The streaming wars are officially on as Disney launched its $6.99 per month Disney+ streaming service on Tuesday in the US, Canada and Netherlands. And despite some technical glitches, the launch proved to be one for the record books as some 10m people subscribed to the much-anticipated service.
For comparison, as Bloomberg media analyst Geetha Ranganathan observed, it took HBO approximately four years to attract 10m subscribers to its HBO Now streaming service.
With Disney+ set to launch in Australia, New Zealand, and Puerto Rico next week and in Western Europe next March, it appears that Disney+ could attract 60m to 90m subscribers in under a year, well before Disney’s 2024 target for that range.
Not surprisingly, most analysts were stunned by the consumer reception to Disney+ and have revised their estimates for signups up significantly.
Put simply, any doubts about Disney’s ability to attract subscribers to Disney+ have been erased and the service’s rapid ascent represents a worst-case scenario for rivals, especially pure-play streaming providers, namely Netflix.
That’s because even if consumers prove willing to maintain subscriptions to multiple services in the short-term, it seems likely that subscriber retention will become difficult for operators that have historically relied heavily on third-party content.
As one might expect, Disney+ will be the exclusive streaming home to most Disney’s marquee movies, which explains why 10m consumers signed up for the service even though it has just a fraction of the content Netflix has. Disney is also offering a $12.99 per month bundle that gives subscribers access to Disney+, ESPN+ and Hulu. Disney owns ESPN and has a majority stake in Hulu.
Clearly, content is truly king here.
A new era for the streaming market
Disney+’s launch heralds a new era for the online streaming market. Not only does it signal a new wave of competition driven by traditional media companies with some of the most valuable content vaults, it will eventually put the business models of pure-plays like Netflix to the ultimate test.
With their access to the most desirable third-party content on the decline, the fate of these companies will increasingly depend on their own content production efforts. Already, Netflix has spent tens of billions of dollars producing original content, with much of this activity being financed by debt. This year alone Netflix will spend an estimated $15bn on content.
Netflix is making a couple of big bets. The first is that it can continue to grow revenue faster than debt by adding subscribers. The second is that the original content it invests in producing will have a long shelf life, eventually allowing it to decrease its content expenses over time.
Netflix’s new and arguably chief competitor, Disney, is also a prolific spender. It will invest over $20bn on content this year, but Disney’s economics are very different than Netflix’s. Whereas Netflix is a pure-play streaming provider that earns virtually all of its revenue from subscriptions, Disney creates and owns giant franchises that generate multiple streams of revenue. This gives Disney a seemingly huge advantage over Netflix and now that Disney and Netflix are officially in direct competition, the vulnerabilities in Netflix’s pure-play model could go from being theoretical to real very quickly.
Will this be another case study in how the disruptors can become the disrupted, or will Netflix and other pure-play streaming pioneers be able to innovate and adapt? One thing is certain: the battle will be fit for a big screen.