Deeper Dive—Disney+ and the case of the Netflix-killing bundle

Disney+ and the Disney+ bundle won’t arrive until the fourth quarter so we won’t receive any public validation of the impact to Netflix until early next year. (Disney)

Pitting Netflix against Disney in a good old-fashioned donnybrook for the U.S. streaming market is good fun, but not a realistic depiction of the industry. At least, not until the Disney+ bundle showed up.

This week Disney+ confirmed its long-speculated streaming service bundle, which will include Disney+ (launching Nov. 12), Hulu with ads and ESPN+ for $12.99 per month. The math comes out to about a $5 discount – or essentially either ESPN+ or Hulu for free. It’s a compelling offer and it will absolutely add to ESPN+’s 2.4 million subscribers and Hulu’s 28 million paid subscribers. It’s also priced the same as Netflix’s most popular plan.

Disney CEO Bob Iger told CNBC that it’s just a coincidence.

“I know there’s a lot that’s been speculated about us going after them,” Iger told the network. “We’re not, we’re looking to occupy space. That’s a growth opportunity for the company and growth in terms of consumption.”

Alan Wolk, co-founder and lead analyst at the consulting firm TV[R]EV, echoed that sentiment and called it misguided to call Disney+ (or similar services from Apple, WarnerMedia and NBCUniveral) a “Netflix killer.”

“Showtime was not an ‘HBO Killer,’ MSNBC was not a ‘CNN killer,’ ABC was not a ‘CBS killer,” said Wolk in an email. “Unless they make a serious misstep I fully expect all of the new Flixes to succeed. People like having options, and it would be awful if we only had a single choice of large SVOD services.”

He said that some Netflix subscribers may cancel service in favor of the Disney+ bundle, but that the number likely won’t be high enough to materially impact Netflix’s business.

Indeed, when TDG Research asked consumers about what they would do with their existing subscription services if they decide to get Disney+, the majority of Netflix, Amazon Prime Video, Hulu and HBO Now users said they would keep their existing subscriptions. Only about 9% of Netflix subscribers said they would cancel if they got Disney+. Of course, that applied to just $6.99/month Disney+, not the $12.99/month Disney+ bundle.

Michael Greeson, president and co-founder of TDG Research, said the Disney+ bundle is significantly more compelling than Disney+ alone, and said the bundle was “specifically designed” to be a Netflix-killer.

“Imagine how easy it is going to be for Hulu on-demand users to justify upgrading to this new bundle… For its part, Netflix would be wise to add a less-expensive ad-based ‘standard’ tier so that folks tempted to drop Netflix for the Disney+ bundle would have another option besides cancelling Netflix altogether,” Greeson said in an email.

Laura Martin, senior analyst at Needham, said Disney’s aggressive pricing strategy is going to eat into Netflix’s market-leading U.S. subscriber base.

“We project DIS will win (and NFLX lose) the U.S. SVOD [subscription video on demand] battle,” Martin wrote in a research note. “U.S. consumers have shown a reluctance to add to their three SVOD services. This implies that DIS’s projected 20 million to 30 million U.S. subs [subscriptions] by 2024 will mostly come from Netflix’s 60 million U.S. subs.”

The mounting pressure on Netflix does lend some credibility to the idea of Disney+ and other competitors taking the SVOD giant down a peg or two. Netflix is losing popular licensed content from AT&T, Disney and NBCUniversal, putting more stress on Netflix to consistently roll out popular original programming. And, the company just lost U.S. subscribers for the first time in very long time – though it expects to bounce back with 7 million paid memberships (800,000 in the U.S. and 6.2 million internationally) in the third quarter.

Disney+ and the Disney+ bundle won’t arrive until the fourth quarter, so we won’t receive any public validation of the impact to Netflix until early next year. Even at that point, we’ll still be years away from getting a clear picture on how the next wave of streaming video services alter the landscape.

For now, it’s reasonable to assume that Netflix will respond in some way just in case. But, odds are that both Disney+ and Netflix will both be around for many years to come.