About 14% of Netflix Inc. subscribers, equal to 8.7 million people, are considering dropping the streaming service in favor of the coming $6.99-a-month offering from Disney Co., at a cost to Netflix of about $117 million in lost revenue a month, a new survey has found.
The study, conducted by research company Streaming Observer and Mindnet Analytics of 602 current Netflix subscribers, comes as consumers gear up for the release of yet another streaming service from Apple Inc. AAPL, +0.39% that will offer competition for the existing services from Netflix NFLX, -0.97% and Amazon.com Inc. AMZN, -0.26%
On its recent first-quarter earnings discussion, Netflix played down the threat from new competitors.
“Disney DIS, +0.49% and Apple add a little bit more, but frankly I doubt it will be material because again there’s already so many competitors for entertainment time,” Netflix founder and Chief Executive Reed Hastings said on the company’s video interview.
The survey found 12.3% of those polled saying they may cancel Netflix and subscribe to Disney+ and 2.2% saying they will definitely cancel Netflix. About one in five Netflix users said they are planning to subscribe to both services.
A full 37.5% of those polled said they would try Disney+ when it is released, compared with 40% who said they have no interest. Predictably, parents of young children are most likely to want Disney over Netflix, given the amount of family-friendly films and TV shows on offer, including Pixar movies, Marvel and Star Wars content.
Overall, 23% of parents with children aged 15 and younger said they might cancel Netflix for Disney+, while just 10% of those without children said they may cancel.
“While Netflix has been steadily adding more kids content to its library, it’s hard to imagine it can match what Disney offers on this front, which could be a source of concern for the streaming giant,” said the survey.
Disney is expecting to grow its subscriber base quickly, building it to 60 to 90 million subscribers within five years. Netflix had 60 million U.S. subscribers at end March, and 88.6 million international subscribers, according to a regulatory filing.
The 37.5% of Netflix users who said they would try Disney+ is equal to an audience of 22.5 million people, the survey noted.
Analysts weighing in on Netflix’s recent earnings report were mixed in their view of the pending competition from Disney and Apple.
SunTrust Robinson Humphrey analysts led by Matthew Thornton said 10 of the top 10 and 21 of the top 25 series on the service are first-run Netflix originals or exclusives, a sign that its content is resonating with its customers.
“Further, Disney + Fox + Warner + Universal collectively account for a minority of NFLX content spend and of viewing hours on the platform and NFLX access to this some of this content likely has a longer than appreciated tail per licensing agreements,” they wrote in a note, reiterating their buy rating on the stock.
But Needham & Co. said Disney will have an impact, predicting that it will aggressively market and promote its service come the fall and noting that a $7- a year, or $7 a month, offering for all of its Marvel, Pixar, Princess and Lucas Film films is competitive.
Disney has a cost advantage in the millions of customers in its core businesses that are already captive, greatly lowering its customer-acquisition costs for Disney+.
“For both Disney and WarnerBros, those libraries were paid for 30-50 years ago, which implies higher marginal ROI (return on investment) on current content investments,” said Martin. “Additionally, their content often benefits from emotional connection to the material created during childhood (e.g., Cinderella, Snow White, Lion King, etc).”
Martin rates Netflix as hold and does not calculate a price target.
Netflix shares were down 1.1% Wednesday, but have gained 41% in 2019 to date. Disney was up 0.5% and has gained 22% in the year so far. The Dow Jones Industrial Average DJIA, +0.01% which counts Disney as a member, has gained 14% in the year, while the S&P 500 SPX, +0.05% has gained 17%.