Deeper Dive—Exploring the myth that Disney+ will be the death of Netflix

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Disney+ will not be the death of Netflix (Netflix)

Like an angry Zeus hurling lightning bolts from the top of Mount Olympus, Disney will torch the streaming video market and kill off Netflix by the end of the year, in the scorched-earth view of one fired-up investor/analyst.  

In a Forbes article – which as of this writing has almost 3.5 million views! – RiskHedge analyst Stephen McBride handed out some shaky, unsourced figures about cable audiences before arguing that Netflix’s days may be numbered. He said that Netflix only changed how people watch and not what they watch (he cited “The Office,” which to be fair is massively popular on Netflix). He also said that Netflix is burying itself in debt to keep up its rapid-fire original content release schedule, which is also true. During the most recent quarter, Netflix reported $10.3 billion in long-term debt.

All of this built up to McBride’s thesis: Netflix only has 175 days to get its act together before Disney+, bringer of death, destroyer of worlds, launches and eviscerates Netflix.

Disney will accomplish this by having the best content – like the Star Wars and Marvel films it’s taking back from Netflix and a lineup of original films and series based on already popular franchises. Disney has a formidable library, one that certainly challenges Netflix’s own library of original series and films. McBride thinks it will be enough to take away millions of Netflix subscribers who switch over to Disney+.

But therein lies the fundamental flaw in McBride’s logic: Netflix and Disney+ is not necessarily an either/or proposition.

Alan Wolk, co-founder and lead analyst at TV[R]EV, reiterated his belief that many consumers will likely keep Netflix even if they get Disney+. He said that at this point Netflix is ingrained in peoples’ lives.

“It will take a while before people decide to get rid of Netflix,” Wolk said.

Complete and total abandonment of Netflix is unlikely but elevated churn levels could happen. Wolk said there’ll be a lot of churn in all SVODs especially for newer entrants like Apple, Disney, NBCUniversal and WarnerMedia, as consumers figure out what each service is all about and how they fit into their de facto channel bundles.

“A lot of it is going to come down to programming and whoever has the hits,” Wolk said, likening what’s to come for the “flixes” to what the big broadcast networks used to go through, taking turns sitting on the primetime throne.

Is Netflix vulnerable?

While it seems reckless to predict Netflix will die in less than the amount of time it takes to build a house, it’s not entirely impossible to find points of weakness with the company’s strategy.

Wolk said that Netflix does have some red flags, most notably the already mentioned loss of important library content and the gobs of money being spent on content that’s continually being released all at once, lessening the chance of big hype cycles that windowed content like “Game of Thrones” have been able to achieve.

Still, Netflix originals remain the core reason people sign up for the service. A lot of Netflix viewing is licensed library content but that’s the reason people watch more Netflix, not the reason people subscribe to Netflix in the first place, Wolk said. If Netflix does end up losing “The Office” and “Friends,” there’s a possibility some other library content will rise up to take their places as go-to comfort content.

But recent polls have suggested that the loss of popular library content could be catastrophic for Netflix in terms of losing young subscribers. Morning Consult this month polled 2,200 adults and found that 49% of Netflix subscriber ages 18-29 would cancel their subscriptions if “The Office,” “Friends,” the Marvel movies and Disney content were all removed from the service.

To get a minuscule data set of my own, I asked my friend Andrew if he would cancel Netflix if it no longer had “The Office.” He called “The Office” a “glue show” and said it’s the show he and his wife watch on Netflix when Netflix doesn’t have an original that interests them. He said that if Netflix goes through a really long dry spell in terms of interesting programming, and doesn’t have “The Office” to fall back on, he and his wife might cancel.

He also said that there is no way he would subscribe to the NBCUniversal service even if it does get “The Office,” but he is interested in Disney+, largely for the original content that will extend the Star Wars and Marvel Cinematic universes. He said that subscribing to Disney+ doesn’t necessarily mean that he would get rid of Netflix, but added that it could increase the likelihood of churning in and out of his Netflix subscription more than he does now.

Even with the consumer surveys and my own very limited sample size, it’s still impossible to predict the impact losing library content will have on Netflix. And calling the service doomed in those titles’ absence is gravely underestimating the appeal of Netflix original series like “Stranger Things,” “Orange is the New Black,” “Black Mirror,” “The Crown,” “You,” “Mindhunter,” “Ozark” and “BoJack Horseman,” as well films like “Bird Box,” “Roma” and the upcoming “The Irishman.”

Netflix’s debt load could be an issue. The company recently announced another $2 billion worth of bonds, which will grow its long-term debt to $12.3 billion. As Variety pointed out, Netflix still hasn’t paid down a significant amount of its long-term debt. So, some concerns about Netflix are valid. But the company is still growing, still expanding its content lineup and still building brand loyalty with consumers.

The idea that Disney+ is going to launch on Nov. 12 and kill Netflix is a myth.