Netflix (NASDAQ:NFLX) is the undisputed leader in the video streaming market. Its early arrival to the scene, vast library of content licensed from TV and movie studios and growing collection of original programming have netted the company 139 million subscribers. The value of Netflix stock has increased over 6,100% in the past decade. But the company faces a big challenge in the form of Disney’s (NYSE:DIS) new streaming service which will launch later this year. That challenge just got even more formidable with news that Disney+ will offer the entire catalog of Disney’s animated movies — the so-called “Disney Vault.”
With the opening of “the vault” J.P. Morgan is predicting Disney+ will eventually draw 160 million subscribers globally.
Disney+ Just Got Even More Threatening for Netflix
Disney+ is the new video streaming service that’s set to debut in late 2019. The confirmation that Disney+ had a name and would be launching this year was enough to help set Netflix stock back nearly 3% last November.
When Disney launches its video streaming service, it will do so with a considerable library of movies and TV content from its Disney, ABC and recently acquired Fox properties. That includes popular movies franchises like Star Wars and the Marvel movies. And all of these titles will be yanked from Netflix this year.
The situation for Netflix just got a little more unpleasant on news that Disney+ will also offer all the classic animated movies from the Disney Vault. This includes titles ranging from Cinderella to Aladdin.
J.P Morgan released an investor note yesterday predicting that Disney’s popularity globally, the company’s marketing ability, and the massive content library available for its streaming video service will see Disney+ eventually hit 160 million subscribers. That will make it a serious rival to Netflix. With Disney+ expected to undercut Netflix on monthly subscription costs (even more noticeable after the company hiked rates to start off 2019), it will put additional pressure on NFLX.
Why the Disney Vault Is Important
What’s the big deal about the Disney Vault and how can its collection — the company has only produced 57 animated feature films — make such a big difference for the Disney+ prospects?
Disney has carefully managed the distribution of these movies since the days of VHS movies releases, continuing through DVD, Blu-Ray and into streaming. The result has been what The Verge describes as a deliberate artificial shortage of these popular movies. Titles are available in a format for a short period of time before being put back in “the vault” and then consumers are forced to wait — or pay big dollars for used copies.
By opening up the vault and making all of those animated classics available to Disney+ subscribers, DIS is making its streaming video service look like a must-have for millions of Disney fans who don’t already own the complete library of movies. And it will have instant appeal to families, whose children frequently watch the Disney classics over and over.
2019 Will Kick Off a Serious Video Streaming Video War
Up until now, Netflix has not had to face truly serious competition for video subscribers. Amazon (NASDAQ:AMZN) has over 100 million Prime subscribers in the U.S. — and they get Amazon Prime video as part of the deal. But Amazon Prime video is more of a perk than a video streaming service that competes directly with Netflix on a subscriber basis. There are lots of smaller services as well, but none that come close to the numbers Netflix puts up.
But in 2019, Netflix will face big challenges. Apple (NASDAQ:AAPL) is getting in the game, but Disney+ is the real threat. J.P. Morgan thinks the result will be too many streaming services, resulting in a shakeout, but Disney’s new service will thrive:
“While there is little question there are more direct-to-consumer services today than ultimately should survive, we have no doubt that Disney+ remains on the short list of products that should prevail longer-term.”
Good news if you’ve been itching to watch Alice in Wonderland and your VHS copy is gathering dust on a shelf, probably not so great if you own Netflix stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
