2019 is shaping up to be quite the year in the battle for America’s streaming market. Almost every week there’s some big piece of news. Different competitors are launching new services, price points, content, hardware, and the like quite regularly.
In a highly competitive market, what is Disney doing to stay ahead of the field?
Disney Ties Up With Microsoft, Breaks Up With Apple
Last week, as Apple was rolling out its TV offering, one of its board members stepped down from their role. Bob Iger, Disney’s CEO, was the departing member. With Apple and Disney now in direct competition, it no longer made any sense for Iger to help oversee Apple’s affairs.
As Disney distances itself from Apple, it’s moving in another direction. Variety reported that Disney and Microsoft (NASDAQ:MSFT) have reached an agreement to work together on a cloud solution using Azure to help Disney produce movies more easily.
Disney specifically picked Microsoft because it was focused on the media space. However, unlike rivals, it hasn’t been accused of looking at people’s data to try to refine their own content. By contrast, who knows what data Amazon (NASDAQ:AMZN) might harvest for use in its original content if Disney had picked Amazon Web Services.
Apple’s Streaming Threat to DIS
It appears that the streaming wars will end up having a major impact on tech hardware producers as well. Apple’s latest moves around Apple TV+ suggest as much.
Apple will be giving out a free one-year trial to its Apple+ TV service. Analysts expect this to have a negative impact on Apple’s earnings. Goldman Sach’s analyst, Rob Hall, for example, slashed his price target from $187 to $165 on AAPL stock. Hall suggested that this trial will work, in effect, as a $60 reduction in the sales price for new Apple hardware, significantly lowering the company’s average selling price for new products.
Apple, for what it’s worth, disputed Hall’s assessment of the situation and said there would be no significant impact to the company’s financials as a result of its Apple TV+ promotion. One certain impact for Apple, however, is that it is losing any friendly ties with Disney.
Disney Can Partner With a Variety of Hardware Makers
Regardless, Apple’s move raises an interesting point for Disney stock. Amazon has long been lumping services together within Prime to try to drive more customer stickiness. Now it seems that Apple and Google (NASDAQ:GOOGL, NASDAQ:GOOG), among others, may rely more heavily on cross-subsidizing its various products and services.
This gives Disney a real opportunity as it has a ton to offer hardware producers. It can deliver video, audio (it has Disney Radio and Records among other things), games, and tons of other IP. Yet Disney itself is more hardware-agnostic. This allows it to partner with various TV, phone, and other electronics markers to offer packages emphasizing native Disney content.
While Microsoft is not strong in hardware outsize of video games at the moment, Disney’s partnership with them shows potential. Disney can work with companies like Microsoft, Samsung, Huawei, and other giants that don’t have competing content services.
Meanwhile companies like Apple and Amazon that try to control both hardware and content will find themselves increasingly isolated from the rest of the world. Especially given the increasing anti-trust concerns, it seems unlikely that conditions will allow one ecosystem to dominate everything as much as, say, the iPhone did in the past. This gives Disney’s streaming a leg up on the offerings from the big tech companies.
Disney’s Top Rival Is Still Netflix
Even with all the excitement out of Apple and Amazon, among others, Disney stock owners shouldn’t sleep on the company’s biggest rival in streaming: Netflix. We have seen a lot of people saying that Netflix has peaked and that rivals will overtake it soon. I say critics have exaggerated the death of NFLX stock. Netflix is still spending an ever-increasing amount of money on licensing and original shows and movies — its all-in content budget is up to $15 billion this year. On top of that, Netflix is spending almost $3 billion annually on marketing.
With that sort of growth engine in place, it’s fanciful to write Netflix off as a serious competitor yet. For people that were doubting Netflix’s staying power, particularly with 30-and-40 something viewers after it elected to let “Friends” leave the platform, the arrival of “Seinfeld” should put these concerns to rest. Netflix still has the budget and appetite to go get blockbuster franchises.
DIS stock owners need not worry too much. If there’s any content player with a library that matches up favorably to Netflix, it’s Disney. However, Netflix’s huge overseas presence including a ton of locally-relevant content for individual foreign markets will keep Netflix as a top rival to Disney going forward.
Like Disney, Netflix doesn’t have internal conflicts of interest between hardware and streaming services. That said, Disney could be a better partner for other neutral tech firms than Netflix. It has a much wider array of intellectual property and tangible assets beyond just film and video.
Disney Stock Verdict
I have long been skeptical of how the streaming battle will play out. It seems like everyone is destined to lose money, at least in the short-run. Pricing on many of these services is very low, and operators are paying exorbitant amounts of money to bring in fresh content. Disney’s entries into this space — like Netflix — won’t be a cash cow from day one.
But the eventual winner in this space will be a company willing to play the long game. Disney’s combination of a huge range of assets, a strong balance sheet, and its independence from other tech firms give it a strong hand to play. In addition, its aggressive pricing shows it is willing to match Netflix with solid marketing and customer engagement efforts of its own.
I don’t expect streaming to power overnight success for DIS stock, but I’m warming up to the company’s long-term strategy for the streaming wars.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.
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