As Disney (NYSE:DIS) investors eagerly await the launch of the company's flagship streaming offering -- Disney+ -- speculation about the potential for the service is taking on a fever pitch. Analysts are weighing in with their best guesses of how popular the platform will be with consumers.
Alexia Quadrani of J.P. Morgan has run the numbers and believes that Disney could sign up as many as 50 million customers before the end of 2020, a remarkable estimate considering the service isn't set to debut until later this year. She goes on to calculate that the service could eventually top 160 million subscribers worldwide.
If Disney were able to attract a customer base of that size, it would put the company on track to challenge reigning champ Netflix (NASDAQ:NFLX), which currently has 139 million subscribers worldwide. Let's take a look at how Disney could get there and what it could mean for investors.
Check out the latest earnings call transcript for Disney.
The House of Mouse has leveraged its acquisitions of Pixar, Marvel, and Lucasfilm to create box office magic, with its movies taking 5 of the top 10 spots in the list of all-time worldwide ticket sales -- and each of those was released just in the past three years. Avengers: Infinity War, Black Panther, Incredibles 2, and Ant-Man and the Wasp were among the top-grossing films of 2018, leading Disney to generate more than $7.33 billion in global box office last year, garnering nearly 18% of worldwide ticket sales.
This illustrates the wellspring of hit movies the company has to supply the Disney+ service. And it isn't stopping there. Disney is creating original series from across its studios, too. Here are a few that have been confirmed:
- The first-ever live-action Star Wars series, The Mandalorian
- An original series based on Disney Channel's High School Musical
- An animated series based on Pixar's Monsters, Inc.
- A new season of the Star Wars animated series Clone Wars
- A live-action version of the animated classic Lady and the Tramp
- A live-action Marvel series based on the Norse god of mischief, Loki, starring Tom Hiddleston
- A second Star Wars series starring Diego Luna
A ready-made audience
Disney has a distinct advantage when it comes to marketing its new service. The company has ongoing relationships with (and likely email addresses for) annual passholders and frequent visitors to its theme parks, members of D23 (the company's fan club), Disney-branded credit card holders, and travelers on Disney Cruise Lines.
The company can also cross-market to ESPN+ subscribers, as well as those watching Disney's cable channels and programs on its ABC network. This type of unprecedented access to its target market will help Disney to scale its subscriber base quickly.
Streaming could significantly boost Disney's revenue
Even with all those potential customers, we don't yet know what each one could be worth, as Disney has yet to announce a monthly subscription price. During the company's Q4 2017 conference call, CEO Bob Iger said: "I can say that our plan on the Disney side is to price this substantially below where Netflix is. That is, in part, reflective of the fact that we'll have substantially less volume." He went on to say that the company would be looking to "attract as many subs as possible starting out." The company plans to boost the subscription price as the volume of programming increases.
Iger's use of the word "substantially" is obviously subjective, but we can make some assumptions to get us close. Netflix's least expensive plan runs $8.99 per month, and Disney charges $4.99 per month for ESPN+, so that seems like a good starting point.
If Disney were to charge between $4.99 and $6.99 per month (which is arguably substantially lower) and hit 50 million subscribers, that would generate revenue of between $3 billion and $5 billion in the first full year alone. At 160 million subscribers, we're talking between $9 billion and $13 billion annually. To put that into perspective, Disney produced $59 billion in fiscal 2018. If Disney were to achieve these estimates, it could increase its revenue by between 5% and 7% in the first year and could eventually boost its top line by between 16% and 22%.
While this is all fun with numbers, the most important takeaway is that Disney is one of the few companies with the resources to mount a serious challenge to Netflix. With more than 139 million customers worldwide, the streaming giant is the standard by which all other services -- including Disney -- will be measured.
Still, if anyone has the brand power and resources to take on Netflix, it would be Disney. We'll know a lot more about its streaming plans when Disney hosts its investor day on April 11.