There's no denying Walt Disney's (DIS +0.30%) late-2019 launch of Disney+ is largely responsible for reshaping the streaming industry. For years, Netflix (NFLX 0.61%) was the only real player in the industry. Once Disney+ proved there was room for more than one, it emboldened others like AT&T (T 2.35%) and Paramount Global (PARA +0.00%) to move forward full throttle with their HBO Max and Paramount+ streaming services, respectively.
What's so amazing about the phenomenon of so much competition surfacing so quickly, however, is that there are signals that Walt Disney isn't producing the sort of wow experience for streaming customers that the Disney brand is typically known for. It wouldn't be out of line for investors to start asking tough questions about how the company plans to address the matter.
Image source: Getty Images.
Lukewarm loyalty to Disney+
Don't misunderstand. There's more than a little anecdotal evidence suggesting Disney+ is a major draw. Chief among this evidence is the service's 129.8 million paying subscribers versus none just a little over two years ago. That makes it second only to Netflix, which boasts nearly 222 million customers, but it's had well over a decade to amass that kind of user base.
As it turns out, however, Disney+ members who also subscribe to other streaming services are least impressed by Disney+.
Market research outfit AudienceProject has the scoop. Based on a recent survey of more than 1,000 U.S. residents, AudienceProject's data indicates Netflix is the country's favorite on-demand video platform. More than 90% of those polled say they subscribe to it, and more than that, 50% of those consumers said they prefer Netflix to other streaming options.
It's the results at the other end of the spectrum of the second question that are so noteworthy and surprising. While 83% of the people polled report they're Disney+ customers, only 9% -- by far the weakest showing for the survey -- say they'd rather watch Disney+ than a competing on-demand service. HBO Max, Disney's Hulu, and Amazon (AMZN +1.10%) Prime all fall somewhere in between the two extremes.
The implication is that if money/affordability becomes a concern and consumers start cutting their budgets, Disney+ may well be one of the earlier niceties they decide to cut.
Even the good news has a downside
It's not all bad news. While Disney+ is clearly operating near a proverbial cliff's edge, its subscribers do appreciate access to original programming. Another study performed by Diesel Labs suggests that while Disney only accounted for 5% of last year's original streaming content for the entire streaming media industry, its content created 29% of the streaming video buzz on social media platforms. Netflix only prodded 35% of social media engagement despite delivering 57% of the streaming industry's originals.
Given this, it's no surprise to hear that Disney's churn rate -- total cancellations offset by new signups -- is one of the industry's lowest. Streaming TV market research company Antenna reports that Disney+ only swapped out 4.3% of its total customer base in December of last year, versus HBO Max's 5.6%. The churn rate for Paramount+ was 5.9% that month.
Hub Entertainment Research adds that 12% of U.S. consumers who stream and signed up for Disney+ within the past year only did so to watch a particular show or movie. Hit programs like The Mandalorian and Disney's various Marvel superheroes offerings are a big draw in and of themselves.
NYSE: DIS
Key Data Points
There's a downside to that dynamic, though: Once those subscribers have seen the show in question, they readily cancel their service.
To this end, Antenna's data indicates that Walt Disney's churn rate with Disney+ steadily grew in the latter half of last year as the world began easing out of its pandemic funk. Deloitte suspects churn for the entire streaming business could rise this year as a result of a massive wave of cancellations. All told, the firm fears 150 million streaming customers worldwide could cancel their subscriptions in 2022, driving churn rates sharply upward.
And that's where another data nugget from Hub Entertainment Research gets a little scary. The company's survey asks streaming subscribers which streaming services they would keep if they could only keep five. The 16- to 34-year-old crowd ranked Netflix, Hulu, and Prime above Disney+. The 35+ group didn't put Disney+ in their top five at all. Like their younger counterparts, though, this older crowd named Netflix as their first choice.
Image source: Hub Entertainment Research.
All of a sudden, Netflix's ultra-low churn rate of 2.2% and its high preference score make a lot of sense.
Worth watching going forward
It's not inherently a reason to dump your Disney shares. All companies operate precariously balanced businesses from time to time, and Walt Disney is planning more of the originals that Disney+ subscribers clearly love. The company reported late last year that it intends to spend $8 billion more on content in 2022 than it did in 2021, bringing the tally up to $33 billion. That'll certainly help make Disney+ a stickier streaming service.
Nevertheless, it's a matter that all Disney shareholders should keep an eye on. The media giant is making a massive bet on streaming in general and Disney+ in particular. It really can't afford any missteps.
