Disney SVOD poised to rattle Netflix's cage

Disney SVOD poised to rattle Netflix's cage
Michelle Clancy
| 18 August 2018

Disney is poised to become a tough competitor in the streaming space – a fact that may spell rough times for Netflix going forward.
disney 8Aug2018
The House of Mouse's upcoming proprietary content platform and its stake in Hulu could spur a migration of desirable content to the media giant at a level that could hurt subscriber growth for Netflix going forward, argues Seeking Alpha analyst James Bonifer.

Disney CEO Bob Iger may be mounting his most ambitious acquisition project yet – the takeover of rival studio Fox. Disney will gain control of previously sold Marvel characters, hot properties like the Simpsons and even the distribution rights to the original 1977 Star Wars: A New Hope. Additionally, Disney inherits a controlling share in the streaming service Hulu. Putting all of that together with what it already has, and the content juggernaut could be unstoppable, Bonifer said.

“Some properties, such as ... Star Wars, Episode VII- The Force Awakens and the Marvel television titles currently being produced by Netflix, will be absent for several years due to existing contracts,” he noted in a Seeking Alpha posting. “That being said, plans to pull content are in place and will begin to take effect in the months to come as the company consolidates its streaming presence. Disney will utilise Hulu to house their mature content, with their yet-to-be-named proprietary platform containing more family-oriented offerings. Although Netflix is home to many acclaimed original titles, Disney and Hulu will be able to boast a massive, diversified library including some of the most critically and financially successful properties of all time.”

While Netflix has dominated the streaming landscape (the company currently trades at 153 times earnings and has seen its shares appreciate approximately 435% since 1 January, 2014), there are signs of slowing growth already, even before Disney OTT goes live. Its recent miss on subscriber growth has shaken investor confidence in that generous multiple, too, with stocks trading lower this week.

To wit: For the second quarter, the company disclosed a net subscriber growth of 5.2 million, missing forecasts with a 16.7% fall-off from the expected 6.2 million.

“What's more alarming is the company reported domestic net new subscribers of 670,000, missing the target of 1.23 million anticipated by Wall Street analysts,” Bonifer pointed out. “The miss could be attributed to the increase in price Netflix recently imposed on their standard tier subscription offering. While their international subscription growth rate beat expectations, it was not sufficient to compensate for the whopping 45.5% miss on domestic subscription growth.”

Amid this, Disney’s plans should be a rattling influence.

“New competition from the most powerful studio in the world offering two substantially cheaper alternatives does not bode well,” Bonifer said. He added. “Netflix has not proven user growth is immune to outside factors, such as price, and has never faced such a large competitor in their respective space. While Disney will take time to fully launch their presence on their proprietary platform and Hulu, they will represent a substantial threat to revenue growth. Share prices of the company will need to price in these impending factors and the price multiples need to adjust accordingly.”