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WALT DISNEY COMPANY (THE)

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Walt Disney : Disney Enlists Superfans as It Prepares to Face Off Against Netflix -- Update

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08/25/2019 | 04:29pm EDT

By Erich Schwartzel

ANAHEIM, Calif. -- Jolie Ninness is a mega Disney fan -- and Netflix Inc.'s worst nightmare.

The 29-year-old medical-office employee from San Diego came to D23, an annual gathering of Walt Disney Co.'s most ardent fans, and quickly signed up for a three-year subscription to Disney+, the company's forthcoming streaming service. Once it arrives in November, she plans to cancel her Netflix subscription and instead opt for the classic Disney titles and "Simpsons" episodes available on Disney+.

Ms. Ninness was one of hundreds of consumers to sign up for the three-year deal, priced at roughly $141, at the last D23 convention before Disney+ is launched. If enough consumers like Ms. Ninness are on board when the service premieres, it could signal that Disney can go head-to-head with entrenched competitors such as Netflix and Amazon.com Inc.'s Prime Video.

Disney's high-profile -- and costly -- attempt to compete in the streaming ecosystem was center stage at D23, where a slew of new shows and movies for the service was announced. Disney has an arguably unmatched ability to cross-promote its top priorities, whether at fan events like D23, at its theme parks or on its ABC network. But to attract a core base of subscribers, the company is offering subscription deals that come out to more than 70% off the cost of Netflix.

The three-year offer, currently only available to those attending the convention, will be open to any D23 club member through Sept. 2.

In a sign of D23's importance to the company, the presentation occupied the largest hall at the Anaheim convention center and was kicked off by Kevin Mayer, a longtime Disney executive in charge of its streaming efforts who is seen by analysts and company insiders as a potential successor to Chief Executive Robert Iger.

The Disney+ library will include programming from established franchise engines such as Marvel Studios and Lucasfilm Ltd., but the D23 presentation made it clear Disney also wants to compete with Netflix in reality shows and nonfiction programming.

"We have the brands that matter most," said Mr. Mayer.

Netflix declined to comment.

At kiosks on the D23 convention floor, fans lined up to enter credit-card information and sign up for a three-year subscription, a commitment that also grants them access to the "Disney+ Founders Circle."

The D23 offer is about 33% off the usual price for three years of Disney+, but what Disney loses in revenue it might make up for in enthusiasm on Wall Street.

Disney is competing with Netflix, which already has more than 150 million subscribers, and Amazon Prime, which has more than 100 million. Investors want to see proof that Disney can quickly build up a subscriber base that puts it on par with those services.

At an event for investors earlier this year, Disney said it expects to have between 60 million and 90 million subscribers by the end of fiscal 2024, at which point it should achieve profitability.

To get there, Disney has said it expects to make a cash investment of more than $1 billion in fiscal 2020, going up to about $2.5 billion by 2024. The company is pulling its movies and shows from Netflix in preparation for the Disney+ launch, a decision the company has said will cost it about $150 million in operating income -- but that also deprives Netflix of popular programming including Marvel and Star Wars titles.

Disney+ is to launch in several international markets this year, representing potential competition for Netflix's plans for overseas expansion. And the new Disney service's focus on family-friendly programming could eat into Netflix's subscriber base of parents who rely on the service to entertain their children.

In July, Netflix disclosed that it had lost about 126,000 U.S. subscribers in the second quarter, news that sent its stock price falling. But the company -- which will soon also face streaming competition from Apple Inc., Comcast Corp. and AT&T Inc. -- remains the one to beat, given its multibillion-dollar programming budget and an algorithm honed by many years' data on users' tastes.

Disney, it seems, is borrowing from that playbook in more ways than one. A demonstration of Disney+ at D23 showed an interface that resembles the Netflix dashboard, with rectangular images highlighting each movie or show and programming divided by Disney divisions such as Marvel and Pixar. Users can set up separate profiles for different members of the family, as they can on Netflix, or choose a kids-only option, also like Netflix.

One woman signed up for Disney+ at D23 to give her grandchildren something to watch. Another fan picked up the three-year deal because he noticed his favorite Marvel Studios movies were slowly disappearing from Netflix.

In addition to the library of older Disney titles, the company is producing new shows and movies exclusively for Disney+. Some of the marquee shows include a "High School Musical" series and "The Mandalorian," a new Star Wars story.

If the reaction of Disney fans at the convention was any indication, the programming strategy was working. The announcement that Ewan McGregor would be reprising his role as a young Obi-Wan Kenobi in another new Star Wars series prompted cheers. News that Hilary Duff would be playing Lizzie McGuire again in a reboot of the eponymous series caused one young woman in the audience to hyperventilate and say, "I can't believe this is happening."

Of course, at D23 Disney was playing to the faithful. The broader marketplace brings a slew of challenges, especially as households weigh how many streaming services are sufficient. So far, Disney's inexpensive price point- -- $6.99 a month without any discount -- is considered a major advantage. Earlier this month, Disney said it would bundle its other streaming services, ESPN+ and Hulu, for a monthly fee of $12.99, or the cost of a Netflix subscription.

Disney is leaning especially hard on its Marvel Studios, best known for theatrical blockbusters such as "Avengers: Endgame," to draw in subscribers. Marvel is producing eight superhero shows for the service that will complement its film slate.

At D23, Marvel Studios head Kevin Feige announced three shows for the service, all mining the comic-book vault for new characters such as a Muslim-Pakistani teenager known as Ms. Marvel, and She-Hulk, a female version of the ferocious green beast.

"She's a Hulk. She's a lawyer," Mr. Feige explained.

A slate of nonfiction, documentary-style shows, including one about working at Disney, will be on the service, as well as reality shows such as a cooking competition called "Be Our Chef" and "Encore!," which follows groups of adults as they restage the high-school musicals of their youth.

But for many fans at D23, the appeal of Disney+ was getting more of what they know.

Irene Rocha, a 39-year-old executive assistant from Carson, Calif., paid for three years of the service to keep watching the Marvel Studios and Star Wars movies that will soon be exclusive to it. She will add the cost to a streaming bundle she has fashioned for herself that includes Hulu, Netflix and Amazon Prime. New Disney+ programming such as "The Mandalorian" is driving her to subscribe, but so is the classic library of older titles such as the animated "Lion King" that will be available anytime.

"I don't need to bust out my old VHS tapes," said Ms. Rocha.

Write to Erich Schwartzel at erich.schwartzel@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
NETFLIX 0.05% 294.29 Delayed Quote.9.95%
WALT DISNEY COMPANY (THE) -1.61% 135.8 Delayed Quote.23.85%
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Financials (USD)
Sales 2019 70 320 M
EBIT 2019 14 383 M
Net income 2019 10 428 M
Debt 2019 41 024 M
Yield 2019 1,31%
P/E ratio 2019 20,4x
P/E ratio 2020 26,5x
EV / Sales2019 4,06x
EV / Sales2020 3,36x
Capitalization 245 B
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Mean consensus OUTPERFORM
Number of Analysts 28
Average target price 148,38  $
Last Close Price 135,80  $
Spread / Highest target 25,9%
Spread / Average Target 9,26%
Spread / Lowest Target -23,4%
EPS Revisions
Managers
NameTitle
Robert A. Iger Chairman & Chief Executive Officer
Christine M. McCarthy Chief Financial Officer & Senior Executive VP
John S. Chen Independent Director
Aylwin B. Lewis Independent Director
Fred H. Langhammer Independent Director
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