Streaming video giant Netflix, Inc. (NASDAQ:NFLX) shocked the world yesterday by acquiring comic book publisher Millarworld for an undisclosed amount. NFLX stock holders didn’t quite understand the deal. Why would Netflix — which had a deal in place with Walt Disney Co (NYSE:DIS) that made it the go-to streaming platform for Marvel superhero movies — go out and acquire a not-so-mainstream comic book company?
Well, on Tuesday night, Disney answered that question for us.
Alongside its third-quarter earnings report, Disney announced it will start pulling its movies from Netflix in 2019 — including its Marvel superhero movies. That same year, Disney plans on launching a branded direct-to-consumer streaming service.
According to the press release:
The new Disney-branded service will become the exclusive home in the U.S. for subscription-video-on-demand viewing of the newest live action and animated movies from Disney and Pixar, beginning with the 2019 theatrical slate, which includes Toy Story 4, the sequel to Frozen, and The Lion King from Disney live-action, along with other highly anticipated movies.
What does all this mean for NFLX stock?
In the near-term, turbulence. One of the biggest draws of Netflix content was its suite of Disney films. That will start to erode in 2019, when Disney will stop allowing Netflix the rights to any new movies.
Netflix stock is down about 3% on the news, which is unsurprising on its face, and completely natural given the 45% year-to-date run in the shares.
Believe it or not, in the long-term, this could be a win for NFLX. Here’s why.
A Natural Step In Netflix’s Original Growth Story
Netflix’s whole growth story now has pivoted to original content development. It isn’t new Disney movies like Captain America: Civil War which are pushing Netflix subs numbers higher. It’s original shows like Stranger Things, House of Cards, 13 Reasons Why and Riverdale.
Originals are where the growth is because that’s where the moat is. Despite its deal with Disney, consumers could still watch the Mouse’s movies through other channels — big screen, DVDs, even places such as Amazon.com, Inc. (NASDAQ:AMZN) Disney Movies Anywhere and YouTube Movies (albeit for a small fee).
So while Disney’s movies were a valuable piece, they didn’t add to Netflix’s moat. Originals do, in a huge way.
For instance, the only place consumers can watch Stranger Things is on Netflix. And it’s in this sense that Netflix originals inspired by Millarworld content may be far better for NFLX stock than recycled Marvel content.
But only if the Millarworld inspired originals are good.
I think that’s possible. I’m not a huge comic book fan, but Millarworld is responsible for movies such as Kick-Ass and Kingsman, and offers the type of stories that Netflix can turn into quality originals — especially in a time when the typical superhero storyline has run its course.
Millarworld’s focus on gas attendees and kids who discover a super-power drug is in many ways more tangible than many of Marvel’s storylines. And interestingly enough, of the top 10 grossing movies in the Marvel Cinematic Universe, only three were from the past two years, with all three — Captain America: Civil War, Guardians of the Galaxy Vol. 2, and Spider Man: Homecoming — featuring storylines that veer away from the typical superhero arc.
This trend bodes well for Netflix and its eventual new Millarworld-inspired originals.
Bottom Line on NFLX Stock
The Disney loss is huge. There is no covering that up. There’s a reason the stock is down today.
But where there’s loss, there’s often opportunity. I believe that’s the case here. Netflix again has an opportunity to ramp up its original content-driven growth story.
The streaming video giant will do just that. With a comic book publisher in its back pocket, Netflix is ready to move forward as a Marvel-less streaming platform.
As of this writing, Luke Lango was long AMZN, DIS and NFLX.