Netflix (NASDAQ:NFLX) does not succeed or fail based on its competition. The company may lose some subscribers in the United States due to Walt Disney (NYSE:DIS) entering the streaming space, but it's going to be a minor blip that does not significantly affect the company's long-term growth strategy.
The arrival of Disney+ may hurt in the short term as some people who have tired of Netflix decide to drop their subscriptions. The reality is that, in most cases, they will be back when the streaming leader has new content. That makes it a major mistake for investors to panic over any subscriber drops (or slower-than-expected growth).
There is only one Disney
No other company planning a streaming service has the content lineup and intellectual property (IP) resources that Disney has. Netflix may not equal Disney for family content, and it falls well behind the Mouse House in franchise content, but Netflix has a strong library compared to any of the other players.
This is not cable, where consumers pick one provider. It's a market where over 51% of Americans subscribe to more than one streaming video service, according to research from Leichtman Research Group (LRG). That's an increase from 33% in 2017 and 20% in 2015.
Going forward, those numbers are almost certain to increase since younger people use streaming services more heavily. "51% of ages 18-34 stream an SVOD service daily -- compared to 34% of ages 35-54, and 15% of ages 55+," according to LRG. Cord-cutting has also accelerated, and people who drop cable generally replace it with multiple streaming services.
"With over half of all households now getting multiple SVOD services, and new streaming services on the way, it is inevitable that the number of households having and using multiple services will continue to grow," said LRG CEO Bruce Leichtman in a press release. "However, with expanded options, consumers will increasingly decide which streaming services they pay for directly, and which they share with others."
The reality is that in a world where people pay for multiple services, it's hard to imagine both Netflix and Disney+ not being used by most consumers. Both offer a large variety of content, with Netflix actually addressing a broader age range of potential subscribers since the Disney service does not offer R-rated content.
Netflix will be fine
Netflix CFO Spencer Adam Neumann addressed the company's subscriber forecast during its third-quarter earnings call. He did not name Disney specifically, but clearly he was at least partly alluding to the company.
And then lastly there [are] obviously a few new competitors launching in the near term and we try to factor that in as well. Inevitably, there's probably going to be some curiosity and some trial of those competitive service offerings. So when we put all that together -- again, we adjusted our forecast slightly, it's still nearly 27 million paid net adds for the year, a tremendously strong year and furthermore, it's -- it is -- our long-term outlook is unchanged in terms of the long-term opportunity for the business.
Neumann acknowledged that Q3 had a higher-than-usual churn. That may be due to Disney, but it's not likely given that the quarter ended more than a month before Disney+ launched. The reality is that when you have a product with month-to-month terms, consumers will come and go.
In the long run, though, Netflix simply has too much content for most people to not spend at least part of the year as a member. The company has shown that it can build an audience around the world, and it has essentially become a basic cost of entry to anyone who cuts the cord (and many people who have not).
Disney+ may become the clear No. 2, or even share the No. 1 spot someday. That's fine, because no other company has the content to be a player on that level, and there's room for more than one winner in this space.