Disney's (NYSE:DIS) otherwise lethargic quarterly report on Thursday had a few encouraging nuggets about the streaming service that it plans to roll out in the second half of 2019. Unlike the over-the-top ESPN platform that the media giant plans to roll out in a few months, this more ambitious offering will feature Disney, Pixar, Marvel, and Star Wars films starting with the earliest pay TV window.
Disney also plans to produce four or five feature films and original shows that will stream exclusively on the service. Perhaps more importantly, Disney mentioned during Thursday afternoon's conference call that it will offer the direct-to-consumer platform at a price point that is substantially lower than Netflix, which is currently available for as little as $7.99 a month for its standard-def plan and $10.99 for its more popular multi-user high-def service.
Disney is right to be aggressive on pricing. CBS (NYSE:CBS) is throwing a lot of money and even proprietary Star Trek content at its $5.99 a month CBS All Access offering, yet it's only targeting to have 8 million total subscribers between CBS All Access and Showtime's over-the-top platform by 2020. Prime Video is being treated as a loss leader by the world's leading online retailer.
The House of Mouse will also have a lot of ground to make up on market leader Netflix (NASDAQ:NFLX). The leading premium streaming service expects to have more than 115 million streaming accounts worldwide by the end of next month. It's on a pace to top 150 million accounts by the time Disney's platform launches in the latter half of 2019.
Disney has a lot of things going for its offering. It's the premium brand in family entertainment. It has marquee content in a growing vault, and it's apparently hungry for more. Its global network of theme parks attracts more than 140 million visitors a year, giving it an affluent target audience to which it can market its platform and exclusive content.
If Disney is serious about coupling its blockbuster films with original content -- and if it's humble enough to truly price itself aggressively -- Disney will have a strong chance at succeeding. However, that growth won't come at the expense of Netflix. Disney's direct-to-consumer success will come at the expense of cable and satellite television providers. In a few years, homes with cable and satellite television will be in the minority. Homes with blazing connectivity speeds will choose their over-the-top services, and they will likely have several and still pay less than they are right now.
Netflix will continue to be the default setting for video buffs. It works. It's spending a lot on content. It shelled out $6 billion in content this year, and it's earmarking $7 billion to $8 billion next year. By the time Disney launches in two years, Netflix may be spending roughly $10 billion a year. A service with millions and perhaps even tens of millions of paying subscribers can't match that, and this is where naysayers arguing that Netflix is just a middleman with no moat miss the merits of its scalability.
Disney -- like CBS -- will probably succeed. Netflix is going to keep succeeding.