Disney Is Not Throwing Away Its Shot Against Netflix

In just eight short months, Disney+ has racked up more than 54 million subscribers and positioned itself as the top rival to streaming video giant Netflix.
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In a very short period of time, Disney  (DIS) - Get Report has shown itself to be a worthy streaming rival to Netflix NFLX -- an Aaron Burr to Netflix’s  (NFLX) - Get Report Alexander Hamilton, if you will.

I make that analogy because nothing shows that dynamic more clearly than the release of “Hamilton” over the Fourth of July weekend on Disney’s streaming service, Disney+. The launch was a big deal for me, being a big Broadway fan, but it wasn’t until I spoke to some of my friends and saw the excitement on social media for the filmed version of the hit play that I realized just how big a phenomenon it was.

It turns out that many of my friends had the same idea as I to to watch the show with their families on July 3 when the movie was first released, and #Hamilton and #Hamilfilm were two of the top trending hashtags that day and evening, with creator Lin-Manuel Miranda and many of the cast and crew members tweeting throughout.

According to mobile data firm Sensor Tower, the Disney+ mobile app was installed for the first time by a whopping one million App Store and Google Play users around the world over the long July 4th weekend, an increase of about 79% from the comparable week-ago period. And the Disney+ app ranked as high as No. 2 for the iPhone on the U.S. App Store on July 4, the first time it has ranked that high since Jan. 7.

Overall, “Hamilton” generated the biggest spike ever in downloads around the rollout of a new show on Disney+, Sensor Tower noted. By comparison, the release of season 3 of one of Netflix’s most popular shows, “Stranger Things,” which debuted on July 4 last year, helped generate 697,000 downloads from the U.S. App Store and Google Play, a spike of 58% from the comparable week-ago period.

In many ways, “Hamilton’s” streaming success is something only Disney could have pulled off. The entertainment giant, which paid $75 million for the rights to distribute the film, had originally planned to release the movie, which was shot with the show’s original cast in 2016, in theaters in the fall of 2021. But with Broadway and movie theaters closed and millions of people in the U.S. and around the world stuck at home because of the coronavirus pandemic, Disney shrewdly decided to release “Hamilton” early on its new streaming service (the company also did this with the Pixar film “Onward”).

Not only that but Disney stopped offering its free one-month trial offer to Disney+ in June, likely anticipating the huge demand that “Hamilton” would generate. This means that everyone who signed up for Disney+ in order to watch “Hamilton” was a paying customer, at least for a month, and we all know how sticky subscriptions can become once people have signed on for them. But with its vast pipeline of both theatrical release and original streaming content, Disney can make decisions like this on the fly and to great effect.

Even Netflix founder and CEO Reed Hastings, not one given to praise rivals, has complimented Disney+, saying in April on his company’s first quarter conference call that “over 20 years of watching different businesses -- incumbents like Blockbuster and Walmart and all these companies -- I’ve never seen such a good execution of the incumbent learning the new way and mastering it.”

Since Disney+’s debut in November, the service has racked up an astonishing number of subscribers, literally years ahead of schedule. In early May, it said it already had accumulated 54.5 million paying subscribers (this does, however, include some Verizon  (VZ) - Get Report wireless customers with unlimited data plans who are receiving Disney+ for free for a year, with Verizon paying a discounted rate to Disney). By comparison, Disney’s expectations at launch were for Disney+ to reach 60 million to 90 million subscribers by 2024.

As far as who will win the now hotly-contested streaming wars, with AT&T’s  (T) - Get Report HBO Max and having recently joined the fray and Comcast’s  (CMCSA) - Get Report Peacock just about to, there’s probably room for two very robust streaming services with lots of compelling original content and large back catalogs. But my gut, as well as some research from analysts, tells me that after that it gets a bit dicey (Amazon’s  (AMZN) - Get Report Prime Video gets a pass here because most people don’t subscribe to Prime for the movies, but instead primarily for the free fast shipping, and get Prime Video as a perk).

And while it's clear that Disney+ won't kill Netflix, as Aaron Burr ultimately did to Alexander Hamilton, Disney+ may cut into Netflix’s growth potential a bit and more significantly, reduce its pricing power -- at least until Disney starts increasing its monthly price from the very low $6.99 a month it’s charging now, compared to the $12.99 per month charged by Netflix’s most popular streaming plan.

Stay tuned, however, since this rivalry looks to have some very interesting drama to come.

Disney and Amazon are holdings in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.