When it comes to streaming, there's Netflix (NASDAQ: NFLX), then there's everyone else. Sure, there's been competition from the likes of Amazon.com's Prime Video and Hulu, but the combination of Netflix's cutting-edge streaming technology and an early move into original content has kept any would-be competitors at arms-length.
However, recent developments may finally bring some long-awaited competition to the space, and one announcement sent Netflix shares skidding over 6% in response. An analyst's rosy outlook for an anticipated streaming video service from Apple (NASDAQ: AAPL) caused the swoon.
Apple's Carpool Karaoke. Image source: Apple.
An Apple a day...
Morgan Stanley analyst Katy Huberty said that if Apple debuts a video streaming subscription -- which has been widely anticipated -- the company could attract over 50 million paid subscribers by 2025. Netflix currently has 130 million subscribers, with 124 million of those paying (the rest are on 30-day free trials). Huberty believes that consumers would pay about $7.99 per month for the service, even for a much smaller, high quality content library, growing to a $4.4 billion business over the coming six years.
The potential draw would be even greater, if combined with Apple's streaming music service. "We believe a bundling of Apple's video content with Apple Music and the Texture news and magazine subscription service into a $12.99/month unlimited 'Apple Media' service (in-line with the current cost of a Hulu and Spotify bundle) would make the most sense," Huberty wrote.
That combination of services could generate as much as $37 billion for Apple by 2025, and potentially coax some users away from Netflix.
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Disney (NYSE: DIS) is another service that will be vying for consumers eyeballs and wallets. The company is currently scheduled to launch a streaming service of its own in fall 2019. The House of Mouse will also own a controlling interest in third-place service Hulu if the proposed acquisition of Twenty-First Century Fox goes ahead as expected.
With the integration of Fox comes a host of well-known movies and television shows that could help Disney populate Hulu. Those movie franchises include Avatar, The Fantastic Four, Deadpool, X-Men, Planet of the Apes, and Kingsman. The company's television offerings are equally rich, boasting such hits as The Simpsons, Modern Family, American Horror Story, This Is Us, and many more.
Neither Apple nor Disney is likely to try to match Netflix's volume and will likely charge less for their services. Disney CEO Bob Iger has said previously that its streaming offering will be priced "substantially below where Netflix is." During Disney's third-quarter conference call last month, Iger said the company wouldn't have to do "anything close to the volume of what Netflix has" due to the quality of its content, with programming from its Pixar, Marvel, Disney, and Lucasfilm studios.
A scene from Avengers: Infinity War. Image source: Disney.
Investors have kept a weather eye on the horizon for a Netflix "killer," but thus far one has not appeared. I have long argued that with consumers subscribing to multiple streaming services catered to their individual tastes, there would be room for numerous successful streaming services. When their respective services eventually debut, Disney and Apple could represent the stiffest competition that Netflix has had to face.
That said, many people have been watching even more closely in light of Netflix's rare subscriber miss in its second-quarter earnings report. The company reported that net subscribers increased by 5.15 million, far fewer than the 6.2 million it had guided for. While this could be an anomaly, investors are concerned that it could be a harbinger of slowing subscriber growth.
Netflix CEO Reed Hastings doesn't seem concerned about the competition. "I think in particular Disney, with its strength of brand and unique content, will have some real success," Hastings said. "I know I'll be a subscriber of it for my own personal watching."
Still, since neither Apple nor Disney has launched a competing service yet, it's probably a little early to panic.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Apple, 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 Amazon, 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.