Disney's Streaming Growth Isn't as Strong as It Could Be -- Here's Why

As The Walt Disney Company (DIS -0.07%) grows its flagship streaming service, Disney+, it's making changes to content that has drawn the ire of a select group of U.S. consumers. Here's why Disney should stay the course and not falter because of recent backlash.

Alternative offerings abroad

The American advocacy group Parents Television and Media Council (PTC) has strongly condemned Disney for adding R-rated titles Deadpool, Deadpool 2, and Logan to Disney+ in the U.S. The organization similarly expressed outrage when the TV-MA-rated Marvel series Daredevil, Luke Cage, Jessica Jones, The Punisher, Iron Fist, and The Defenders were added to the streaming service in March. The group claims Disney "made a promise to families" about not including R-rated content and that its latest additions violate subscriber trust.

While there is no official statement from the company making such a promise, the additions understandably differ from some consumers' expectations. However, fierce competition in the streaming wars suggests the move is necessary. Disney+ stands to gain considerably from diversifying its catalog, especially since the U.S. is the only country outside Latin America where the company has limited its library to family-rated programming. For example, in Europe and many other regions, Disney+ launched with six categories on its home screen: Disney, Pixar, Marvel, Star Wars, National Geographic, and Star.

The "Star" section is limited to some countries outside the U.S. and offers more mature content from FX and Hulu. The option allows Disney to use more of its extensive content library to attract international subscribers, which is handy as Hulu is unavailable outside of the U.S. and Japan. Abroad, the higher-rated content has always been available alongside customizable parental controls, options that were introduced in the U.S. in March when the TV-MA Marvel series were added.

In March, the president of Disney streaming, Michael Paull, stated: "We have experienced great success with an expanded content offering on Disney+ across our global markets and are excited to continue that here in the U.S." The company is beginning to test the waters in the U.S. by slowly adding mature content, which has the potential to help Disney+ remain competitive in most crucial market in the world.

A well-rounded service

The U.S. has the biggest video streaming market on the planet, worth $34.1 billion -- 85% larger than the second-biggest market, China. If Disney continued to only offer PG-rated content, it would force many U.S. households to get alternative content elsewhere and make competitors like Netflix (NFLX -3.07%) more attractive. Providing a diverse library of content makes it easier for consumers to subscribe to Disney+ exclusively, bringing it one step closer to dominating the all-important U.S. market.

Additionally, Disney+ can only go so far with names like Pixar and Marvel; more mature content has the potential to attract those actually paying for the service -- parents. Rumors have swirled that Disney CEO Bob Chapek wishes to eventually have Disney+ absorb Hulu, while former CEO Bob Iger hoped the Disney streaming service would remain focused on its five original brands. However, the company has seen positive subscriber retention and engagement in countries with the additional Star brand.

Adding mature content makes Disney+ a more well-rounded platform -- and therefore easier for consumers to drop competing services. The crowded streaming market means Disney should utilize everything in its wheelhouse, and adding higher-rated content allows it to use its big brands like Star Wars, Marvel, and Pixar, as well as its attractive Fox library and Hulu originals.

Will U.S. consumers be on board?

Recent complaints about the added mature content on Disney+ have come from specific organizations in the U.S. and are unlikely to sway the majority. American consumers were introduced to streaming parental controls long ago with the rise of Netflix, and would more than likely prefer the added content.

Disney+ is already one of the best-valued streaming services at $7.99 per month. Adding company-owned titles from FX or legacy films from Fox's vast catalog would come at no extra cost to Disney and only increase the value of Disney+, growing its competitive edge. The company should stick to its guns in this case if it wants a chance at winning the streaming wars.