Netflix Takes Another Page From Disney's Playbook

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Walt Disney Co (NYSE: DIS) is the most valuable and successful entertainment company in the world. Founded its namesake visionary, who brought to life timeless children's tales like Cinderella, Pinocchio, and Snow White, and pioneered theme parks with Disneyland, the company is now a powerhouse with its hands in virtually every corner of the entertainment world.

Disney is a leader in television with its ownership of ABC and ESPN; it has theme parks around the world as well as hotels, resorts, and cruise ships; its studio entertainment division now encompasses Marvel Studios, Star Wars-parent Lucasfilm, and Pixar; and the company has a booming toy business thanks to the popularity of its movie characters.

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So it's no wonder that Netflix (NASDAQ: NFLX) would seek to emulate its more traditional rival. The leading streaming service has already started getting into merchandising with toys, shirts, mugs, and other such gear associated with the hit sci-fi show Stranger Things.

The company launched a line of Stranger Things merchandise at stores like Hot Topic and Target, seeing it as a virtuous cycle that leads to increased awareness about the show. Now, Netflix is pulling another Disney-esque move by dipping its toe into theme parks. The streaming service is partnering with Comcast-owned (NASDAQ: CMCSA) Universal Studios to create a series of Stranger Things-themed mazes set in The Upside Down, the show's parallel universe. The experience will be hosted at three of Universal's theme parks, in Hollywood, Orlando, and Singapore, as part of their Halloween Horror Nights series.

The Disneyfication of Netflix

Netflix CEO Reed Hastings once said his company's goal was to become HBO before HBO can become Netflix. What he meant was that Netflix had to build a viable business as creator of original content before HBO tried to take over streaming. While Netflix seems to have won that battle, the streamer is now locked in a similar duel with Disney. Both entertainment companies are seeking to become the other first.

After years of seeing cable viewership slowly decline, Disney has decided to cut the cord itself and will launch two streaming services -- one sports-themed and one entertainment-themed -- over the next two years. If the company's acquisition of Fox goes through, it would gain majority control of a third streaming service, Hulu.

Netflix, meanwhile, is fully committed to the streaming model, but it appears to be following in Disney's footsteps in other ways. Not only has the streamer dabbled in toys and theme parks, but the only acquisition it's ever made came last year when the company bought Millarworld, a comic book publishing house known for titles like Kick-Ass and Kingsman. The move was reminiscent of Disney's purchase of Marvel that was arguably one of the best acquisitions of the 21st century as it gave the entertainment giant a trove of characters that formed the basis of dozens of hit movies, including the recent blockbuster Black Panther.

Netflix said it would bring "Millarworld's portfolio of critically and fan-acclaimed character franchises to life through films, series, and kids' shows available exclusively to Netflix members globally." Presumably, that video content could one day lead to merchandise and theme park experiences like the company is doing with Stranger Things.

On a collision course

As part of its move to launch its own streaming services, Disney is pulling its content from Netflix. The streamer, however, poached one of Disney's top talents, Shonda Rhimes, who created Grey's Anatomy, Scandal, and other shows, and also signed Glee-creator Ryan Murphy away from Fox. The so-called Netflix-Disney divorce should only get more heated after Disney launches its streaming service. As streaming threatens both cable and the traditional movie-going experience, Disney will need to fend off Netflix more than ever before.

Whether Netflix can branch into other segments of the entertainment world as Disney has done so successfully remains to be seen. Hastings said he didn't see a full-fledged push into theme parks in the next 5-10 years, but he did say it would be "amazing" to one day have Netflix-content focused theme parks. He was more bullish on licensing and merchandising, saying last month, "We'll be doing more of that. That's a big one for us."

With its recent acquisition of Millarworld and the $8 billion it's planning to spend on programming this year, including 700 original shows and movies, Netflix should have plenty of intellectual property to monetize beyond the screen if and when it chooses. For the fast-growing streamer, the Disney model is very alluring.

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Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.