Disney Plus isn’t a ‘Netflix killer,’ but other streamers like Apple should be worried

Disney

Disney unveiled its Netflix rival, Disney Plus, on Thursday, and some industry observers dubbed it a "Netflix killer."
But the streaming market won’t have one winner, and as Netflix is the clear No. 1, Disney Plus is much more of a threat to services from Apple and WarnerMedia.
Disney’s aggressive pricing of Disney Plus (and Hulu) also validates Netflix’s emphasis on achieving global scale as quickly as possible.
Netflix’s brand has become an important part of the pop-culture fabric, and while losing third-party content like Disney’s will be painful, it’s not an existential threat anymore.
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On Thursday, Disney unveiled the key details of its upcoming streaming service, Disney Plus, and in the aftermath, the phrase “Netflix killer” got thrown around in articles and on social media.

It’s easy to see why.

Disney Plus has an attractive price point ($6.99 per month, or $69.99 per year) and the kind of blue-chip intellectual property that other entertainment companies dream about. Shouldn’t Netflix CEO Reed Hastings be shaking in his boots right about now?

The answer is “no,” and there’s a simple reason why. The word “killer” carries with it the implication that in this mortal combat, only one streamer can survive. But that’s not how the streaming market has worked so far.

The truth is that there has historically been a high rate of overlap between subscribers of streaming services like Netflix, Hulu, Amazon Prime, and HBO Now. And 36% of total US broadband households subscribe to two or more streaming video services, according to research by Parks Associates in late 2018.

Most people don’t look at a new video service, like Disney Plus, and ask themselves: “Should I cancel Netflix and make this the one streaming service I subscribe to?”

The streaming market is still a free for all, but when the dust settles, most industry executives and analysts I talk to expect the average consumer to subscribe to 2-4 services.

Netflix, as it stands today, is the clear No. 1 at over 139 million worldwide paying subscribers. No one else is even close. So the real battle is for who will take up those slots 2 through 4. And that means that while Netflix shouldn’t feel that Disney Plus is an existential threat, some services should, particularly those that haven’t launched yet like Apple TV Plus and WarnerMedia’s upcoming service.

Kevork Djansezian/Getty Images

$6.99 is a cash-burning, scale-seeking price point

One big reason for the “Netflix killer” label is that Disney has aggressively priced its service at $6.99 per month ($5.83 if you pay for a year up front). That undercuts Netflix, which recently raised its price so the entry-level plan is $8.99 and the standard plan is $12.99.

That price does put pressure on Netflix, but it’s also a validation of Netflix’s general strategy. Netflix has bet that achieving massive global scale as quickly as possible is what will allow the streaming business model to work. That’s why it has consistently provided a superior value to consumers relative to alternatives like cable TV, and stomached billions in negative free cash flow.

By pricing Disney Plus at $6.99, and being willing to sustain billions in losses until at least 2024, Disney is following a similar playbook.

You can also see that thinking reflected in the strategy of Hulu, which Disney now owns 60% of. Hulu has been discounting its ad-supported tier to boost subscriber growth, and it has worked. Hulu was the fastest-growing streaming service in the US last year.

At Business Insider’s Ignition conference in December, Hulu CEO Randy Freer stressed that achieving scale was of paramount importance to Hulu and to streaming service in general. Disney clearly agrees.

Who should be worried?

If scale is of such importance, the services who should really be worried about Disney Plus are the ones that don’t have it yet.

This is particularly the case for those that haven’t launched yet, like Apple TV Plus and WarnerMedia’s service, or those with only a few million subscribers, like CBS All Access.

If Disney Plus becomes a must-have for streamers in the same way Netflix is, that is one more spot taken up for many consumers, making it that much harder for others to scale quickly.

The other players who should be worried are traditional pay-TV bundlers, and the new digital ones (YouTube TV, DirecTV Now, Sling TV, and so on).

The addition of Disney Plus and the increased investment in original programming at places like Netflix, Hulu, and HBO makes forgoing the traditional bundle an even more attractive option for customers. This could accelerate a slimming of the live pay-TV offering down to mostly news and sports, with “entertainment” programming existing mainly in the on-demand world of streaming.

Netflix

Netflix has mastered the zeitgeist

Disney pulling its content off of Netflix is a blow, and the Mouse House’s iconic TV shows and movies certainly helped Netflix scale.

But Netflix bought enough time with licensed content to build both scale and a beloved brand. The transition to mostly originals will cause Netflix pain, but its ubiquity in pop culture will sustain it.

As I wrote in January, Netflix has reached a level of scale that its original content — from Marie Kondo’s show, to “You,” to a documentary about the Fyre festival — can enter the zeitgeist in a way that causes a tangible sense of FOMO in those who aren’t subscribers. Disney is not going to destroy that by pulling its movies and TV shows off the service.

There will be good debates to be had in the coming months about the level at which the increased competition of new services like Disney Plus hamper Netflix’s growth or margins. But it’s not a “Netflix killer.” It’s simply too late for that.

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