If you’re looking for reasons why Netflix (NASDAQ:NFLX) stock dropped nearly 3% yesterday, the House of Mouse definitely played a part. Yesterday, Disney (NYSE:DIS) reported its Q4 earnings and as part of that event, the company officially announced the name of its new streaming video service. Disney+ will be coming for Netflix — and gutting some of the most popular content in its library — in late 2019. And that’s bad news for Netflix stock.
The big question for NFLX investors will be whether Disney+ will steal customers from Netflix, or whether consumers will subscribe to both.
Disney+ Gets Its Name
We’ve known for a while that Disney would be launching its own video streaming service. We’ve known that it would be coming sometime in 2019, and that it would leverage Disney’s deep library of content. After all, Disney not only has decades worth of its own movies and animated features to draw from, it has ABC’s TV series and it owns the Marvel and Star Wars film franchises.
Oh, and don’t forget Disney’s purchase of Fox was approved this year as well, adding yet more TV content and movie franchises like Deadpool, Alien and X-Men. And the company has been announcing a growing number of original series that will be released exclusively on its new streaming platform.
Now we finally know the name, and have a better idea of the timeframe. Disney+ will be launching in late 2019. As of yesterday, it even has an official website.
Challenging Times Ahead for Netflix
We’ve also known prior to yesterday’s Disney+ announcement that Disney will yank its key franchises from Netflix in 2019.
That means no more Marvel, Star Wars or Disney movies on Netflix. That alone is a big blow to NFLX, because these are popular movies and big draws. When you look at the top movies released so far in 2018, Disney accounts for the top three highest grossing releases. And between Disney itself, Marvel and Star Wars, the company has five of the 10 most popular movies this year. Throw that 20th Century Fox acquisition in the mix, and Disney properties account for six out of 10 of the highest grossing (and most popular) movies of 2018.
The number one movie of 2018, “Black Panther” is expected to be the final Marvel movie to be offered on Netflix before Disney turns off the tap.
Disney+ represents a big headache for Netflix that hits just as the company is dealing with a slew of challenges. The company is having to spend big on original programming to attract new subscribers and keep the ones it has. That means more borrowing to finance content. The company has been experimenting with measures like displaying ads to help offset these costs, but that’s a risky move given many people jumped to streaming video to avoid commercials. Netflix could end up losing a big chunk of subscribers if it went that route.
Raising prices is also an option, but the pricing of its competition could be a limiter. Unlike streaming music services (which all cluster around a $9.99 price point) streaming video services have some differentiation in pricing. But if Disney+ comes in with a low monthly fee, NFLX could risk customers jumping ship if it were to increase its rates.
Disney+ is arriving at the same time that Apple (NASDAQ:AAPL) is expected to launch its streaming video service. Amazon (NASDAQ:AMZN) continues to grow its video offering and even Walmart (NYSE:WMT) is reported to be working on a streaming video service.
While Disney+ will have an advantage over Netflix in its collection of blockbuster hit movies, NFLX will still have a deep catalog of content, including its massive investment in original series over the year. Popular shows like “House of Cards,” “Stranger Things,” “Orange is the New Black” and “BoJack Horseman” are Netflix exclusives. It will take competitors like Disney+ and Apple a long time to build up the same depth of original content. And NFLX will hardly be standing still while its new competition ramps up.
Still, the official announcement of Disney+ is a bit nerve wracking to NFLX investors, and that reminder of what’s coming in 2019 could be seen in the hit Netflix stock took yesterday.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
