Ever since Walt Disney (DIS +0.61%) launched Disney+ in late 2019, there's been lots of speculation about if and when it will overtake Netflix (NFLX +0.02%) as the world's most popular streamer. At the time of this writing, Netflix has approximately 220 million customers, while Disney+ has north of 137 million.
However, some analysts believe Disney+ will leapfrog Netflix in the coming years. There's reason to believe an economic downturn could speed up that process.
Image source: Getty Images.
A recession may be on the way (or could already be here)
Multiple economists are projecting the U.S. will enter into a recession before the end of 2022, while others believe the country is already in one. While the National Bureau of Economic Research -- the authority on such matters -- has yet to declare that economic growth has contracted, high inflation has people worried. A recent Forbes Advisor-Ipsos consumer confidence study found 63% of respondents believe inflation will continue to climb over the next year, while 58% think mortgage rates will also go up.
NASDAQ: NFLX
Key Data Points
Netflix is trying to reignite subscriber growth
The story of Netflix in 2022 has been subscriber losses. After adding customers quarter over quarter for more than a decade, the streamer reported a global decline of 200,000 in fiscal Q1. The following quarter, Netflix shed another 970,000 worldwide. In North America, Netflix's biggest market, the attrition was more severe: The company lost 630,000 customers in fiscal Q1 and another 1.3 million in Q2.
Netflix has announced two new strategies designed to trigger growth. First, it's working on a lower-cost ad tier that's expected to land in 2023. While the company has said it expects the offering will drive "substantial" subscriber numbers and profits, there are signs marketers aren't feeling so buoyant.
Roku recently published its Q2 earnings, in which it cited a slowdown in consumer spending and said advertisers are also pulling back on TV ads. Perhaps most concerning for Netflix's plans, Roku says it expects to see the trend continue into the near future.
Netflix's other plan to generate extra revenue is to charge subscribers more if they share their account logins with other people. The streamer has rolled out a pilot scheme in Peru, Chile, and Costa Rica, where customers have seen additional fees when their accounts are used by secondary households. However, many have questioned Netflix's approach, with some subscribers challenging the company's definition of a "household."
Netflix will soon launch another test -- this time to track smart-TV usage. The streamer has issued a note of caution, saying it won't introduce changes in other countries until it has a better understanding of what works best for consumers. Needless to say, some subscribers will likely still air their frustrations about having to pay more -- especially with budgets being squeezed.
NYSE: DIS
Key Data Points
Disney+ is still growing
Despite the economic challenges, Disney+ has continued to grow over recent quarters. The streamer added 11.8 million subscribers in fiscal Q1 2022 and another 7.9 million in Q2. Walt Disney has previously said it wants to reach 230 million to 260 million customers by 2024.
Although Disney has made streaming a key part of its business over recent years, it's still an entertainment company. Unlike Netflix, Disney has theme parks, retail, TV networks, and more that it can rely on for revenue streams. That doesn't mean its impervious to economic woes -- the company's resorts took a particular hit during the Great Recession of late 2007 to mid-2009 -- but it does have more options at hand when things get tough. And when your competitors don't have the same advantage, that can be an opportune moment to strike.
Disney could institute an aggressive release strategy
Disney has already committed to spending $32 billion on content in 2022. While much of it will be for theatrical releases, Disney+ has become the de facto home for most of its movies once they've completed their movie-theater run.
With relatively brief release windows, Disney+ subscribers don't have to wait too long to see the company's latest release: Doctor Strange and the Multiverse of Madness had a 45-day theatrical window, while Lightyear managed 47 days. For those weighing up the cost of movie tickets, popcorn, and soda, signing up for a Disney+ subscription and waiting a few weeks might be the better choice -- irrespective of a recession.
Disney could decide to get even more aggressive with its release strategy, rolling out more movies directly to Disney+. The company has done this before, having launched both Mulan and Black Widow as premium Disney+ offerings during the height of the COVID-19 pandemic.
More recently, Disney has said it will forgo a French theatrical release for the upcoming animated film Strange World, launching it directly on Disney+. Though Disney says the choice was based on "anti-consumer" French laws, it has noted it will "continue to make decisions on a film-by-film basis and according to each market's unique conditions." Perhaps those conditions could be a recession and a chance to tackle a streaming rival that's trying to hold on to customers.
