Almost a year after its launch and the question is still being asked, can Disney+ beat current top dog Netflix to rule the world of streaming?
Oct. 3, 2020
This time last year, I had the privilege of living in the Netherlands, which had the free trial of Disney+ (NYSE: DIS). For 2 months before the official launch in November I indulged in many classics like ‘The Parent Trap’ and ‘Mulan’, I loved it! It had all the nostalgic films that I had not seen since childhood, plus all the newer Marvel and Star Wars content. Then came the hype train, which declared that Disney+ would be the death of Netflix (NASDAQ: NFLX). Almost a year on and the hype is still going. Thus, I am led to wonder if Disney+ is actually better than Netflix, or if its many fans are living in a dreamland of their own.
Netflix’s reaction to Disney+
Reed Hastings, co-founder & CEO of Netflix has remained positive throughout, stating that he was happy with more competition, congratulating Disney on the execution of its streaming app and saying that he himself will sign up to Disney+. Despite this friendly acknowledgement, Disney soon banned Netflix from advertising on many of its networks, suggesting that Netflix is its true competition.
When it comes to streaming, Netflix remains far ahead of the pack with over 180 million subscribers worldwide. Disney+ did hit over 60 million subscribers in August, but it still has a long way to go before it comes close to Netflix, or even Amazon prime which boasts an impressive 150 million.
When looking at its business models, Disney encompasses many diverse sectors of entertainment, making it the clear winner. However, when looking at its streaming app alone, it is relying on its household name and nostalgia to encourage subscriptions. Netflix also possesses household status and options for nostalgic films, but in addition, it consistently produces new and exciting original content alongside its acquisitions of regional films and series which allows it to carve out a more permanent market share in those areas.
Netflix isn’t too worried about Disney+ as the incumbent is not yet producing new and diverse original content. Instead, Disney is building off the back of its widely-loved franchises such as Star Wars and Avengers, but with time, the company might start branching out into new territory much like Netflix.
Disney’s damage
Disney has had a terrible year thanks to COVID-19. Yes, Disney+ was a big hit with people during the lockdown, but its overall revenue has taken a massive hit, with the company recently announcing a 12% cut to staff. This means 28’000 U.S.-based employees will lose their jobs across its parks, experiences and production sector.
In its most recent quarter, Disney posted a diluted earnings loss of $2.61 per share for continued operations compared to an income of $0.79 per share for the same quarter a year prior. The House of Mouse posted a loss in almost every sector apart from its ‘direct to consumer’ segment which saw 2% growth with revenue at $3.9 billion — which can mainly be attributed to Disney+. Its total revenue came in at $11.7 billion for the quarter. In comparison, Netflix generated total revenue of $6.1 billion for Q2 of this year. When streaming is the only thing that Netflix does but it makes over 52% of Disney’s total revenue, things don’t look great for the beleaguered company.
Off the back of its only profitable sector, Disney has recently introduced a new feature to Disney+. Up to 7 subscribers can now watch a film together, much like what the Netflix Party app does, this could help drive more growth by encouraging more sign-ups. Additionally, this option can be used on any device which has the Disney+ app downloaded. Surprisingly enough, Netflix has not yet produced its own version of this feature despite normally being a trendsetter in its features options.
Can there be room for two?
Of course, there can be room for two, plus many more as each company tends to offer something different. But when push comes to shove, the question investors should ask themselves is: Which one would you cancel if money was tight? For me, that answer is undoubtedly Disney+. With Netflix’s continued strength in new and original content, I will never get bored with its catalog, however, a few years down the line and a whole lot of catalog growth, I believe Disney+ could at the very least give Amazon’s Prime Video a run for its money.
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