The streaming wars have intensified over the past couple of months as more companies enter the fray with a limited number of target customers. Huge new membership numbers during the early stages of the pandemic have made it more challenging to add more on top of that, and each company is pouring money into content and distribution in the race to the top.

The two leaders right now are Netflix (NFLX 2.39%), which has dominated the industry for years and boasts more than 220 million subscriptions, and Disney (DIS 1.62%), which has grown its paid customer base to more than 205 million over the past three years. As both companies up their game, there's a major advantage that Disney has over Netflix, and investors shouldn't overlook this.

Disney's secret sauce

Netflix is facing a lot of pressure due to investing in content, and those costs have to be covered by subscriptions. Investors may not realize that for years, Netflix was able to record profits even though it was cash-flow negative due to amortization . In other words, subscription fees alone were not able to cover the costs of content production. You can't make those expenses disappear, which is why they showed up as cash outflows.

However, you can make them disappear on the income statement by recording only a percentage of them as expenses, amortized over time. Investors during those years didn't mind that wonky recording, and they were richly rewarded as the stock price skyrocketed. They were also vindicated when the company eventually made enough money to become cash-flow positive even with its content production. That only happened in 2020, when subscriptions shot up. 

NFLX Free Cash Flow Chart

NFLX Free Cash Flow data by YCharts

It's facing new pressures now that the competition has increased and it needs tons of high-quality content to keep subscribers. It's expecting a decline in subscriber count in the second quarter.

However, we're really talking about Disney here and its advantage in this area. And it has a huge advantage in its film releases and ticket sales, a model that, in its current form, Netflix doesn't use. Disney's model of traditional theater release gives it ample opportunity to cover the cost of production before a film gets anywhere near your streaming device. For example, its current hit, Marvel's Doctor Strange in the Multiverse of Madness, has grossed nearly $1 billion since its release in May. 

Disney is also investing in straight-to-streaming content, but a lot of its investments right now are in marketing. Currently, a lot of its content is recycling. The massive amounts of ticket sales also cover the cash outflows for other content production, allowing it to bring more content to the streaming table without increasing company losses. 

Disney+ is still recording losses partially due to production costs. It's only available in select locations, and it's planning to launch in 53 countries in 2022. Once Disney+ is fully rolled out, the recurring revenue of monthly subscriptions adds to ticket sales, which are typically profitable on their own. Netflix is missing that vital ingredient. Management is expecting Disney+ to be profitable on its own by 2024, only two short years away, and the company likely sees that recurring revenue as a key factor.

Disney is a winner for other reasons, too

Disney and Netflix may have comparable streaming businesses, but Disney as a company encompasses so many more elements. Streaming kept it strong when parks and theaters were closed, and now with streaming competition heating up, parks and film releases are an important part of its growth and viability. Being a leader in every part of its diverse business operation makes Disney a standout stock. With Disney stock down 37% this year, investors may want to consider adding shares to their portfolios.