 100 million when combining Disney’s Disney+, Hulu and ESPN+.

Hastings apparently is impressed with what Disney has achieved. In a September 7 report, Bloomberg News asked Hastings to identify his number one competitor: “‘Disney,’ he said. ‘If you’d asked us a year ago, “What are the odds that they’re going to get to 60 million subscribers in the first year?” I’d be like 0. I mean how can that happen? It’s been super impressive execution.’”

Competition and too many streaming options? Hastings doesn’t seem worried: “‘There is no such thing as subscription fatigue,’ [Hastings] said. ‘Disney has “The Mandalorian” and we have “Stranger Things.” They are somewhat complementary. People will subscribe to both.’”

In an analysis released early last week by Deutsche Bank, analyst Bryan Kraft says streaming promises to be the big plus for Disney. Indeed, based on his take on the streaming end, Kraft upgraded his rating on Disney from a hold to a buy, with a target price of $163 (the stock closed on Friday, September 11, at $131.75). As MarketWatch noted:

The company has “the most clear path to successfully transitioning its general entertainment programming and content production businesses into a globally scaled, vertically integrated streaming entertainment leader,” Kraft wrote. “The clearest sign that Disney is succeeding in transitioning its business model, aside from the impressive subscriber results, has been management's decision to shut down some of its traditional networks in international markets, including the UK,” he continued, as Disney has been willing to write down the goodwill associated with such moves.

Perhaps most interesting was Hastings’ acknowledging a shift in strategy at Netflix: “Netflix is no longer solely focused on making high-quality, award-winning shows. Hastings and his co-CEO Ted Sarandos say building new franchises is the next big mission. The want to identify stories that can stretch across multiple TV shows, movies, toys and lunch boxes, appealing to viewers all over the world.”

That, of course, and as Bloomberg noted, sounds very much like a Disney strategy. Disney’s influence already is being seen, with recognition of value in Disney’s model. At the same time, Disney has learned from Netflix that a regular stream of new content is vital to sustaining and growing subscribers. Also, consider that the Netflix shift is about adding a Disney model onto their existing “high-quality, award-winning shows” strategy, not replacing it. That points to the market leadership and enormous revenue being raked in by Netflix. 

Can Disney seriously challenge Netflix to become number one in streaming? Sure, they can. We’ll see if they will. Part of the story will be told as new production ramps up post-pandemic, and another part could be about Disney winning a much bigger part of live sports, such as NFL Ticket when that becomes available after the 2022 season.

For streaming aficionados and bingers, strap in. Toss HBO Max, Peacock, Amazon’s Prime Video, YouTube and others into the mix, and this promises to be a great deal of fun.

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Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels. He can be contacted at  raykeating@keatingreports.com.

Also, get the paperback or Kindle edition of Ray Keating’s new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York.