Disney Is Ramping Up Efforts to Compete With Netflix

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When Marvel was acquired by The Walt Disney Company (NYSE: DIS) in 2009, it wasn't the no-brainer move that it seems in retrospect. There were the inevitable questions about why Disney would pay such a high price when Spiderman -- Marvel's biggest hero -- was controlled by another studio.

Those questions have long since been put to rest, as the 18 movies produced by Marvel have generated more than $14 billion in box office for the House of Mouse, with four grossing more than $1 billion each. In recent weeks, Black Panther has become a box-office phenomenon, producing over $930 million in worldwide ticket sales in just three weeks -- and it will likely have topped $1 billion by the time you read this.

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It all started with the 2008 release of Iron Man, though, helmed by Jon Favreau. It seems somewhat fitting, then, that Favreau should play a leading role in Disney's initial efforts to take on streaming giant Netflix (NASDAQ: NFLX).

In a galaxy far, far away

Disney has tapped the Emmy-nominated producer, director, and actor to write a live-action Star Wars television series that will appear exclusively on Disney's upcoming streaming service. It isn't surprising the company would turn to Favreau, who also starred as Tony Stark's good-natured driver and bodyguard Happy Hogan in the Iron Man films. Favreau has become one of Disney's go-to directors, having helmed The Jungle Book, a live-action remake of the 1942 animated classic, and one of several movies that helped Disney dominate the box office in 2016. Favreau will also be leading the much anticipated upcoming live-action remake of the Disney classic The Lion King.

This isn't Favreau's first turn behind the pen either, having written -- as well as directed and starred in -- the award-winning movie Chef, which landed Favreau the Best Narrative award at the Tribeca Film Festival.

Favreau has previous dealings in the Star Wars universe as well, acting in a role in Solo: A Star Wars Story, which will be released this spring, and voicing a character in the animated series Star Wars: The Clone Wars.

Playing catch-up

Disney revealed late last year that it planned to launch its own direct-to-consumer streaming effort. The company's first foray into the field would be an ESPN-branded service that is scheduled to debut this spring. It will be a companion service to the ESPN sports network and cost $4.99 per month. The second, which will feature content from the company's Pixar, Marvel, Lucasfilm, and Disney studios, is expected to be released in late 2019, though details are still slim.

Disney is allowing the deal that supplied Netflix with Disney films to expire with the 2018 movie slate -- but not all of the programs will be leaving immediately. During Disney's first-quarter 2018 earnings conference call, CEO Bob Iger said:

Iger also said investors shouldn't expect a volume-based business like Netflix from the Disney-branded service, as the company would place more emphasis on branding than on quantity.

Streaming envy

It's easy to see why Disney is eager to get its streaming services up and running. The issues with declining cable subscribers notwithstanding, Netflix has become the undisputed top dog in streaming, and efforts by would-be competitors to take the pole position have thus far been unsuccessful. Netflix had more than 117 million monthly subscribers, revenue topped $11 billion in 2017, and it expects sales of $15 billion this year.

Disney has the experience and a treasure trove of intellectual property that may allow it to succeed where others haven't at knocking Netflix off its lofty perch. Then again, this isn't a zero-sum game, and there will likely be more than one winner in the streaming arena.

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Danny Vena owns shares of Netflix and Walt Disney and has the following options: long January 2019 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.