Something like 14% of Netflix’s (NASDAQ:NFLX) current U.S. subscribers are thinking of ditching the company’s service in favor of Disney’s (NYSE:DIS) Disney+ streaming service when it launches later in 2019. That isn’t good for Netflix stock.
The findings are from research company Streaming Observer and Mindset Analytics who recently surveyed 602 Netflix subscribers. The survey wanted to know if current subscribers would switch to Disney+ once it was available for $6.99 a month.
A mass revolt by 8.7 million Netflix subscribers, which is estimated could cost the company more than $117 million in revenue per month, seems highly unlikely. Here’s a simple reason why.
Disney+ and Netflix Stock
Naturally, the biggest audience for Disney+, at least at the start, will be parents and their kids. Disney, after all, caters to this audience. If it can’t get a significant number of younger households trying its service when it launches, Disney is sunk.
I don’t imagine that happening.
Of the 602 subscribers surveyed, 37.5% said they would try Disney+ while 40% said they would not. That last number seems like a pretty high figure. If I were Disney CEO Bob Iger, I’d be very concerned, but I digress.
Disney has one shot at getting a foundational base padded by parents of young children. If it messes up this group, it’s going to be a lot harder to convince people with grown children to try Disney+. I could see most people in the 35-55 crowd taking a wait-and-see approach when it comes to Disney’s service.
I guess that’s why only 2.2% of those surveyed said they would cancel Netflix. Using the same figures to come up with $117 million in lost revenue per month, Netflix is only facing a loss of $240 million in annual revenue or about 3.1% of its 2018 U.S. streaming revenue of $7.6 billion.
No wonder Netflix CEO Reed Hastings was rather nonchalant about the increased competition during the company’s Q1 2019 earnings discussion.
“Disney and Apple add a little bit more, but frankly I doubt it will be material because again there’s already so many competitors for entertainment time,” he said.
The reality is that Amazon (NASDAQ:AMZN) could be at greater risk than Netflix when it comes to Disney. Its service isn’t nearly as advanced. Wisely, Jeff Bezos’ included the video-streaming as part of Prime to restrict defections.
Viewer Retention and Netflix Stock
Don’t you hate it when you hear an offer from a bank or cable company that you use that offers fantastic rates to new customers? Meanwhile, you’ve been with the bank for 30 years, and yet you’re getting a lower rate on your savings account.
How many Netflix customers would leave if they knew they’d get a better deal merely because they’ve been a customer for so long. Netflix started video streaming in 2007. If you’ve been a customer since the beginning, your membership is worth far more than somebody who just joined last week.
Let’s assume that you’ve got the premium subscription that costs $16.99. Let’s also assume you got the Netflix four-stream family plan when it was launched in 2013. Not only have you been a subscriber for 12 years, but you’ve also upped the ante in that time.
I look it like the change Starbucks (NASDAQ:SBUX) made to its Rewards program in 2016 so that people who spent more got more benefits than those who visited a lot but only got a grande coffee each time.
I was one of those frequent visitors who didn’t spend much. At the time, I said the furor over the change would blow over. Of course, in hindsight, I was right. Starbucks Rewards has gone on to be one of the most popular loyalty programs in the country.
The reality is that not every customer is the same. Some warrant more love than others. The same is true for Netflix.
If the company provides a loyalty discount to long-time customers, I’m sure the defection rate to Disney would be even smaller, while helping strengthen its brand around the world.
The Bottom Line on Netflix Stock
To buy Netflix stock or DIS stock is the question on the minds of many investors.
However, I don’t think that’s the right question. The right question is why you should or shouldn’t buy both stocks?
Disney adding Disney+ is ensuring the Disney brand is relevant to consumers for years to come. That doesn’t mean it has to come at the expense of Netflix and vice versa.
If you own one of the stocks, you probably should own both. If you have Netflix’s streaming service, you perhaps ought to have Disney’s as well.
Long-term, owning both stocks could pay greater dividends than owning just one.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
