A Netflix bull on Wall Street knows how Disney can dominate streaming. The only catch is that giving the new Disney streaming service an edge would jeopardize the media giant's theatrical cash cow.
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Right now, big studios wait several weeks, or sometimes months, before releasing a movie on streaming services, so that people still have an incentive to go to theaters to watch the latest blockbusters.
But that so-called theatrical window is getting narrower, and BTIG analyst Rich Greenfield sees it as an opportunity to crush the competition when the Disney streaming service launches late this year.
"The core 'Avengers' moviegoer isn't waiting for it to get to Netflix to watch it," he said. "They're going to the theaters. So if you want to drive subscriptions off of 'Avengers,' waiting nine months for it to show up on Disney+ is not exciting."
But Disney CEO Bob Iger has indicated that he has no plans to upend the way people watch movies in theaters. It's easy to see why not: Disney had another $7 billion dollar year at the global box office in 2018.
When asked on the November earnings call about the potential to shorten the window in order to push content out on the upcoming Disney streaming service sooner, Iger replied, "If it ain't broke ... ."
"I know you may think that there's an opportunity," he said on the call. "But as noted by the results of our studio in fiscal 2018 and of course in the last quarter, we have a studio that is doing extremely well and a formula that is serving us really well in terms of its bottom line. And we're probably going to aim to protect that initial window."
High Hopes For Disney Streaming Service
Still, "probably" isn't an ironclad promise to maintain the traditional theatrical window, and the Disney streaming service, or Disney+, will come under enormous pressure to prove that it can court paid streaming subscribers amid an already crowded field.
Expectation are high that Disney+, armed with valuable TV shows, movies and intellectual property that are woven into the fabric of pop culture, will be a formidable competitor to Netflix.
But Netflix has a wide head start, with over 130 million paying subscribers across 190 countries and has no qualms about burning record amounts of cash to grows its library of in-house programming.
And they are both contending with an increasing number of services on the market, from Amazon (AMZN) Prime Video to CBS (CBS) All Access to whatever AT&T (T)-owned WarnerMedia and even Comcast's (CMCSA) NBCUniversal are cooking up for 2019.
Disney Stock Dominance
The launch of the Disney streaming service, the closing of the 21st Century Fox (FOXA) acquisition, and the investor day in April, among other catalysts, make Disney the stock to own in 2019, according to RBC Capital Markets analyst Steven Cahall.
"The balance sheet is in great shape," he wrote on Dec. 12. "The films are fantastic. ... It's the best narrative in Media and maybe all of Consumer Discretionary."
The debut of Disney+ later this year makes RBC "incrementally bullish." Cahall estimates that a notional monthly $7 subscription for content valued at around $7 billion would be comparable to Netflix's value proposition, "the gold standard." (For the record, Disney hasn't disclosed a price, but Iger has said it will be cheaper than Netflix.)
Details for the Disney streaming service are still coming into focus, and the content library isn't set in stone yet. But the more family-friendly platform will house a variety of Marvel, Lucasfilm, Pixar, Disney and National Geographic shows and movies.
Of the scattered announcements that have been made, much of the hype has been centered around the live-action Loki series, live-action "Star Wars: Rogue One" spinoff series and other original "Star Wars" content.
Disney's investor day in April should shed more light on its overall streaming strategy, i.e. what to expect from Disney+ pricing, its ESPN+ sports streaming service (which racked up over a million subscribers in its first half year) and joint venture Hulu.
Hulu: Dark Horse Disney Streaming Service?
For years, discussion around Hulu seems to have been something of an afterthought in the financial press. It loses money. Its parent companies are a word jumble of media conglomerates. It has a fraction of U.S. subscribers (over 20 million) as Netflix (57 million).
But now that the Fox acquisition provides Disney with a 60% stake in the online streamer — Comcast and AT&T own the other 30% and 10%, respectively — Hulu might appear to have more promise.
Management has provided indicators that more original programming is coming to the service. Hulu's "The Handmaid's Tale" has led it to critical acclaim.
"There's an opportunity to increase investment in Hulu, notably on the programming side." Iger said on the Q4 earnings call in November. The goal is to use Disney-Fox's collective TV production capabilities to "fuel Hulu with a lot more original programming — original programming that we feel will enable Hulu to compete even more aggressively in the marketplace."
Plus, he says the streaming service attracts viewers as much as 20 years younger than broadcast network viewers of the same show, an "underappreciated" aspect of Hulu that should draw advertising money.
And it is Hulu, not the upcoming Disney streaming service, that Wedbush media analyst Michael Pachter sees as the paid over-the-top service to beat.
Content rights, not original programming, are the ultimate weapon to wield in this zero-sum game, in his view. And he suggests a strategy that boils down to re-creating something akin to a traditional cable bundle via Hulu, using the combined forces of Disney, Fox, NBCUniversal and WarnerMedia, and then adding premium layers (HBO, ESPN+, etc.) for an extra charge.
"Those four guys, if they pull all their content from Netflix and they decide to put it on Hulu as a base platform with premium options, Netflix is going to see movies completely dry up," said Pachter, a Netflix bear. "I think they're probably about the same in terms of their television production prowess, so again, two-thirds of Netflix TV content — gone."
Addicted To Netflix Cash?
Indeed, reruns of "The Office," "Friends" and "Parks and Recreation" are the top three most-viewed shows on Netflix as a percentage of total views, according to recent Jumpshot data, as cited on Recode. In fact, the top 10 list consists of rerun material, including old episodes of "Grey's Anatomy," "That '70s Show" and "NCIS."
But the loss of such content on Netflix in the future may not necessarily translate to more subscribers for Disney's Hulu. BTIG's Greenfield says licensed content is becoming "less and less relevant to why people subscribe" to Netflix. And RBC analysts expect Netflix to pour a whopping $14 billion in cash on content in 2019.
Plus Hulu's library is in question as WarnerMedia, which includes HBO, Turner and Warner Bros., has plans for its own streaming platform in late 2019. And NBCUniversal CEO Steve Burke teased a possible NBCUniversal streaming service in an end-of-year letter to employees.
Also, even Pachter acknowledges that media giants may be reluctant to turn down a huge Netflix check in return for their content. Netflix reportedly paid WarnerMedia $100 million for the rights to stream "Friends" for another year, more than thrice what it paid just a year earlier.
"Let's see how quickly these guys wean themselves from being addicted to Netflix's checkbook," said Pachter. "They need the constant injection of cash from Netflix. It's like a drug habit."
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The post Netflix Bull Has This Idea For Disney On How To Win Streaming Wars appeared first on Investor's Business Daily.
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