The makers of your favorite blockbuster movies and TV shows are parting ways. Tensions are high all around, and you’d expect Disney to at least be there to make us laugh. Alas, the Walt Disney Company is wrapped up in its own battles right now. News this week reveals that the creators of Mickey Mouse are turning their backs on Netflix, Inc (NASDAQ:NFLX).
The news is rather dire considering the fun, kids entertainment provided by the Disney-Netflix partnership. The ability to stream kids content on Netflix has not gone unappreciated either. Sports fans? Well, no more ESPN content for them either. No doubt Netflix households will be groaning over the loss of their favorite, Disney-sponsored programs.
For investors though, it is a question of who needs whom more. If you ask Michael Osborne of PiperJaffray, you’ll be told to place your bets on Netflix. Bearing the streaming company’s growing popularity, it should have no problem diverting the cash put into its Disney partnership into even more unique content.
Netflix is estimated to throw around $200 million at Disney per year. Osborne highlights the content provider’s hunger for more original content. He says while Disney is clearly the bigger name, Netflix will not be hurt by the loss. Instead, the company will have more money to direct towards its own, home grown shows.
Analysts’ take on Disney-Netflix
It will no doubt be a “negative headline for Netflix,” the PiperJaffray analyst comments. However, he also anticipates a “minimal” impact on the streamer’s customer base. Osborne has not lost confidence in Disney either. He holds an “Overweight” ranking of the company’s stock. His opinion on the Disney loss has done nothing to change his NFLX price target either, keeping it at a firm $215.
Mr. Andy Hargreaves is an analyst at KeyBanc Capital. He also sees no significant issue with Disney and Netflix, Inc. parting ways, at least not for the latter company. Doubling down on Osborne’s views, he points out the widening influence held by the streamer. According to him, rival studios do not share the worldwide “brand power” of NFLX.
Rivaling content producers can not quite “drive the economics” better than everyone’s favorite TV streaming giant. This is according to Hargreaves himself, who goes on to reiterate that its “massive global user base” is unrivaled. Much like Michael Osborne, he too keeps an “Overweight” rating on NFLX. Hargreaves’ price target for the firm is $190.
Netflix has grown to a point where it is quite independent of anyone. This was stated by analyst Therese Poletti. Poletti claims the firm anticipates moments like these, and sets up appropriate contingencies.
The analyst asserts that the news of Disney giving Netflix the boot should really come as no surprise. Both companies got what they wanted from each other. If anything, the deal has reacted maturity, and had to be terminated.
Yet the afternoon of the termination announcement was filled will hot comments from market watchers. General reactions show worry over the Netflix subscriber base dwindling from the loss of Disney. After all, Disney is finally getting the ball rolling on its own direct streaming service. This means the company will go head to head with Netflix at its own game.
The worry? Well, the Walt Disney Company has an arguably bigger name. It is older too, which is synonymous with “trust” in some in some circles. Add fan favor among younger viewers and just about anyone with a child in the house watching TV, and we get a very formidable content streaming service coming our way.
But before all of that, Disney will win the hearts of sports fans everywhere. The company plans to launch a direct-to-consumer ESPN streaming service in 2018. The NFLX partnership has done its part in giving people a taste of streaming kids and ESPN programs. Those who miss the shows no longer on Netflix, (and who wouldn’t?), will have the option to stream them on the incoming Disney service.
But don’t expect Netflix to be all sobs and tears about all of this. According to the company, the Disney venture was on a fixed time line anyway. “The deal was always on this timetable,” assures a spokesperson for NFLX.
Netflix, Inc. shares fell anyway after the news.
What investors might not have noticed was the mutually beneficial and fixed nature of the Disney-Netflix venture. The 3 percent drop in share price on Tuesday hints at some degree of surprisE over the news.
The fear is that Netflix, Inc. (NASDAQ:NFLX) will now have to fill the space occupied by Disney content. We’re not talking about Hannah Montana reruns and episodes of Zeke and Luther either. The Marvel and Star Wars films all fall under the Disney belt, a decent reason for investors to be concerned.
The lack of blockbuster movie content from Disney will be felt. However, there is no indication that these will be taken away from Netflix right now. Analysts are adamant that the streaming giant will hold onto Marvel blockbusters, Star Wars films and a host of other great movies.
Netflix is the king of series, documentaries, and comedy shows without a doubt. Although, when it comes to making movies, the company finds trouble getting traction. It certainly gets a lot of push-back too. Leading theaters, film festivals and a host of other formidable movie boffins are against it. That said, a little traction is being made here and there, yet Netflix can’t be recognized as a formidable movie provider without outside help.
Is Netflix in trouble without the Walt Disney Company?
If the question is whether Netflix is in trouble right now, the answer is an outright no. Both firms are on mutual terms with the termination. Furthermore, the move should come as no surprise except to those who have not been paying attention. Netflix will not lose out on Disney movies either, at least not yet, says a company spokesperson.
While the Disney hole will be noticeable for a while, investors should have confidence in Nexflix’s ability to fill that gap with more original content. So this is not so much a loss as it is a new opportunity for Netflix, Inc.
Wednesday trading sees Netflix, Inc. (NASDAQ:NFLX) still trading in the red. The company finished Wednesday trading down by almost 1.5 percent. The Walt Disney Company, however, lost almost 4 percent of its value.