Walt Disney (NYSE:DIS) launched its much-anticipated Disney+ streaming service on Nov. 12, and the first 10 million who signed up were in for a surprise. The main action of Disney's marquee show, The Mandalorian, is entertaining enough on its own, but one cute little character everyone is calling "Baby Yoda" (officially named the Child) has made Disney+ a huge success out of the gate.

The combination of good storytelling and an adorable character like Baby Yoda has made The Mandalorian the hottest streaming TV show available right now. Market researcher Parrot Analytics has found that The Mandalorian is 31.9 times more in demand than the average streaming show, and that it's knocked Netflix's (NASDAQ:NFLX) Stranger Things off its top-ranking position.

A small green creature with big ears wearing a robe, walking down a ramp

The Child in The Mandalorian. Image source: Walt Disney.

Baby Yoda shines every time it appears in a scene. Disney knew the character was going to be popular with fans. So, not to miss an opportunity to cash in ahead of the holidays, the Disney store has been filled with apparel, accessories, and toy figures based on the Child.

Plush dolls from Hasbro and Mattel won't make it to store shelves until next year. That could be more of a lost opportunity for the toymakers than for Disney, which stands to benefit this holiday from millions of people signing up for its new streaming service, not to mention the next $1-billion-film-in-waiting from the film Star Wars: The Rise of Skywalker.

How Baby Yoda fits into Disney's business model

The return on investment that Disney generates across its entertainment brands is unrivaled. There is no way to quantify the returns a show like The Mandalorian will generate because the company's financial benefit from a character like Baby Yoda will extend far beyond the monthly subscription fees for Disney+.

Let's consider how a typical Star Wars fan will spend money with Disney. A fan pays $6.99 per month for Disney+, which perhaps leads to a purchase of a Baby Yoda t-shirt. That fan then goes to see Star Wars: The Rise of Skywalker. Eventually, a household hooked on Disney+ might book a trip to Disney World to see the latest Star Wars attractions. Altogether, Disney generates most ($46.7 billion) of its revenue from consumer products, studio entertainment, direct-to-consumer services, and theme parks. The interest from a single piece of content can blend with several other revenue categories at Disney.

Disney is going to make a lot of money off Baby Yoda merchandise, although consumer products have comprised less than 10% of Disney's annual revenue in recent years. The official Mandalorian merchandise currently for sale in the Disney store is clearly not enough to satisfy the enormous demand this holiday season. On Etsy, there were about 5,500 listings for "Baby Yoda" items in mid-December. There are now around 9,000.

Baby Yoda is the latest pop-culture phenomenon, but Disney has been impressing audiences for decades. Disney won an Academy Award in 1932 for Flowers and Trees, the first full-color cartoon. It wowed audiences again with the full-length animated film Snow White and the Seven Dwarfs in 1937. Disney dazzled theater-goers again with innovative special effects in Mary Poppins in 1964. And Disney's Pixar has created enormous value with the Toy Story franchise.

The profitable business strategy of creating captivating content and stretching out the monetization of that content through ancillary products and services is what makes Disney a standout in the entertainment industry. No other company can match Disney's rich content library, and it just added another valuable piece of content with The Mandalorian and Baby Yoda. Moreover, no other media company can monetize movies and TV shows for decades on end like the House of Mouse, which is why Disney should remain a great growth stock.

The Baby Yoda character and the Mandalorian sitting in the cockpit of a spaceship

The Child and the Mandalorian in a scene during episode 4 of the series. Image source: Walt Disney.

Standing out from the crowd

It's a crowded market for streaming services right now. Apple just launched Apple TV+ and ViacomCBS has CBS All Access. There are more coming, including WarnerMedia's HBO Max, which is part of AT&T, and NBCUniversal's Peacock, part of Comcast. Disney has the content to hold its own amid all this competition for viewership. A UBS survey from earlier this year showed that about half of new subscribers were planning to cancel one other streaming service when Disney+ launched.

For what it's worth, an analyst with Cowen found that Netflix has lost more than 1 million subscribers to Disney+ already. We'll know for sure when both companies report their next earnings in a month or so. In the long run, Netflix and Disney+ should be complementary services, since they have very different content offerings. But some of the other new services launching may need to worry about a sneak attack from Baby Yoda's secret powers.