Disney Is Positioned to Overtake Netflix. Here's When

There's no question that Netflix (NFLX 2.04%) was the catalyst for the current popularity of streaming video. The company debuted its "Watch Now" service in mid-2007, allowing existing members to watch a selection of programming from its small library. Netflix went on to become the undisputed leader in the space, but the meteoric rise of Walt Disney's (DIS 1.07%) flagship service, Disney+, could end Netflix's reign as the leader in streaming video.

On this clip from Motley Fool Live, recorded on Feb. 16, "The Wrap" host Jason Hall and Fool.com contributor Danny Vena discuss a recent analyst call that suggests the number of Disney subscribers will soon surpass Netflix.

Jason Hall: I can't remember how long it's been? I think it was sometime in between Thanksgiving and Christmas, I threw the idea out there about Disney+. It was last time they were announced. It was a third-quarter results, and the growth was enormous. I made a prediction that I think Disney+ is going to end up with more subscribers than Netflix. I guess some analysts are joining the party here. Danny, what's going on?

Danny Vena: There is a research company that is jumping on the bandwagon with you. Jason Hall, you have started a trend.

Hall: Jason Hall, trend setter.

Vena: There you go. I want to start by saying, anybody who has followed Disney over the last couple of years has been really happy with the progress of the House of Mouse since they announced their flagship streaming service, Disney+. Shares of the stock are up 65% over the past couple of years. That's not a bad deal considering that this is a big blue chip company, and also considering the fact that Disneyland has been shut down for the better part of the last year, and theaters have not been showing Disney blockbusters. There's a lot going on there.

But Disney has exceeded the wildest expectations. The company had amassed 10 million subscribers by the end of the first day that the service was available. In their Q1 earnings release, Disney said that Disney+ was just short of 95 million subscribers as of Jan. 2.

Now, to put that in perspective, Disney had originally said that they planned to hit between 60 and 90 million subscribers by 2024. Now, just 13 months after the service has debuted, the company has already exceeded its five-year goals.

Now, last month on its investor day, Disney jacked up those forecasts saying that it expects subscribers in a range of 230 million to 260 million by the end of 2024.

Now, there's a principal analyst of Digital TV Research, Simon Murray, who says that he expects the global subscriber numbers for Disney+ will hit 294 million by 2026. That's going to exceed the 286 million that he expects Netflix to have.

Now, this is good news for Disney, but it's not all good news. It's important to remember that Disney+ Hotstar is a big service in India. Disney acquired Hotstar with other assets that it purchased from Fox back in 2019. At the time, this ad-supported streaming service had reached as many as 300 million monthly active users. That gave Disney a large and growing base to mine for potential subscribers.

It's also important to remember that there is a very different standard of living in India. As a result of that the per capita income is much lower. As a result of that, what subscribers are paying for Disney+ Hotstar in India is only about a third of what they pay for Disney+ here in the United States.

Even though that's going to be a big bulk of their growth going forward. The estimates that they released I thought were pretty impressive. They said that they expect Disney+ to have about 98 million subscribers in India, and only about 13 million [laughs] for Netflix. That's a pretty wide margin there.

But that said, it's still only going to account for about 30% to 40% percent of Disney+ streaming revenue. But about five years from now, we could be seeing a case where Netflix has to relinquish its crown, and Disney+ is the new streaming leader. Remember, you heard it first from Jason Hall.

Hall: Right here, ladies and gentlemen. I have to say, that context is really important about the revenue value of customers in different areas, but this is the comment. This is the one to me that just says it about what Disney is doing because it's so true. This is from [Motley Fool analyst] Anand [Chokkavelu]. Anand says, they should rename it Disney X because they're multiplying those members. Pretty good stuff.

Vena: Yes, they are.