If you’re a Star Wars fan, this is unquestionably a great time to be alive. With franchise owner Disney (NYSE:DIS) at the helm, it has the power and resources to expand the narrative to new frontiers. And it’s doing exactly that, with Star Wars: The Last Jedi scheduled for release this December. That alone is enough to get excited about Disney stock.
Of course, the Magic Kingdom isn’t stopping there. The company’s much-awaited streaming platform, Disney+, will soon launch with the headlining Star Wars-based live-action series, The Mandalorian. It follows the exploits of a bounty hunter in the style of Boba Fett, a fan favorite character. Written and created by Jon Favreau, The Mandalorian could help lift Disney+ past streaming rival Netflix (NASDAQ:NFLX). And that would likely send DIS stock into hyperspace.
Moreover, Disney is apparently having the effect that it badly wants. In Netflix’s third-quarter earnings conference call, the streaming giant’s management team acknowledged competitive difficulties. Although NFLX executives have admitted a “modest headwind” from DIS and streaming newcomer Apple (NASDAQ:AAPL), I’m sure the conversations behind closed doors are much more vibrant.
On the surface, this tension seemingly bodes well for Disney stock. But breaking the binary dynamic between Disney’s empire and Netflix’s rebellion comes another unexpected player: AMC Entertainment (NYSE:AMC).
In a stunning announcement, the cineplex operator will introduce a streaming video store for films that have just finished their theatrical run. More importantly, AMC has partnerships with the biggest Hollywood studios: Disney, AT&T’s (NYSE:T) Warner Bros., Comcast’s (NASDAQ:CMCSA) Universal, Sony (NYSE:SNE) and Viacom (NASDAQ:VIA, NASDAQ:VIAB), which owns Paramount.
But will this end up cannibalizing DIS stock?
For Disney Stock, Everything Centers on Content
On the surface, the last thing streaming companies need is more competition. By increasing the number of (exclusive) options, for the end-consumer, you’re killing what makes streaming beautiful.
On average, a corded TV subscription costs more than $64. Cut the cord, though, and you’re looking at compelling options. Netflix offers their basic plan at $9 and their premium at $16. On the other hand, Disney will start their monthly subscription price at a crazy-low $7. And Apple TV+ is going subterranean at $5 per month.
But as the streaming customer adds up these services, the discount against cable becomes less meaningful. Plus, who has time to watch all this content?
Therefore, AMC will definitely have an impact on the streaming landscape. But will it negatively affect DIS stock? I highly doubt it.
For one thing, Disney partnered with AMC. Clearly, both sides see this as a symbiotic relationship. Second and more importantly, the deal emphasizes what matters most: content.
From the cineplex industry’s perspective, their revenue stream has flatlined. But what brings in the people are the big franchise movies like Star Wars. As I’ve argued before, DIS owns an enviable content empire, which should drive both box office sales and DIS stock.
For the streaming component, Disney is also in an enviable position. According to Stephan Paternot, co-founder & CEO of Slated, the differentiating factor in the streaming wars is, again, content. Regarding this business, Paternot states, “All players, including AMC, will need to ramp up acquisition of content to attract and maintain subscribers.”
Such sentiment suits Disney stock perfectly. Although the company’s prior acquisitions have been pricey, they were also focused. Disney recognized that they needed compelling content to win the next evolution in entertainment. They’re merely practicing what they preach.
Disney’s Victim List
As reality dictates, not all streaming relationships are symbiotic. Regarding AMC’s news, I believe stakeholders of DIS stock can relax. The deal is good news for the two parties.
But what about the rest of the pack? Notably, Netflix has the most to lose since they’ve long been the uncontested streaming player. While I do see risks, I think Netflix has some safety buffer. In recent years, the company has proven that their core catalyst lies well beyond the underlying streaming platform.
If Paternot is correct about his assessment, Netflix should get a reprieve: they offer brilliant original content.
So, who will become streaming’s losers? Frankly, I’m not feeling Apple TV+. Although its price point is attractive, the limited content volume is not. You’re getting considerably more value from either Disney+ or Netflix.
I’m also not getting a great read from Amazon’s (NASDAQ:AMZN) Prime Video. With so many options now with AMC in the mix, Prime Video appears largely superfluous.
However, Apple and Amazon have their own core businesses, where as Disney is all about entertainment. With Disney+, management’s long-term strategy is finally making sense. And that’s great news for Disney stock.
As of this writing, Josh Enomoto was long AMC, T and SNE.