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Can Netflix Become Disney Before Disney Becomes Netflix?

By Adam Levy - Jun 16, 2021 at 7:00AM

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Its bigger push into merchandising could be a key step along that road.

In a 2013 interview published in GQ, Netflix (NFLX 1.90%) Chief Content Officer Ted Sarandos famously said, "The goal is to become HBO faster than HBO can become us." But in 2021, Netflix sees a bigger challenge and opportunity: Disney (DIS 0.09%).

Co-CEO Reed Hastings (who now shares that title with Sarandos) hasn't been shy about his admiration for Disney. "It's super impressive what Disney has done," he said during the company's fourth-quarter earnings call in January. And he said Netflix is pushing to compete with it in family entertainment this year.

But another area where Netflix is attempting to do a better job of emulating the House of Mouse is merchandising. Disney has a massive consumer goods business, and Netflix sees an opportunity.

An office building with the Netflix logo above the front door.

Image source: Netflix.


Netflix launched its own online store,, earlier this month. It will feature "exclusive limited editions of carefully selected high-quality apparel and lifestyle products tied to our shows and brand on a regular basis," the company said in a press release. In other words, think boutique streetwear, not the mass-produced toys prevalent on Shop Disney, Disney's online store.

Despite that difference in focus, Netflix's move into first-party retail could present some opportunities for the younger media company. 

Netflix's other efforts in merchandising have involved licensing its intellectual property and partnering with retailers. But the licensing model can move slowly. That means Netflix either has to predict consumer demand or miss out on trends. Disney, for example, missed out on lots of Baby Yoda merchandise sales in 2019 because the company didn't want merchandise featuring "The Child" sitting in warehouses or on store shelves before his reveal in The Mandalorian. At the same time, large quantities of Disney toys go unsold on store shelves every year, ultimately destined for landfills.

For Netflix, going direct-to-consumer with its retail business will allow it to capitalize on the cultural phenomena it creates as they happen, and get merchandise into the hands of consumers more swiftly. The company is uniquely well-positioned to gather viewership data in real time, and it already uses that data to inform marketing decisions. Taking that process a step further and applying it to merchandising could lead to a meaningful boost in revenue.

Disney's consumer products produced $1.6 billion in operating income last year. Netflix's entire business generated $4.6 billion.

What Disney has that Netflix doesn't

One reason that Disney's merchandising business has been so successful is that it has perfected the art of making and growing franchises. While Netflix has created many hit series, such as Stranger Things, it hasn't developed big universes with tons of merchandising potential.

One show that offered the potential for it to develop something akin to the Marvel Cinematic Universe, Jupiter's Legacy, based on the comic books of Mark Millar, was cancelled shortly after its debut this year. But that's not going to stop Netflix from trying to build on previously popular originals with big names attached. It already has a handful of projects in the works based on established intellectual property such as the video game franchise Assassin's Creed and Roald Dahl's children's books. It's also working on sequels, prequels, and spinoffs of previously successful series and films on its platform.

Disney has a 100-year back catalog to draw from, plus its many acquisitions of popular IP over the last 25 years. Not to mention it has long experience developing franchises and ensuring that its hits proliferate throughout its operations, from the big screen to the small screen, from store shelves to its theme parks.

Netflix has just a single touch point with consumers -- its subscription streaming service. Expanding its merchandise offerings may push it into contact with more households more often, leading to greater subscriber retention and a new revenue stream. The latter could become an important growth driver as it nears subscriber saturation in the North American market.

Netflix's race to become Disney before Disney becomes Netflix isn't as pressing as Netflix's prior race to become HBO. The streaming giant's push into original content has positioned it well to compete amid the flood of new direct-to-consumer streaming offerings from major media companies. However, a bigger push into merchandise and franchises could cement Netflix's position as the leader of the streaming space.

Adam Levy owns shares of Netflix and Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.

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