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Only Disney+ Can Stop Netflix Now

By Rick Munarriz - Jan 19, 2020 at 1:00PM

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We'll find out soon if Netflix really needs to fear this competitor.

There's a lot of anxiety in the Netflix (NFLX 1.98%) bull camp as we head into Tuesday afternoon's release of the streaming video pioneer's fourth-quarter results. Netflix has fallen short of its subscriber guidance in consecutive quarters. The stock is now trading lower than it was a year ago, a rare sight for one of the market's hottest stocks over the past almost two decades.

A popular theory is that Netflix is meandering because of new and upcoming streaming services that will eat into its subscriber base. Disney (DIS 3.51%) and Apple (AAPL 4.08%) launched new platforms in November. Comcast (CMCSA 0.07%) hosted a media event on Thursday to provide more details on its upcoming Peacock service, and AT&T (T -0.14%) is hoping to make its mark when HBO Max rolls out later this year. With domestic growth stalling for Netflix, it's easy to wonder if there are finally too many cooks in the streaming kitchen. But that's not the case. Netflix has only one rival to worry about as it sneaks a peek at the rearview mirror -- and that happens to be the mouse-ears-donning Disney+.

The cast of "Elite," a Spanish-language series on Netflix.

Netflix's "Elite." Image source: Netflix.

And then there were two

This may sound dismissive, but Netflix doesn't have to worry about any service that launched before 2019. Hulu and Amazon.com's Prime Video may have the Emmys and brand familiarity -- and who doesn't love A Handmaid's Tale or The Marvelous Mrs. Maisel? -- but older services haven't gotten in the way of Netflix's monstrous ascent that finds it dominating the market with more than 158 million streaming subscribers worldwide at the end of September.

Netflix has also come through with four price hikes since 2014, proving mortal only after the final increase in the springtime of last year. If we're going to worry about Netflix not playing the starring role in the future of streaming, it will come at the expense of a better mousetrap. Let's size up the latest contraptions.

  • Apple TV+ launched a few days before the arrival of Disney+, and despite all of the buzz surrounding its celebrity-studded programming, the class act of Cupertino has missed the mark. Most of its shows have been generating mixed to negative viewer reviews, a fatal flaw for a platform that offers only a handful of original content and little else in terms of a back catalog. Even the clever trick of offering a free year of access to anyone buying a new Apple device won't work, as Prime Video has shown us that stapling a streaming service at no additional cost to a paid product won't nurture engagement.
  • Comcast's Peacock is turning heads for its gutsy move as a free ad-supported platform. Folks will be able to strip away the commercial breaks for $4.99 a month. Peacock also turned feathered heads last year by swiping cult-fave sitcom The Office from Netflix's catalog. Thursday's media event unveiled a deep bench of content with a few interesting surprises, but a low price alone doesn't cut it when you're competing against Netflix.
  • AT&T's HBO Max is the latest move by HBO to stand out in the suddenly crowded realm of premium entertainment. It's going to be good, but if anyone fears that Netflix may have priced itself out of the market at $12.99 a month, it's going to only get worse for AT&T at $14.99 a month. HBO doesn't have pricing flexibility since it can't undercut its premium product offered for existing cable and satellite television subscribers, and the platform's initial success is hogtied to its existing base of fading legacy viewers.

This leaves us with Disney+ as the only real legitimate potential disruptor. Disney hit the ground running with its Nov. 12 launch. It had decades of proven content in its vault, and the success of The Mandalorian showed that it can play the original programming game. Priced aggressively at $6.99 and with prelaunch plans to get its credit card holders, theme park pass holders, and D23 fan club members in on discounted multiyear deals, Disney+ has a locked-in audience for as long as four years.

Disney+ had 10 million members by the end of its first day of business, and it's likely well past 20 million subscribers by now. It's keeping folks glued to their streaming sticks, and that's not good news for Netflix if it's coming at the expense of engagement for the top dog. However, if Disney+ is coming at the expense of traditional television consumption -- encouraging more folks to cut the cord tethered to their cable or satellite television -- it would naturally benefit Netflix.

We won't have to wait long until we know if Netflix is still a monster tech stock. If it's able to meet its subscriber targets and ideally show sequential domestic growth, the bears will have no choice but to go back into hibernation. Short interest has increased 36% at Netflix over the past year. A big report on Tuesday afternoon can send the bears scrambling at Wednesday's open. If it's a dud of a financial update, we'll know that it was Mickey Mouse behind the better mousetrap.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$195.19 (1.98%) $3.79
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$109.32 (3.51%) $3.71
Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.64 (4.08%) $5.86
AT&T Inc. Stock Quote
AT&T Inc.
T
$21.29 (-0.14%) $0.03
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$44.16 (0.07%) $0.03

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