'Tangled Ever After' (Disney Channel)

Disney Streaming Might Not Cost Netflix Subs, Analysts Say

Focus on original content continues

Although Netflix’s stock dropped after Disney announced that it would be pulling some of its movies from Netflix as it created Disney-branded direct-to-consumer streaming services of its own, some Wall Street analysts say the impact on Netflix could be minimal.

Analyst Todd Juenger of Sanford C. Bernstein, noted that when Starz lost Disney’s movie output to Netflix, there was no visible impact on subscriber growth at Starz.

“There is no dispute, Disney and Pixar movies are fantastic collections of entertainment content,” Juenger said in a report.

Also: Disney Streaming Move Creates New Questions for Distributors

Juenger noted that a bigger driver of Starz subs has been the success of original programming such as the series Power.

“In fact, we have never heard Starz management (or investors, or analysts) ever once mention how losing Disney movie output has impacted subs,” Juenger said.

“If losing Disney movie output hasn't impacted Starz, then it shouldn't impact Netflix,” Juenger said, adding that the deal Disney will end does not affect international sub growth.

Also: Netflix Stock Slips as Disney Prepares to Move On

Netflix continues to announce the addition of new content, including a deal to create a show with David Letterman, showing that the streaming service won’t run out of attractive programming.

“Especially since Netflix will have two years to build a plan (from both a content and marketing side) to prepare for life after Disney /Pixar output,” Juenger said.

Daniel Salmon of BMO lowered his estimates on Disney because of its lower earnings and cloudy outlook. Despite that, he thinks Disney is a better bet than buying Netflix, which he noted is burning through between $2 billion and $2.5 billion in cash this year.

But John Janedis of Jefferies said Disney's move to use its content to build its own new streaming businesses could have been anticipated.

“Disney's decision to end its distribution deal with Netflix [beginning in 2019] supports our long-held view that content owners will increasingly look to retain content for owned platforms,” Janedis said in a note. “What is unclear is whether or not the largely staggered impact will affect Netflix’s growth in net adds.”

Janedis noted that Netflix’s content investment likely assumed some non-renewals by content owners.

Recent Disney movies such as Zootopia, The Jungle Book, Finding Dory and Moana have contributed to Netflix’s growth, he said. “Given the importance of these films to NFLX's content slate, we expect NFLX will increasingly allocate investment into kids programming to limit the impact to sub growth / churn.”

Janedis concluded that “overall, we expect this outcome does not have a meaningful impact on Netflix existing strategy, given the platform's content slate is already aggressively shifting to owned original content.”

He pointed to Netflix’s acquisition of comic book publisher Millarworld as a sign that Netflix was making moves to generate and own its own intellectual property,”

And Disney is not the only content owner with designs on streaming over the top. Already this week CBS and 21st Century Fox announced plans to expand or add new streaming products—products that will need programming.