As Disney gears up to launch its streaming services, Disney+ later this year, analysts at Edelweiss believe the media and entertainment major’s OTT platform can potentially be a ‘big disruptor’. Disney+, with its impressive line up of original content and lower pricing, could play a spoilsport for Netflix that spent an estimated $12 billion on content in CY2018, the analysts at Edelweiss noted in a recent report.
Earlier this year, Disney said its streaming service, Disney+ will be launched in the US on November 12, 2019. Analysts at Edelweiss estimated it to be at $6.99 per month, about 32% lower than Netflix’s global average revenue per user (ARPU). The service will be rolled out globally by 2021.
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In August 2017, Disney had announced ending distribution deal with Netflix, a year after the partnership stitched in 2012 materialised. “With marquee content leaving the platform, Netflix could be in additional pressure to churn out more original content to keep its existing subscribers intact as well as attract potential subscribers to the platform, putting more pressure on the financials of the business,” the analysts said.
According to Netflix’s filings for Q1CY19, ARPU for the US region, that makes up about 40% of its subscriber base, stood at $11.6 and global ARPU (excluding US) stood at $9.3. Although Netflix gets an equal share of revenue, about 50% from both global and domestic subscribers, the company’s operating profit from global market was at a mere 8.5% in CY2018 against about 34% generated from the US market, indicating ‘limiting pricing power in global markets and higher spend towards building subscribers’, noted the analysts in a recent report.
In CY18, Netflix reported a negative $3 billion in free cash flow approximately, while debt piled up to $10 billion. While content cost shored up close to $12 billion on net basis in CY18, streaming revenues were pegged at about $15 billion.
Apart from Disney, NBC Universal and AT&T are also likely to offload their content from Netflix to build up on their OTT platforms, noted the analysts. The management of Netflix, however, played down the concerns. In an earnings call in April, CEO Reed Hastings had said, “I mean we mentioned we only win 2% of downloading on mobile, it’s like 98% of the time people are not doing Netflix on US televisions, it’s 90% are not watching Netflix, so there’s a tonne of competition out there and 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, which is great for consumers and it’s exciting for us.”
Disney plans to spend about $1 billion on original programming for Disney+ in the first year, with annual spending rising to $2.5 billion by 2024, according to a recent Edelweiss report. In its first year, Disney+ will release more than 25 original series and 10 original films, documentaries, and specials. New original titles announced include content from Marvel Studios, Pixar Animation Studios, Walt Disney Animation Studios, National Geographic. Overall, Disney+ is estimated to have around 7,500 television episodes and 500 films. It will have exclusive streaming rights for The Simpsons, making it the only platform to stream the show.