If you've ever been aware of Netflix and the ever-expanding group of competitors hoping to steal their streaming video crown, you'll already be aware that next month will face the toughest challenges yet. Disney (NYSE: DIS) and Apple both come alive in November with streaming platforms, and both are expected to attract tens of millions of subscribers over a few quarters.
Now, some industry watchers and analysts are saying that Disney and the others are not a threat to Netflix's subscriber base. That may be true, but new growth in net subscribers can be difficult to achieve.
And Disney's recently unveiled scheme of Verizon (NYSE: VZ) is one reason. [1
Verizon will offer free Disney + for one year to all of its unlimited wireless data customers, as well as to new subscribers to Fios Home and the 5G Home Internet service. The a la carte streaming service costs only $ 6.99 a month (or $ 69.99 a year for prepayers), so this is not the biggest benefit; Mobile companies often offer higher value incentives such as buying one-on-one offers on new phones.
But additions like this have become commonplace in telecommunications in recent years as they compete for subscribers – and try to prevent their customers from jumping ship. For example, T-Mobile has run a deal for a few years, paying its customers' Netflix bills.
For Verizon, the Disney + benefits could cause some subscribers to upgrade to unlimited data plans. The US's largest mobile network has around 100 million retail connections, about half of which have Verizon Unlimited. The home internet business is far smaller, with only around 6 million households, but the prospect of free streaming access to Disney's huge library, Marvel, Star Wars and Pixar content may be enough to turn customers into competing ISPs are considering switching.
What Disney Gets
While the deal benefits Verizon, Disney may be the biggest winner here. Gaining access to around 50 million subscribers who don't have to pay (at least not directly) in a year can be rocket fuel for the Disney + audience metric right outside the gate. For perspective, Netflix has over 60 million subscribers in the United States. It is unlikely that all Verizon customers will sign up for a freebie, but the scheme can help Disney + go from zero to tens of millions of subscribers quickly.
That speed will be important. Profit for subscription companies depends on scale, given that such a large part of the costs are fixed. Disney's streaming platform Hulu reportedly has around 30 million paying subscribers, and it's still not as profitable.
However, once this obstacle is cleared, the addition of more subscribers increases the speed line. This may be especially true for Disney +. And while Netflix is exclusively dedicated to its streaming platform and has to pay for content almost exclusively from its monthly subscription revenue, Disney + is simply a value-adding generator for its vertically integrated entertainment empire. Disney is already making money from its box office productions, merchandising and theme parks. A recurring revenue stream from streaming is just a lever until it can pull to generate new profits.
Simply put, Verizon may be on the hook for a bunch of new TV accounts on the Internet, but it can help it hold on to wireless and Internet customers and fetch some more. However, for Disney, this Verizon agreement can help make it available to US streaming supremacy sooner and later.