Disney’s undercutting of Netflix keeps gaining steam

Three weeks after Netflix issued a dour forecast for the start of 2022, partly owing to increasing competition for customers, Disney officials on Wednesday announced a market-pleasing 10% jump in Disney+ subscribers from the prior quarter. 

The bump means Disney+ now boasts 129.8 million paying customers globally, with a growth trajectory far outpacing Netflix. Perhaps most notably, Disney+ added 6.6 million subscribers last year in the U.S. and Canada, the most lucrative markets for streaming services, representing an 18% jump. Netflix, meanwhile, only saw a 1.3 million boost in the market, up 2%.

Disney’s stock price is now virtually unchanged since the start of January after shares rose by 6% in midday trading Thursday. Netflix shares, in contrast, are down 31% so far this year.

On an earnings call Wednesday, Disney executives cited an increase in the quantity and quality of their content as a key driver in subscription growth. But the earnings report also illustrated a key advantage that’s fast coming into play for Disney, Amazon, Apple, and other top competitors trying to catch up to Netflix: the sheer size of their companies.

While Netflix derives virtually all of its revenue from its stand-alone video streaming subscriptions, its rivals are highly diversified companies with multiple revenue streams. This gives competitors more runway to undercut Netflix’s relatively high prices and bundle streaming services with other high-value products.

Disney, for example, comes in at a much more attractive price point than Netflix—even as it posts losses from Disney+. According to its earnings reports, the average Disney+ customer in the U.S. and Canada paid $8.10 less for their subscription than the average Netflix user last quarter. The gap could increase this quarter following Netflix’s announcement in January of a $1 to $2 monthly price increase.

Yet Disney reported an operating loss of nearly $600 million for the quarter in its direct-to-consumer division (which includes Disney+, Hulu and ESPN+), while Netflix posted about $600 million in net income during the same time frame. For now, Disney’s cable, film, and theme park divisions, among others, can subsidize those losses.

Amazon, Apple, and HBO Max parent AT&T don’t report such granular detail about their streaming services, but it’s reasonable to expect they’re following Disney’s model. 

Amazon sees video streaming as a key part of its Prime package, rather than a self-sustaining moneymaker. Even if streaming loses money in the short-term as it builds market share, its multibillion-dollar profits from Amazon Web Services can easily offset any shortfalls.

Ditto for Apple, whose streaming product represents a minuscule fraction of its overall business. At $5 per month domestically, it’s also a pittance compared with the cost of Netflix.

HBO Max likely doesn’t have as much cushion following its late jump in the streaming wars. The service will become more of a stand-alone entity following AT&T’s decision to spin off WarnerMedia, which will then merge with Discovery (the deal gained U.S. regulatory approval Wednesday). However, AT&T executives have committed to keeping HBO Max in its wireless bundle, a big boost for the lagging streamer.

Netflix is trying to diversify its portfolio, adding games, live events, and apparel to its lineup. It’s also banking on the strength of burgeoning franchises, such as Stranger Things and Squid Game.

If it doesn’t hurry up, though, Disney and company will topple the original king of streaming.

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Jacob Carpenter

NEWSWORTHY

Tweaks for the TikTok crowd. Samsung unveiled a new lineup of Galaxy S smartphones Wednesday that features modest changes largely designed to capitalize on growth in video sharing on social media, the Associated Press reported. While the three new Galaxy S devices didn’t get a major overhaul, Samsung compensated for the incremental tweaks by keeping its prices for the smartphones unchanged, with a base model retailing at $800. With the new lineup, Samsung will look to recover some market share lost to Apple, the industry’s dominant player, over the past few years.

Going on offense. Microsoft made numerous policy pledges Wednesday designed to woo regulators scrutinizing the company’s $68.7 billion acquisition of video game developer Activision Blizzard, the New York Times reported. The promises include giving developers more power in the company’s fledgling app store, allowing third-party payment processors to operate within Microsoft systems, and allowing the Call of Duty franchise to remain available on Sony’s PlayStation console. Some of the assurances take indirect aim at Apple and Google, whose dominant, wildly profitable app stores are under siege from U.S. legislators.

Jack wouldn’t like this. Twitter fell short of analysts’ estimates for earnings, revenue, and user growth in the holiday quarter, but the social media company stabilized its stock price by announcing a $4 billion share buyback, CNBC reported Thursday. In its first earnings report since CEO Jack Dorsey’s departure, Twitter officials said they plan to keep an ambitious growth target of nearly 100 million additional daily active users by the end of 2023, which would bring the user base to about 315 million. Twitter executives also said the company only saw “modest” impact from last year’s changes in Apple’s privacy policies, which blunted ad revenue at many social media platforms. Twitter shares were up 1% in midday trading Thursday.

A rare profit. Uber scored a strong quarter on the back of rising demand for its ride-sharing and food delivery services, as well as shrewd investments in other companies, the Wall Street Journal reported Wednesday. The company showed about $5.8 billion in revenue, beating analyst estimates of $5.35 billion, as ride bookings jumped and food delivery orders continued to grow despite the gradual pandemic reopening. Uber netted its second-ever quarterly profit as its investments in Grab, Aurora Innovation, and other companies paid off. Uber shares were down 3% Thursday afternoon after opening in positive territory.

FOOD FOR THOUGHT

A step ahead. Crypto entrepreneurs Ilya “Dutch” Lichtenstein and Heather Morgan took a beating Wednesday, as federal prosecutors and online sleuths explored their cringeworthy public profiles and laughable security mistakes that led to their arrest on money laundering charges. Yet the couple, according to IRS investigators, also took great pains to hide Bitcoin stolen in a 2016 hack that’s now worth about $4.5 billion, as Wired reported Wednesday. The duo took federal officials down numerous rabbit holes and dark web trails, some intentionally designed to mask the trail of funds along the blockchain.

From the article: 

Those gaffes have obscured the remarkable number of multilayered technical measures that prosecutors say the couple did use to try to dead-end the trail for anyone following their money.

Even more remarkable, perhaps, is that federal agents, led by IRS Criminal Investigations, managed to defeat those alleged attempts at financial anonymity on the way to recouping $3.6 billion of stolen cryptocurrency. In doing so, they demonstrated just how advanced cryptocurrency tracing has become—potentially even for coins once believed to be practically untraceable. 

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Sony’s A.I. just beat top human gamers in the smash hit Gran Turismo video game, by Jonathan Vanian

Supporters of WikiLeaks founder Julian Assange raise $56 million to buy an NFT for his U.S. extradition battle, by Yvonne Lau

This CEO has universal internet access for a connected Africa at the top of his to-do list, by Fortune editors

Peloton’s new CEO was a CFO. But that trajectory doesn’t always work out well, by Tristan Bove

BEFORE YOU GO

A no-spin zone. Tired of Trump? Bummed out by Biden? Well then, LinkedIn wants to be your place. The job networking platform is testing a “no politics” feature in the U.S., filtering out content related to political parties, elections, and other hot-button topics. The offering illustrates how many users are exhausted by the 24/7 onslaught of political products, with more than half of survey respondents telling the Pew Research Center that they’re “worn out” by the constant barrage. If only the Thanksgiving dinner table had such an option.