Will Disney’s new subscription streaming service spell trouble for Netflix?

Will Disney’s new subscription streaming service spell trouble for Netflix?
The gloves are off as Disney’s announcement of a new streaming service puts it in direct competition with Netflix. Will subscription giant Netflix survive the onslaught? Shashank Venkat explores the angles

Earlier this month, Disney surprised everyone with the announcement about its own streaming service. Under this deal, the media giant will pull all Disney and Pixar titles from Netflix. However, Netflix will continue to house all Marvel titles. Following this announcement, Netflix’s shares were down 5 percent. As the competition gets tougher, should Netflix start to worry?

Factors working against Netflix

Increasingly crowded subscription streaming marketplace 

Disney’s announcement adds to Netflix’s long list of competitors in the OTT streaming space. AT&T, YouTube, Facebook, Amazon Video, HBO and now Disney are all vying for screen space and quite possibly the same target audience. With an increasingly saturated subscription streaming market in the US, it is difficult to truly distinguish oneself in the market and it is more likely that everyone will only get a small stake in the pie! And that certainly doesn’t justify Netflix’s investment of $6 billion on content alone. Moreover, most of Netflix’s competition have multiple sources of revenue and deeper coffers. Can Netflix’s singular subscription billing business model help it beat the competition?

Subscribers can switch easily

Netflix will continue to get a lot of love from subscribers so long as it is able to produce super hit shows such as Stranger Things and Narcos. But content is a tricky space and trends can change very quickly. If Netflix is caught on the wrong foot, subscribers can switch services on the tap of a button. Disney already has a huge slate of sticky , exclusive content that is loved by kids and adults alike. That puts pressure on Netflix to keep its content engine well-oiled and running smoothly.

Netflix or Debtflix 

Netflix investors are certainly on tenterhooks due its negative cash flow of $2.6 billion. More importantly, the media company has committed to spend $20 billion on its programing in the next five years. Netflix also recently raised prices of its subscription billing plans in Canada and Australia. However, raising subscription prices won’t be tenable in the long term with the likes of Amazon and Disney lurking around with deep pockets and the ability to offer massive discounts. Netflix’s subscription pricing already commands a premium to Amazon Video which comes at a much lower cost along with ‘Prime’ benefits to subscribers.

Factors working for Netflix

Content is king and Netflix is pretty good at it 

Disney has an enviable library of content and the loss will certainly hurt Netflix, especially in the kids programming space. But, Netflix is well-prepared to buffer the shortcoming with its recent acquisition of Millarworld. The deal will certainly help Netflix create a new variety of kids content to offset the loss from Disney’s titles. Moreover, some of the most popular shows in the world come from the Netflix stables. The recent surge in Emmy nominations verify this trend. Netflix has also found immense success with some of its regional language focused content such as Narcos and Okja which have found audiences worldwide.

Netflix’s strategic shift towards originals

Disney’s move points to the fact that the company acknowledges the threat Netflix poses to its business. This may spark a trend where more production studios and media companies become increasingly wary of what they sell to Netflix for fear of cannibalising their content available on other platforms. Netflix has publicly acknowledged that it anticipated this trend and the decision to move to Netflix Originals was a result of that. The company has plans of owning 50 percent of the content on its platform. This will make it less dependent on other media companies and will help it negotiate for licensing deals from a position of strength.

Netflix’s super-smooth subscription management platform 

Netflix is as much a technology company as it is a media company and a huge part of its success are owing to its robust technology systems that power the backend. It isn’t wrong to say that Netflix is the flag-bearer of subscription-based businesses worldwide. A robust subscription management platform has ensured that it delivers a great user experience to its subscribers and they remain loyal to the platform as a result. The company is also exploring newer subscription billing models in markets such as India.

The Road Ahead

There are other factors as well which will influence the outcome of this full-blown war in the subscription streaming space. As the market in the US gets saturated, the next phase of growth will be fueled by international markets. The company which is able to generate content that can resonate among audiences from Americas, Europe and the Asia Pacific region will likely lead this race. The burgeoning amount of subscription streaming services might also mark a shift in subscriber preferences where owning 2-3 entertainment subscriptions will become the norm. In that sense, being in the top 3 should be good enough. And Netflix is certainly capable of making a strong case for it!