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Disney streaming service can top Netflix in the long run: JPMorgan

Zack Guzman
Senior Writer

Disney has already cemented its place as the happiest place on Earth. By yearend, it might be the happiest place in the streaming world with Disney+, according to a new note from JPMorgan.

Despite facing intense competition from Netflix, analyst Alexia Quadrani contends that Disney’s brand recognition could drive Disney+ subscriber growth beyond what its streaming rival boasts today.

“Our confidence in the resilient success of Disney+ comes from the company’s unmatched brand recognition, extensive premium content, and unparalleled ecosystem to market the service,” Quadrani wrote in the research note Wednesday.

As she points out, Disney’s arsenal includes some noteworthy powerhouses. Aside from the legacy Disney titles, Star Wars, Marvel and National Geographic content will also grace the platform upon and after launch. While the latter is not to be overlooked, it’s the titles that have historically appealed to children that appear to be Disney’s competitive advantage in Quadrani’s model.

“According to the U.S. government consensus, there are 34.5 [million] households in the U.S. with children under 18, and we believe 75% of those households will eventually sign up for Disney+ due to the service’s popular appeal, exclusive content, and brand recognition,” she wrote, adding that Marvel and Star Wars content would do more to appeal to adults without children.

What’s also interesting is that Disney+ is expected to launch at a cost that will undercut Netflix’s current cheapest subscription price of $9 per month. While Disney is expected to announce more details about its streaming service in April, Quadrani expects the price to be around $7.99 per month at launch.

Assuming Disney is able to penetrate the market on a scale similar to what Netflix has achieved, Quadrani calculates Disney+ can amass 160 million subscribers worldwide over the long term. As of its last earnings report, Netflix had compiled a global total of 139 million subscribers.

Disney may have an edge

Disney logo is seen on an android mobile phone. (Photo by Omar Marques/SOPA Images/LightRocket via Getty Images)

Of course, Disney launching its own streaming service will impact revenue in the short-term. Ahead of launching its own streaming service, Disney has been pulling its content from Netflix and forgoing large licensing fees. By Quadrani’s estimation, that loss across TV and film will amount to $150 million by 2020 and $1.38 billion by 2024.

Those losses, however, would pale in comparison to the upside Disney has to gain if it can use its brand power to amass a streaming following on the scale of Netflix — something that’s not as unlikely as it sounds if you believe mounting research that people are willing to subscribe to more than one streaming service.

A December survey from Lab42 Research found that Americans on average subscribed to 2.5 streaming services. Among all streaming video users, 89% subscribed to Netflix. If Disney and Netflix were competing in a vacuum that might seem encouraging, but with Amazon, Hulu, AT&T’s DirecTV Now and another WarnerMedia streaming service expected later in 2019, America’s budget for streaming services will be put to the test.

On that point, the fact that Disney is positioned to own a majority stake in Hulu following the close of its 20th Century Fox acquisition could prove to be a major weapon in the streaming battle should Disney look to leverage a bundle deal.

“We see the potential for Disney to bundle Disney+ with ESPN+, and/or Hulu, to create an even more connected platform, and for Disney to give discounts to subscribers who sign up for multiple services,” Quadrani wrote. “More importantly, we believe Disney’s streaming services can co-exist with the parks, cruise lines, and consumer products to mutually benefit each business and drive more consumer engagement within the Disney ecosystem.”

Zack Guzman is the host of YFi PM as well as a senior writer and on-air reporter covering entrepreneurship, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.