The Walt Disney Company (DIS 0.82%) announced earlier this year that it would not be renewing its deal with Netflix, Inc. (NFLX 1.71%). The agreement, which brought films from the Marvel, Pixar, Lucasfilm, and Disney studios to the streaming giant, would be allowed to expire in 2019. This coincides with Disney's plan to debut its own over-the-top service that same year, and the House of Mouse will now use those movies in support of its own streaming efforts. The company will also launch an ESPN-branded service in 2018.

Disney's announcement last week that it plans to acquire Twenty-First Century Fox, Inc. (FOX) (FOXA) provides the company with a treasure trove of additional content. One of the more intriguing consequences of the proposed merger will be the controlling interest that Disney will gain in Hulu, the third most popular streaming platform in the U.S.

Couple sitting on couch smiling watching TV with man holding the remote.

Disney will soon have three streaming services. Image source: Getty Images.

This illustrates how Disney will hit the ground running in the streaming market, and by 2019 the House of Mouse will have three streaming services, all aiming to compete with Netflix -- in one way or another.

A long time coming

Thus far, streaming has been dominated by Netflix, with Amazon (AMZN -0.16%) and Hulu rounding out the top three, and all other providers coming in far behind. Netflix has an estimated 61% usage penetration in the U.S., while Amazon and Hulu control 36% and 22%, respectively, according to Decoding the Default, a report by market-research firm Hub Entertainment Research

Three concentric circles with Netflix showing 61%, Amazon with 36%, and Hulu with 22%.

Netflix dominates the current streaming market. Image source: Hub Entertainment Research -- Used by permission.

That doesn't tell the whole story, however. The report found that 66% of viewers in the study subscribe to at least one streaming service, 38% subscribe to two or more services, and 14% use all three. Consumers willingness to subscribe to multiple services bodes well for Disney's entry into a market largely controlled by Netflix. 

There is also significant interest in Disney's upcoming streaming service among young viewers. 36% of 18- to 29-year-olds surveyed indicated that they would subscribe to a Disney offering, according to a recent poll by Morning Consult. Of those, 58% said it would be in addition to other streaming platforms.

On an investor call to discuss the Fox acquisition, Disney CEO Bob Iger said that the Disney-branded service, which will include content from the Marvel, Pixar, Lucasfilm, and Disney studios, would be priced lower than Netflix, though specific details weren't offered.

Speaking of sports

Disney will debut a sports streaming service in the spring of 2018 dubbed ESPN Plus. Disney will introduce a dedicated app in conjunction with the launch and will provide viewers with "additional sports coverage" including about 10,000 live sporting events per year. Disney hasn't yet divulged if subscriptions will be available to the public at large, or only those who currently have a cable subscription.

With the acquisition of Fox, Disney with gain 22 regional sports networks that could provide additional content for its fledgling streaming effort. 

Analysts have long questioned Netflix's refusal to carry sporting events. At the UBS 45th Annual Global Media and Communications Conference, Netflix Chief Content Officer Ted Sarandos had this to say:

The reason why I've been less attracted to sports is I think the leagues have almost uncheckable pricing power and ultimately will go direct to consumer. I honestly believe the prize is to take the NFL direct and MLB direct to the consumer and that gives them unbelievable pricing power that I'm not attracted to. 

What will happen to Hulu?

Fox owns a number of critically acclaimed programs that don't fit the wholesome, family-friendly Disney image. The award-winning anthology series American Horror Story is one such example, while R-rated Marvel hit movies Deadpool and Logan are others. The network also has long-running hits like Family Guy and The Simpsons that would run counter to Disney's squeaky-clean brand.

On the investor conference call to discuss the merger, Iger said that "Hulu is sort of a more adult-oriented product using Fox Television production and FX." He was even specifically asked about the bawdy, foul-mouthed superhero Deadpool and the planned sequel. "We think there might be an opportunity for a Marvel-R brand for something like 'Deadpool.' As long as we let the audiences know what's coming, we think we can manage that fine." 

Hulu would provide Disney an outlet for any content that fell outside its normal PG-13 or tamer offerings.

Who will win the streaming title?

With three services serving three vastly different markets, it may not be very long before Disney becomes a serious streaming competitor. Family friendly fare through the Disney-branded platform, sports via ESPN, and edgier, more adult-themed content on Hulu.

As the incumbent, should Netflix be worried?

With more than 100 million subscribers worldwide and more joining every quarter, the race is Netflix's to lose. The company pioneered streaming and has been fairly adept at staying ahead of the curve in the space it created. With 38% of streaming customers already subscribing to more than one service, I think there's plenty of room for a little more competition. Ten years down the road, I believe that streaming will evolve to provide the a la carte choices that cable customers could only dream of.