Disney threw down the gauntlet to its competitors last week, with a slate of remarkable programming on Disney+ alongside some eye-popping subscriber numbers and forecasts.Fans of Disney+ will have roughly 10 new series from Marvel and Star Wars alongside a cornucopia of other content. Disney plans on spending between $14 billion and $16 billion across its streaming ventures to make all those shows and movies.
Someone has to pay for all that content — and that someone is probably you, the customer. If Disney wants to achieve its forecast of hitting profitability in fiscal 2024, it has to raise prices.It said it will do that in March. And, after that, it’ll likely have to do it again.”Increasingly streaming, in general, is taking a greater share of the consumer’s wallet,” Bernie McTernan, a senior analyst at Rosenblatt Securities, told CNN Business.
And it’s not just Disney (DIS) that is raising prices. Netflix (NFLX) has already announced a price increase and other competitors may have to do the same if they want to produce the kind of content Disney showed it could while remaining a stable business.Take HBO Max, for example.The service from CNN’s parent company WarnerMedia announced earlier this month that it will stream movies on HBO Max the same day they drop in theaters. Whether that becomes the norm or is just a quick solution during a pandemic is yet to be seen.
But if it becomes a permanent strategy, consumers will likely see their subscription prices rise over the next few years. Producing a major blockbuster like “Wonder Woman 1984” isn’t cheap.
McTernan pointed out that the company’s outpouring of content could also lead to a streaming arms race.”Disney increasing its content budget is a big deal for the whole industry, including Netflix. It is effectively raising the bar to compete,” he said. “If Disney needs to spend $14 billion to $16 billion on content, then Netflix likely needs to spend well over $20 billion to achieve the same subscriber scale globally.”
Netflix has become the market leader not just by being first but also producing great content at an affordable monthly price. It did so by taking a ton of debt to finance the service’s seemingly never-ending carousel of content.This strategy worked. Netflix has grown to more than 195 million subscribers worldwide, and its stock has been a hit on Wall Street. But burning through cash can’t last forever, which is likely why the company announced in October that it would be raising prices over the next few months.
If it wants to maintain its throne as the king of streaming, Netflix must keep its content enticing to customers who now have many services to choose from.
“The pressure on Netflix to compete with content is tremendous,” Trip Miller, a Disney investor and managing partner at Gullane Capital Partners, told CNN Business. “Netflix lacks the cross-generational legacy content of Disney.”The pandemic may have “accelerated subscriber adoption beyond expectations so far,” Miller added, but he believes that will continue even after the pandemic comes to an end.
“Streaming is not a fad. It is here to stay,” he said. “For the consumer, the cost of doing business with, say, Disney is going up, but in return, the amount of content they will receive is increasing.”Although streaming prices will likely continue to rise, many consumers will pay up. But they might rework their entertainment budgets by siphoning money from other expenses, such as cable.That’s a tradeoff for companies like Disney, WarnerMedia, Comcast (CCZ) and ViacomCBS (VIACA), which own or license content to television networks.”As media companies put more and better content on their streaming services, it will make consumers continue to evaluate whether they need pay-TV or not,” McTernan said.Disney saw the “ability to open up the consumer’s wallet by launching Disney+, McTernan added. “Now, this greater investment in content shows they think they can increasingly take a share of that wallet.”
News Source: CNN Business