Netflix is and should be worried about being disrupted, particularly by Disney and Apple. You only need to look at the tone of comments from Netflix executives to shareholders over the past year to see they are becoming increasingly worried. From initially saying “there is room for multiple parties to have attractive offerings” and then softening that by saying earlier this year that “we compete with Fortnite more than HBO” suggesting that other TV providers were still not a threat; to, as recently as last week, now saying to shareholders “the launch of new services will be noisy” in Q4 2019. With the final quarter being historically strong for subscriber growth, this will undoubtedly have an impact on Netflix, at least in the short-term. It’s how Netflix compete in the longer-term once the initial novelty factor of the new providers subsides more important.
Apple will be more threatening in the long-term due to their platform, the volume of users they already have (some of whom will also have Netflix subscriptions) and the ability to lure them over to Apple with perhaps more bundled subscription services which could include Apple Music and Apple Arcade. Apple also has unique differentiators such as the potential link-up with health care providers from Apple Watch. Thus enabling them to have more users, thus driving ability to deliver more content.
The surprising news is that, following these announcements last week to shareholders, Netflix shares rose by almost 8% in the hours after the results. This is more likely to be down to the news that Netflix subscriber numbers jumped back up after a previous dismal quarter. Netflix has also announced they will now only provide global membership projection forecasts to the market; perhaps in response to the decline last quarter in the US. While this does appear to make more sense, it may be viewed differently given that information on these have been provided every quarter until now - the quarter following the ever decline. Some may view this as trying to hide the inevitable; being their US core market is going to suffer in the coming months. In my view, no I would not buy stock in Netflix at the moment as it heads into some potentially rough waters in the short-term.
In my view, Disney will be strong in the short-term due to its very strong library of content, having invested in 20th Century Dox content and its own very strong pull for younger viewers with Disney films. Undoubtedly this will encourage a multihoming market in the near-term as people with Netflix subscriptions try out the new offerings. The real game-changer in the long-term will be Apple. It is such a strong brand with loyal customers, its iOS platform and large number of users already on Apple TV, iPhones, iPads, Apple Watch and so on. Their ability to bundle services together will be key to their success. Ability to do so will allow them to grow their user numbers even more and combine with recently launched Apple Arcade also. They are known for offering several months fee before you pay which will attract new customers and then it is up to them to provide strong enough content to retain those new users. With its platform and global reach, I think Apple is the most likely player to come out on top; one log-in across all services, with one subscription fee is a very attractive proposition.!