Netflix (NASDAQ: NFLX) CEO Reed Hastings went as far as to say he plans to subscribe to Disney's (NYSE: DIS) over-the-top (OTT) streaming service when it comes out.
"I know I'll be a subscriber of it for my own personal watching in the same way and as many Disney and Fox executives also subscribe to Netflix and watch our shows," Hastings said on the company's 2017 fourth-quarter earnings call on Jan. 22.
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Hastings said that as the competition heats up in the streaming space, each player will need to create its own unique path and learn from each other's mistakes and successes.
Netflix on Disney's future OTT services
Disney plans to hit the ground running with its OTT services in mid-2018.
The media and entertainment company is reportedly working on a sports service, a family-friendly service aimed at kids, as well as a more adult service. With three streaming sites in the works, Disney seems to be taking its uphill battle to gain market share against Netflix seriously.
The sports site will launch in 2018, while the two movie-centered sites will launch in 2019. Not only will Netflix need to stay ahead of yet another competitor when Disney launches, it will also have to adjust to Disney not renewing its Netflix distribution agreement.
Hastings says he thinks Disney's venture into the streaming space is bound to work due to its strong relationship with its consumers. "We think [it] will be very successful because Disney has super strong brands," he said on the earnings call.
Netflix on the potential Disney-Fox merger
On Dec. 14, 2017, Disney announced plans to acquire Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA) in a deal valued at $52.4 billion. This would double Disney's stake in Netflix competitor Hulu and give it control of a host of new intellectual property to use on its sites.
Hastings said he was just as surprised as anyone else when Disney made the announcement but said he understood the attractiveness of it.
While it's possible this deal could start a domino effect in terms of consolidation in the space, Hastings says Netflix tries to stay out of those discussions and focus on what it does best. "You wouldn't expect us to be very involved in that," he said about the potential wave of consolidations.
Why isn't Netflix worried about Disney?
For Netflix, Disney is just another competitor in the already increasingly full video streaming market. "We don't see it as a threat to us any more than Hulu has been, but it's a great opportunity for them," Hastings said.
He went on to talk about how each streaming player will need to come up with its own strategy that works, and Netflix will observe and learn from them. He says that's always been its strategy, and Disney entering the game doesn't change it.
While some investors have voiced concerns about Netflix missing out on Disney's content come 2019, Netflix CFO Ted Sarandos tried to reassure them on the earnings call by claiming it would be a smooth transition.
"You shouldn't think of it as a risk," Sarandos claimed. "I think we have strategically and they have strategically been moving in this direction for a long time."
Netflix has been making more of its own content precisely because it anticipated Disney and other brands one day cutting ties to start their own competing businesses. Netflix can't blame Disney for wanting to get the full benefits of the internet TV boom.
Should Netflix be concerned?
Netflix says it doesn't want to be distracted by competition, especially since overall streaming revenue will go up as more players enter the market. The company has also used its recent impressive subscriber growth to argue that its subscribers don't care if it loses Disney's content.
But is there really room for everyone, or is that just talk to calm investors' concerns? And wouldn't the negative effects of Disney's new sites not take place until after the sites were up and running?
I think it's safe to say a Disney-branded family friendly site could be a big draw for parents, particularly millennial parents who grew up with a strong attachment to the brand. But I don't see why these same parents wouldn't also want to pay the relatively low fee to have access to Netflix's high-quality content for themselves as well.
Even Hastings said he will watch both Netflix's content and Disney's content. As bigger and better players enter the streaming game, including Disney and Apple, I think we will see more and more people opting to have more than one subscription.
You have to remember that Disney's movies on Netflix are hardly what people are talking about when it comes to new and exciting content or why Netflix is such a great value. Everyone is talking about Netflix's original shows like Stranger Things and The End of the F***ing World.
Netflix has set a high bar for Disney and Apple. And according to its blowout quarter, Netflix has pretty much perfected its strategy, so it's really Disney and Apple that should be worried.
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Natalie Walters has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
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