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Netflix's Streaming Dominance Challenged by Disney & Apple
Aniruddha Ganguly December 12, 2019
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Aniruddha Ganguly
The battle for streaming market dominance is intensifying between Netflix (NFLX - Free Report) and new entrants Disney (DIS - Free Report) and Apple (AAPL - Free Report) .
While Netflix dominated this year's Golden Globe in terms of nominations (34 overall), Apple's The Morning Show, which debuted on its streaming platform Apple TV+, won three nominations. For a one-and-half-month-old platform (Apple TV+ launched on Nov 1), it is a major confidence booster.
Meanwhile, Disney's streaming platform Disney+ has already been downloaded 22 million times since its launch on Nov 12, per Reuters, which quoted a report from Apptopia.
The company now serves almost 41.5 million viewers in the United States, including subscribers of Hulu and ESPN+, compared with Netflix's 61 million.
Intensifying Competition to Hurt Netflix's Prospects
Apptopia also stated that the performance of Netflix and Amazon's (AMZN - Free Report) prime video was not affected by the impressive download figures of Disney+. Nevertheless, Netflix is expected to lose market share due to a number of reasons in the long haul.
Notably, Apple's content strength and focus on original content boost its growth prospects in the streaming space. Additionally, Disney's expansive library of movies, including the hugely popular Marvel Cinematic Universe (MCU), and shows is a key catalyst.
More importantly, both Apple and Disney are deep-pocketed companies and the streaming services currently form a very insignificant part of their business models compared with Netflix.
On the flip side, Netflix plans to counter rising competition on the back of a robust content portfolio and binge viewing. The streaming giant is estimated to spend $15 billion this year on content compared with $12 billion in 2018.
However, increasing spending is expected to negatively impact free cash flows. Netflix expects to spend $3.5 billion in cash on operations and investments in 2019. Notably, the streaming giant has a content obligation of almost $19 billion in its balance sheet.
Notably, Netflix's shares have returned 11.6% year to date, underperforming the S&P 500's rally of 24.3%.
Netflix the Priciest Among the Streaming Players
Further, Apple and Disney's competitive pricing is hurting Netflix.
At $4.99 per month, Apple TV+ has undercut the pricing of every other streaming service provider. Moreover, while Disney+ charges $6.99 per month, the company is also offering a bundle package of Disney+, ESPN+ and ad-supported Hulu for $12.99 a month.
Moreover, HBO max, set to be introduced in May 2020 at $14.99 a month, charges $1 less than Netflix's costliest plan.
Meanwhile, Amazon prime video subscription costs $8.99 a month, while Prime members, paying $12.99 per month for shipping and shopping deals, can avail video services as well.
Content Loss to Hurt Subscriber Base
Although Netflix is still the largest streaming player globally, lack of content from Disney's Marvel-Pixar hits is expected to hurt its ability to add subscribers.
Moreover, the competition to gain exclusive rights to classic TV shows has intensified among streaming service providers and might hurt Netflix.
Hulu grabbed the rights to ER. Disney, Amazon prime video and HBO Max secured rights to The Simpsons, Sex and the City, Friends and The Big Bang Theory, respectively. In the meantime, Peacock acquired exclusive rights to The Office.
Disney+ & Apple TV+ Expected to Grow Rapidly
Per Digital TV Research report, Disney+, Netflix Amazon, Apple TV+ and HBO Max will have 529 million subscribers by 2025. These services are expected to add 257 million subscribers between 2019 and 2025.
Disney+ is anticipated to reach a total of 101 million subscribers, most among these service providers, trailed by Netflix, during this time frame. Disney+ is expected to have 60-90 million subscribers globally by the end of fiscal 2024.
According to a CNBC report, Apple TV+ is expected to become a $9-billion-per-year business with 136 million paid subscribers by 2025, assuming that one in every 10 Apple users will pay for the service, as estimated by Morgan Stanley analyst Katy Huberty.
However, according to Needham analyst Laura Martin, quoted by MarketWatch, Netflix is expected to lose 4 million U.S. subscribers in 2020 due to increasing competition.
Netflix, Apple and Disney currently carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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