There was a lot for Disney (DIS) investors to take heart in within the Disney+ disclosures made through the media giant's latest earnings report and call.
However, Netflix (NFLX) investors shouldn't get too nervous over what was shared -- at least unless signs emerge that Disney+ is either causing Netflix's U.S. subscriber base to drop or seriously impacting the company's strong international growth.
Disney+, which launched on Nov. 12, was reported to have 26.5 million subscribers at the end of Disney's December quarter (fiscal first quarter). That figure topped an analyst consensus of roughly 25 million. In addition, CEO Bob Iger disclosed on the call that Disney+ had 28.6 million subscribers as of Monday.
It's worth remembering that last April, Disney guided for Disney+ to have 60 million to 90 million global subs within five years, with about a third of those subs located in the U.S.. With the lion's share of current Disney+ subs in the U.S. -- for the moment, the service is only available in the U.S., Canada, Australia, New Zealand and The Netherlands -- Disney might just be a couple months away from topping its 2024 U.S. subscriber guidance.
Iger made a few other encouraging disclosures about Disney+ on the call. Among them:
- About half of all Disney+ sign-ups were said to have come through Disney's website, and only about 20% through its bundling deals with Verizon (VZ) . The other 30% came via other distribution partners, such as Roku (ROKU) , Apple (AAPL) and Alphabet/Google (GOOGL) .
- Conversion rates for free-trial subscribers were said to be better than expected, as was subscriber churn.
- Though qualifying this remark by noting that video viewing tends to rise during the holiday season, Iger said that average Disney+ viewing per subscriber was in the "six to seven hours-a-week range."
- 65% of the subs who have watched The Mandalorian have also watched at least 10 other things.
- In spite of the discounts provided for bundling deals, Disney+'s annual plan and a limited-time, 3-year, promotional offer, Disney+'s ARPU at the end of the December quarter was $5.56 -- not too far-removed from the standard $6.99 monthly rate.
- While indicating that no Disney+ price hikes will happen in the near-term, Iger stated Disney has believed it would "have an opportunity to address pricing as we added more content, particularly original content, and the price/value relationship went up to the consumer."
But for all of Iger's positive comments, there are reasons why Netflix's stock, which has risen over 45% from September lows hit when Disney+ fears were running particularly high, is joining equity markets in trading slightly higher on Wednesday.
Two weeks ago, Reed Hastings' firm reported that it added 8.76 million paid streaming subs in Q4, beating guidance of 7.6 million. And while the company added only 420,000 paid streaming subs in the U.S. (below guidance of 600,000), that was better than what many feared in light of Disney+'s momentum.
Netflix did issue below-consensus paid subscriber add guidance for Q1, while blaming "slightly elevated churn levels" in the U.S. following Disney+'s launch along with expectations for "more balanced paid net adds across Q1 and Q2" in 2020 relative to 2019. But it still expects to grow its paid subscriber base by 7 million sequentially to 174.1 million.
Disney+, which is set to launch in several Western European markets on March 24 and in India via Disney's Hotstar service on March 29, should have a large international subscriber base in time. However, it might not be as much of a smash hit in many of the foreign markets that it has launched in as it has been in its home market, given that much of its content has outsized appeal in the U.S. Indeed, Iger hinted at this on the call.
"The interest in streaming in general in those markets isn't as high as it has been in the United States," Iger said when asked about expected international growth. "So we have probably more of a marketing effort and I'd say more of a challenge to launch in those markets...We know Netflix has done extremely well internationally. But we're just beginning there."
Likewise, on Netflix's Q4 call, content chief Ted Sarandos noted that with the exception of China (where neither Netflix nor Disney+ operate), there isn't a foreign market in which Disney's brands are more popular than they are in the U.S.
For his part, Hastings reiterated his view that Disney+ is simply one of many streaming services with quality content that Netflix is squaring off against, and that Disney+ will impact traditional TV viewing much more than it impacts Netflix viewing.
Moreover, as I mentioned back in September, the substantial differences between Netflix and Disney+'s content libraries and strategic positioning can't be ignored. Unlike the family-oriented Disney+, Netflix's library includes a lot of R and MA-related material. It also features plenty of local-language content tailored for overseas markets, and (thanks to Netflix's massive content spending) is on the whole much broader than Disney+'s in terms of depth and the number of categories and genres supported.
It feels like a bit of a cliche to say it, but it's true: Netflix's "battle" with Disney+, like its battle with Amazon.com's (AMZN) Prime Video, is far from a zero-sum game. The services are both marketed differently and have pretty unique selling points.
And if Disney+ is only doing modest damage thus far to Netflix's U.S. operations, that bodes well for how Netflix will fare overseas as Disney+ expands.
Arguably, services such as AT&T's ( T) HBO Max and Comcast/NBCUniversal's ( CMCSA) Peacock Premium have more reason to be concerned about Disney+'s momentum than Netflix. While only a small portion of U.S. Netflix subs appear to be cancelling on account of Disney+, the number who are reluctant to pay for a fourth streaming service when they already have access to Netflix, Prime Video and Disney+ could be a lot larger.
