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Could Netflix Q3 upset Apple, Disney pre-launch parties?

Netflix shares tanked again this week as the market triggered the three-week countdown to the official launch of Apple TV+ on November 1 followed by Disney+ on November 12 – easily the two most hotly anticipated OTT video service arrivals to date. It comes as the house of mouse resorted to some dirty tactics, pouring petrol on the flames by blocking Netflix advertisements from all its TV networks with the exception of ESPN. Will Netflix be bothered? Not a chance.

With Netflix’s Q3 results due out next week, the pre-launch parties of Apple TV+ and Disney+ will be dutifully extinguished, although you can bet your hat much of the mainstream press will again report otherwise. This time next week, Apple and Disney investors will gulp once the launch festivities are over and the sheer scale of the mammoth task ahead really hits home.

We would argue there is more pressure on Disney as a company famed the world over as a content powerhouse, while Apple and its cash mountain can more easily soak up any shortcomings. Of course, both services are undercutting Netflix – with monthly subscriptions costing $4.99 for Apple TV+ and $6.99 for Disney+ (with the latter offering a limited $4 window).

It’s true that findings emerging from the Netherlands where Disney+ recently soft launched have been largely positive and initial uptake in the US is expected to follow a similar trajectory. Local researcher Telecompaper estimates that already 8% of homes have signed up to the US streaming service – also revealing that 15% of existing Netflix subscribers are trialing Disney+ in the country. This has been interpreted as Disney stealing a march on Netflix, by people who need to get real. Interestingly, only 1% of non-Netflix households are trialing Disney+ in the Netherlands, representing a huge untouched opportunity, although the research notes that Disney has kept marketing to a minimum with only a handful of social media posts, suggesting the floodgates are about to open.

Conversely, 75% of Netflix subscribers have expressed no interest in jumping ship and signing up to either Apple TV+ or Disney+, according to a survey published last month by investment bank Piper Jaffray, admittedly using a small sample size of 1,500 Netflix subscribers. Moreover, of the 25% who are keen to see what the two new rival services have to offer, the majority intend to keep their existing Netflix subscription, at least initially.

What most outlets fail to realize is that multiple OTT video subscription households are becoming a reality and while Netflix isn’t immune to the launch of rival platforms who will poach a handful of subscribers, the real casualty here will be the traditional pay TV market. ‘Apple TV+ and Disney+ to incite next wave of cord cutting’, is how the headlines should read; not to the tune of ‘Apple TV+ and Disney+ set to decimate Netflix’.

Netflix’s huge content commitments – investments deemed daunting to many – have rewarded it with the industry’s highest renewal rate of 93%, according to Forbes, well above Amazon Prime Video’s 75% renewal rate.

As a quick reminder, Apple has a set aside a content budget of $6 billion for 2019, which pales in comparison to Netflix’s $15 billion annual original spend, $3 billion more than last year, and Disney’s monolithic $24 billion content pledge (covering Disney+, ESPN+ and Hulu). Meanwhile, WarnerMedia’s HBO Max is reported to be looking at a 2019 content spend in the region of $11 billion and Comcast’s NBCU+ has supposedly set aside $13 billion.

So, what can we expect from Netflix next week? Other than onboarding a few million more subs to reach new records, we expect Reed Hastings to again be bombarded with questions about the impending rival service launches. But while the entry of Disney, Apple, WarnerMedia, NBCU and more into the streaming scene over the next 12 months would appear to be detrimental to Netflix – the company is instead relishing the prospect of some extra competition to embarrass.

Chief Content Officer Ted Sarandos said in a recent LA Times interview, “I think the bigger you are, the more distractions you have to your core business, the more likely you can’t move as quickly as we’ve been able to through our history. The new set of competitors is actually just the old set of competitors.”

Netflix has projected 7 million global subscriber additions for Q3, picking up 0.8 million domestic subs and 6.2 million international subs – which would bring it comfortably up to a total footprint of around 158 million subs worldwide. Exceeding 160 million is likely – and that would really put a downer on November’s inaugurations.

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