Check out the latest Disney earnings call transcript.
Walt Disney (DIS +3.30%) owns an enormous array of content that can be part of its Disney+ streaming service. This includes everything from all its kids' programming to shows based on Star Wars, Marvel, and its many other popular brands. That gives the company an edge over its rivals, as it owns a lot of surefire hits with a built-in audience. Despite that, Disney+ likely won't have as high a price as some of its chief rivals command.
A full transcript follows the video.
This video was recorded on Jan. 22, 2019.
Dylan Lewis: Something I want to do while we're talking about Disney is dissect the Disney+ offering a little bit. I know as a shareholder, this is something I've looked to and said, "This is the no-brainer service. If you're a parent and you have young kids, you pretty much have to have it because that's what they want. They want that IP library."
Dan Kline: You assume they're going to bundle a lot of the kids' programming.
Lewis: I would think so.
Kline: Obviously, some of that is licensed elsewhere, but eventually -- just like they pulled back everything Marvel from Netflix -- eventually they're going to pull back whatever they can pull back. You're going to get your Mickey Mouse and Goofy and Pluto and eventually the library of movies, and all the stuff that every kid watches a thousand times. That's going to be an enticement.
Where they have an advantage over Netflix -- and we've talked about this a few times personally and on the air -- is that they know, in creating two Star Wars shows, unless those shows are terrible, which they won't be, given the creative people involved, I'm going to watch that. Michael Douglass is going to watch that.
Lewis: Not the actor, The Fool's Michael Douglass.
Kline: I was going to say, those of you who have been an Industry Focus follower for a long time, you know Michael's name. He's a very big Star Wars fan, along with me. When they launch a show based on Loki starring Tom Hiddleston, the actor who played him in the movies, that's going to be a major draw. And I look at Netflix -- if there's one show I'm watching that gives me something to do tonight, that's worth it to me. Disney won't have to make as many shows to hit all the age demographics. Plus, they do have whatever they own through ABC, I don't know, Roseanne reruns? [laughs] I'm not really sure what ABC owns and doesn't own. All the old Wide World of Disneys, all the archival programming. But in terms of their new content spend, they're going to be able to figure out, "Gee, Dylan is not a Star Wars fan, but this is what we own. He loves Pirates of the Caribbean. We're going to do a show based on the young Captain Jack." I don't even remember if that's the guy's name. I think it is.
Lewis: It is! It's Captain Jack Sparrow. Yeah, they don't have to build out the library and spend $8 billion, $14 billion, whatever it is that Netflix wants to drop to create shows that they can then spread fixed cost over. So, the financials look a little bit different. But thinking about Disney+ a little bit, you tell someone, they're getting into streaming. This is where the industry is going. That sounds like a game changer. Then you start looking at the numbers a little bit, and it's not quite the case.
Kline: No. Everybody's launching a streaming service. Most of the wireless carriers -- AT&T, Verizon. Comcast has NBC and Disney owns ABC. CBS has their service with Star Trek and...that's it? [laughs] The Good Wife spin-off, The Good Fight. But Disney can do this in a way that really nobody else can. You could argue maybe if Comcast and Sony teamed up, maybe they'd have even half of what Disney can launch with. But think about it, they could do a spin-off of Frozen and an adult-themed X-Men show. [laughs] Not that adult, it's Disney.
Lewis: Yeah, but, they have the content library to draw on. I think what's interesting, though, is you hear that, and you think, this should be a boon for them financially. And the reality is --
Kline: It's a cost for a long time.
Lewis: It's a cost for a long time. And even if it hits the scale that a Netflix is at, it isn't going to be a huge, huge driver short term for them financially. They've already talked about in the past how they know they can't price at what Netflix is at because -- and CEO Bob Iger has said this -- they have less volume. They're not going to have the depth in terms of product library. They're going to have everything you want to watch.
Kline: See, I don't think they could launch at $11.99 a month. I think they're going to launch at $6.99, $7.99, or do what some of the other services have done, give you a year for $60 or whatever you pay up front. But I think the reality is, it's not going to take them that long of dollar-a-year price increase to get where they need to be. This will hurt third-rate streaming services. Are you going to maybe drop DC Universe, WWE Network, MLB, whatever it is, if you're only kind of using it? Yes, because your whole family is going to get value out of this.
But I really do think this becomes the one. Yeah, you're going to have Netflix, you're going to have Disney, you'll have Amazon Prime not because you're paying for it, but because you like free delivery. And maybe you'll have Hulu or Sling, your streaming service. That's going to be your $60, $70, $80 cable bill. I don't see anybody else being able to get in as cheaply as Disney's going to be able to get in.
Lewis: I 100% agree with you, Dan, in terms of the pricing being, "We need to start low and see exactly where the price sensitivity is." But, knowing that they're probably going to be coming in at $7 or $8, think about it, if they get 100 million subscribers -- years out from now, not immediately. This will launch in late 2019. That's not going to be a huge boost to the top line for them. They're a big business. They make $60 billion in trailing 12-month revenue.
Kline: No, it's not going to be a huge boost. But it's also going to be all of the other things you can do with that. This will support more theme park rides. They will, in theory, make stars out of characters that were in their universe but weren't stars. That becomes meet and greets, that becomes more pajamas, it becomes video games. It's all the ability to get every nickel out of what they have.
Much like Netflix, Netflix is spending $6 billion to $8 billion, whatever the number is, that's not a forever number. At some point, they're going to say, "We have this huge library, and all we need is for the existing customer, the one or two things they're going to watch every quarter." So, if you're Disney, once you have 10 seasons of Star Wars: The Mandalorian and whatever the other Star Wars Show is going to be, maybe you only have a Star Wars series that produces 13 episodes every two years. You're not going to need the level of content spend as you build the library. And your library is going to be way more hit driven. If I said The Ranch and The Laptop, do you know which one is a Netflix show?
Lewis: [laughs] I know The Ranch is a Netflix show. I've never watched it.
Kline: Can you promise me The Laptop isn't? [laughs]
Lewis: I can't.
Kline: Neither can I.
Lewis: They're both nouns.
